Income Taxes

9 Months Ended

Sep. 30, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income taxes were $27.9 million and $1.7 million in the nine months ended September 30, 2022 and 2021, respectively. Income taxes were $9.6 million and $0.5 million in the three months ended September 30, 2022 and 2021, respectively. The effective tax rate was 23.7% and 5.3% for the nine months ended September 30, 2022 and 2021, respectively. The effective tax rate was 20.6% and 3.4% for the three months ended September 30, 2022 and 2021, respectively.

Prior to the Reorganization, the Company was a limited liability company under the Internal Revenue Code that had elected to be taxed as a partnership and did not pay federal or most state corporate income taxes on its taxable income, but rather its members were liable for their respective portions of the taxable income (loss) of LLC. The income tax provision included state and local tax in certain jurisdictions prior to the Reorganization. Subsequent to the Reorganization, LLC’s taxable income flows through to FS Arhaus and Homeworks who are subject to U.S. federal and state corporate income taxes. For the year ended December 31, 2021, the Company recorded a $17.4 million adjustment to additional paid-in capital related to the Reorganization representing FS Arhaus, Inc.’s investment in LLC. The tax investment amount changed as a result of LLC’s federal tax filing in 2022, therefore the Company recorded a return-to-provision adjustment of $1.3 million to additional paid-in capital for the period ending September 30, 2022.

The Inflation Reduction Act was enacted on August 16, 2022 and includes a new 15% minimum tax on “adjusted financial statement income” beginning with the Company’s fiscal year 2023, a new 1% excise tax on stock repurchases after December 31, 2022, and several tax incentives to promote clean energy. While these tax law changes have no immediate

effect and are not expected to have a material adverse effect on our results of operations going forward, we will continue to evaluate their impact as further information becomes available.As of September 30, 2022, no unrecognized tax benefits have been recognized. The Company files income tax returns in the U.S. and various state and local jurisdictions. The tax years after 2017 remain open to examination by the state taxing jurisdictions in which the Company is subject to tax. As of September 30, 2022, the Company was not under examination by the Internal Revenue Service or any state tax jurisdiction.