INCOME TAXES

12 Months Ended

Dec. 31, 2019

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES:

SJI files a consolidated federal income tax return and various state income tax returns, some of which are combined or unitary.

Total income taxes applicable to operations differ from the tax that would have resulted by applying the statutory Federal income tax rate to pre-tax income for SJI and SJG for the following reasons (in thousands): 

	2019		2018		2017
SJI (includes SJG and all other consolidated subsidiaries):
Tax at Statutory Rate*	$	20,633	$	3,877	$	(9,915)
Increase (Decrease) Resulting from:
State Income Taxes	7,813		622		2,778
ESOP Dividend	(697)		(791)		(1,314)
Tax Reform Adjustments	—		(588)		(13,521)
AFUDC	(1,546)		(1,835)		(3,094)
Amortization of Excess Deferred Taxes	(3,475)		(893)		—
Investment and Other Tax Credits	(953)		(93)		(666)
Other - Net	(714)		262		795
Income Taxes:
Continuing Operations	21,061		561		(24,937)
Discontinued Operations	(70)		(62)		(173)

Total Income Tax Expense (Benefit)	$	20,991	$	499	$	(25,110)
SJG:
Tax at Statutory Rate*	25,245		22,966		41,390
Increase (Decrease) Resulting from:
State Income Taxes	9,542		5,220		5,955
ESOP Dividend	(592)		(712)		(1,182)
AFUDC	(591)		(1,126)		(1,446)
Other - Net	(782)		65		983
Total Income Tax Expense	32,822		26,413		45,700
The provision for Income Taxes is comprised of the following (in thousands):
SJI (includes SJG and all other consolidated subsidiaries):	2019		2018		2017
Current:
Federal	$	—	$	(13,790)	$	(34,971)
State	(482)		3,959		(48)
Total Current	(482)		(9,831)		(35,019)
Deferred:
Federal	11,171		13,564		5,761
State	10,372		(3,172)		4,321
Total Deferred	21,543		10,392		10,082
Income Taxes:
Continuing Operations	21,061		561		(24,937)
Discontinued Operations	(70)		(62)		(173)
Total Income Tax Expense (Benefit)	$	20,991	$	499	$	(25,110)
SJG:
Current:
Federal	$	—	$	(12,766)	$	(33,012)
State	—		—		—
Total Current	—		(12,766)		(33,012)
Deferred:
Federal	20,744		32,571		69,550
State	12,078		6,608		9,162
Total Deferred	32,822		39,179		78,712
Total Income Tax Expense	$	32,822	$	26,413	$	45,700

*See Tax Reform discussion below.

For the years ended December 31, 2019 and 2018, changes in SJI and SJG tax expense correlated with changes in income before income taxes. For the year ended December 31, 2017, SJI's tax expense decreased primarily due to adjustments made as a result of Tax Reform along with an overall loss before income taxes.

TAX REFORM - On December 22, 2017, Tax Reform was enacted into law, changing various corporate income tax provisions within the existing Internal Revenue Code. The law became effective January 1, 2018 but was required to be accounted for in the period of enactment, as such SJI adopted the new requirements in the fourth quarter of 2017. SJI and SJG were impacted in several ways as a result of Tax Reform, including provisions related to the permanent reduction in the U.S. federal corporate income tax rate from 35% to 21%, modification of bonus depreciation and changes to the deductibility of certain business related expenses. As a result of the change in the federal corporate income tax rate, SJI and SJG revalued deferred tax assets and liabilities to reflect the rates expected to be in effect as a result of Tax Reform. This resulted in SJI recording a $14.1 million income tax benefit in total for the decrease of its net deferred tax liabilities. SJG also recorded a $260.5 million total decrease in its net deferred tax liabilities, which resulted in an increase to SJG's regulatory liabilities as such amounts are probable of settlement or recovery through customer rates. The amounts noted above were the total recorded between 2017 and 2018 as a result of Tax Reform. The amount and timing of potential settlements of the established net regulatory liability will be determined by the BPU, subject to certain IRS "normalization" provisions. All adjustments related to Tax Reform were recorded in the Corporate & Services segment.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of Tax Reform. SAB 118 provides a measurement period that should not extend beyond one year from the enactment date of Tax Reform for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of Tax Reform for which the accounting under ASC 740 is complete.

As of December 31, 2018, SJI and SJG consider the impacts from Tax Reform to be complete. While we still expect additional guidance from the U.S. Department of the Treasury and the IRS, we have finalized our calculations using available guidance. Any additional issued guidance or future actions of our regulators could potentially affect the final determination of the accounting effects arising from the implementation of Tax Reform.

In November 2018, the IRS issued proposed regulations that allow all interest expense of a consolidated group to be deductible as long as a public utility comprises at least 90 percent of the total consolidated business. Under these proposed regulations, SJI expects to meet the de minimis safe harbor rule in 2019 and 2018 and therefore, the full amount of SJI’s 2019 and 2018 consolidated interest expense would be deductible.

