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Income Taxes
 12 Months Ended
Sep. 30, 2024
Income Tax Disclosure [Abstract]  
Income Taxes Income Taxes
The Company is a corporation and, as a result is subject to U.S. federal, state and local income taxes. OneWater LLC is treated as a pass-through entity for U.S. federal tax purposes and in most state and local jurisdictions. As such, OneWater LLC’s members, including the Company, are liable for federal and state income taxes on their respective shares of OneWater LLC’s taxable income.
The components of income tax (benefit) expense are:
($ in thousands)Year Ended September 30,
2024		Year Ended September 30,
2023		Year Ended September 30,
2022
Current:
Federal$(424)$16,184 $31,986 
State601 3,434 5,492 
Foreign— — 6 
177 19,618 37,484 
Deferred:
Federal(152)(19,171)5,376 
State(182)(3,859)365 
Foreign— — — 
(334)(23,030)5,741 
Income tax (benefit) expense$(157)$(3,412)$43,225 
A reconciliation of the United States statutory income tax rate to the Company’s effective income tax rate is as follows:
For the Years Ended September 30,
202420232022
Statutory federal tax rate21.0 %21.0 %21.0 %
Income attributable to non-controlling interests and nontaxable income(1.3)(0.2)(2.3)
State income taxes, net of federal benefit(2.4)3.3 2.9 
Non-deductible items(23.3)— — 
Federal and state credits10.1 — — 
Loss on impairment— (11.4)— 
Other(1.7)(4.7)0.4 
Effective income tax rate2.4 %8.0 %22.0 %
Details of the Company’s deferred tax assets and liabilities are as follows:
($ in thousands)September 30, 2024September 30, 2023
Deferred tax assets:
Investment in partnerships$24,496 $23,619 
Tax receivable agreement10,071 10,702 
Net operating loss1,216 1,557 
Other1,495 — 
Total37,278 35,878 
Valuation allowance— — 
Total deferred tax assets37,278 35,878 
Deferred tax liabilities:
Fixed assets$— $107 
Intangibles— 703 
Other— 2 
Total deferred tax liabilities— 812 
Deferred tax assets, net$37,278 $35,066 
The Company had federal net operating loss carryforwards from underlying corporate entities of approximately $4.3 million and $6.0 million resulting in a deferred tax asset of $0.9 million and $1.6 million as of September 30, 2024 and 2023, respectively. The U.S. federal net operating loss carryforwards have no expiration but can only be used to offset up to 80% of future taxable income annually. The Company has Alabama net operating loss carryforwards of $0.3 million which has no limitation in use and expire in the years 2037 to 2040. The Company projects to fully utilize the net operating losses during subsequent fiscal years.
The Company has IRC Section 163(j) interest expense carryforward of approximately $3.7 million, resulting in a deferred tax asset of $0.9 million as of September 30, 2024. The IRC Section 163(j) interest expense carryforward has no expiration.
The Company recognizes deferred tax assets to the extent it believes these assets are more-likely-than-not to be realized. In making such a determination, the Company considers all available positive and negative evidence, including future reversals of existing temporary differences, projected future taxable income, tax planning strategies and recent results of operations. Based on our cumulative earnings history and forecasted future sources of taxable income, we believe that we will fully realize our deferred tax assets in the future. The Company has not recorded a valuation allowance.
As of September 30, 2024 and 2023, the Company has not recognized any uncertain tax positions, penalties, or interest as management has concluded that no such positions exist. The Company is subject to examination in the US Federal and certain state tax jurisdictions for the tax years beginning with the year ended December 31, 2020. In November 2022, the Company received notification that the IRS intended to commence an audit of the federal income tax return of OneWater LLC’s partnership for the tax year ended December 31, 2020. The Company received a letter from the IRS in July 2024 noting the audit was complete with no adjustments. In November 2024, the Company received notification that the Florida Department of Revenue intended to commence a corporate income tax audit of OneWater Inc for the tax years ended September 30, 2021, 2022 and 2023. The audit is ongoing and the outcome and timing of settlements of asserted income tax liabilities, if any, are uncertain.
Tax Receivable Agreement
In connection with the IPO, the Company entered into a tax receivable agreement (the “Tax Receivable Agreement”) with certain of the owners of OneWater LLC. As of September 30, 2024 and 2023, our undiscounted liability under the Tax Receivable Agreement was $40.6 million and $43.1 million, respectively, representing 85% of the calculated net cash savings in U.S. federal, state and local income tax and franchise tax that OneWater Inc anticipates realizing in future years from the result of certain increases in tax basis and certain tax benefits attributable to imputed interest as a result of OneWater Inc’s acquisition of OneWater LLC Units pursuant to an exercise of the Redemption Right or the Call Right (each as defined in the amended and restated limited liability company agreement of OneWater LLC (the “OneWater LLC Agreement”)).
The projection of future taxable income involves significant judgment. Actual taxable income may differ from our estimates, which could significantly impact our ability to make payments under the Tax Receivable Agreement. We have determined it is more-likely-than-not that we will be able to utilize all of our deferred tax assets subject to the Tax Receivable Agreement; therefore, we have recorded a liability under the Tax Receivable Agreement related to the tax savings we may realize from certain increases in tax basis and certain tax benefits attributable to imputed interest as a result of OneWater Inc’s acquisition of OneWater LLC Units pursuant to an exercise of the Redemption Right or Call Right (each as defined in the OneWater LLC Agreement). If we determine the utilization of these deferred tax
assets is not more-likely-than-not in the future, our estimate of amounts to be paid under the Tax Receivable Agreement would be reduced. In this scenario, the reduction of the liability under the Tax Receivable Agreement would result in a benefit to our consolidated statements of operations.