The net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes resulted in the following net deferred tax assets and liabilities for SJI and SJG at December 31 (in thousands): 

SJI (includes SJG and all other consolidated subsidiaries):	2019		2018
Deferred Tax Assets:
Net Operating Loss Carryforward	$	122,197	$	125,418
Investment and Other Tax Credits	215,033		214,698
Conservation Incentive Program	1,991		1,701
Deferred State Tax	18,514		16,087
Income Taxes Recoverable Through Rates	103,922		103,434
Pension & Other Post Retirement Benefits	28,579		16,560
Deferred Revenues	5,324		5,736
Deferred Regulatory Costs	11,895		—
Provision for Uncollectibles	4,749		5,319
Other	16,705		4,639
Total Deferred Tax Asset	$	528,909	$	493,592
Deferred Tax Liabilities:
Book versus Tax Basis of Property	$	479,765	$	458,772
Deferred Gas Costs - Net	23,728		25,812
Derivatives / Unrealized Gain	1,098		4,463
Environmental Remediation	53,511		20,250
Deferred Regulatory Costs	—		14,351
Budget Billing - Customer Accounts	5,400		4,550
Deferred Pension & Other Post Retirement Benefits	31,416		34,095
Equity In Loss Of Affiliated Companies	1,801		1,417
Other	24,356		15,718
Total Deferred Tax Liability	$	621,075	$	579,428
Deferred Tax Liability - Net	$	92,166	$	85,836
SJG:
Deferred Tax Assets:
Net Operating Loss and Tax Credits	$	55,250	$	60,986
Deferred State Tax	20,352		16,754
Provision for Uncollectibles	3,939		3,776
Conservation Incentive Program	1,991		1,701
Income Taxes Recoverable Through Rates	68,280		67,372
Pension & Other Post Retirement Benefits	17,461		16,699
Deferred Revenues	5,525		5,906
Other	2,486		2,599
Total Deferred Tax Assets	$	175,284	$	175,793
Deferred Tax Liabilities:
Book Versus Tax Basis of Property	$	418,059	$	395,371
Deferred Fuel Costs - Net	20,227		23,642
Environmental Remediation	47,270		40,753
Deferred Regulatory Costs	9,609		5,061
Deferred Pension & Other Post Retirement Benefits	20,396		21,870
Budget Billing - Customer Accounts	5,400		4,550
Section 461 Prepayments	1,445		1,081
Other	10,515		9,351
Total Deferred Tax Liabilities	$	532,921	$	501,679
Deferred Tax Liability - Net	$	357,637	$	325,886

SJG is included in the consolidated federal income tax return filed by SJI. The actual taxes, including credits, are allocated by SJI to its subsidiaries, generally on a separate return basis except for net operating loss and credit carryforwards. As of December 31, 2019 and 2018, there were no income taxes due to or from SJI.

As of December 31, 2019, SJI has the following federal and state net operating loss carryforwards (in thousands):

	Net Operating Loss Carryforwards
Expire in:	Federal		State
2031	$	—	$	15,104
2032	21,777		3,108
2033	57,363		18,557
2034	106,899		12,779
2035	51,308		13,317
2036	72,199		165,032
2037	75,606		79,869
2038	—		131,406
2039	—		82,659
Indefinite	16,792		—
	$	401,944	$	521,831

As of December 31, 2019, SJI has the following investment tax credit carryforwards (in thousands):

Expire in:	Investment Tax Credit Carryforward
2030	$	11,628
2031	25,664
2032	32,031
2033	45,606
2034	37,699
2035	45,005
2036	11,744
2037	636
2038	93
	$	210,106

SJI has $0.6 million of federal alternative minimum tax credits which have no expiration date.

SJI and SJG also have research and development credits of $4.1 million and $2.9 million, respectively, which will expire between 2031 and 2038.

As of December 31, 2019 and 2018, SJG has total federal net operating loss carryforwards of $156.8 million and $200.0 million, respectively, that will expire between 2035 and 2037. SJG has a state net operating loss carryforward of $246.0 million and $207.9 million that will expire between 2036 and 2038.

A valuation allowance is recorded when it is more likely than not that any of SJI's or SJG's deferred tax assets will not be realized. SJI and SJG believe that they will generate sufficient future taxable income to realize the income tax benefits related to their net deferred tax assets.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, is as follows (in thousands): 

SJI (includes SJG and all other consolidated subsidiaries):	2019		2018		2017
Balance at January 1,	$	1,147	$	1,445	$	1,445
Increase as a result of tax positions taken in prior years	419		—		—
Decrease in prior year positions	—		(298)		—
Balance at December 31,	$	1,566	$	1,147	$	1,445
SJG:
Balance at January 1,	$	1,063	$	1,361	$	1,361
Increase as a result of tax position taken in prior years	41		—		—
Decrease in prior year positions	—		(298)		—
Balance at December 31,	$	1,104	$	1,063	$	1,361

The total unrecognized tax benefits reflected in the table above exclude $0.8 million of accrued interest and penalties for each of the years ended December 31, 2019, 2018 and 2017 for both SJI and SJG. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is not significant.  The Company's policy is to record interest and penalties related to unrecognized tax benefits as interest expense and other expense, respectively. These amounts were not significant in 2019, 2018 or 2017. The majority of the increased tax position in 2019 is attributable to research and development credits. The Company does not anticipate any significant changes in the total unrecognized tax benefits within the next 12 months.

The unrecognized tax benefits are primarily related to an uncertainty of state income tax issues relating to the Company's nexus in certain states and tax credits. Federal income tax returns from 2014 forward and state income tax returns from 2008 forward are open and subject to examination.