INCOME TAXES

12 Months Ended

Dec. 31, 2021

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):

	2021		2020		2019
SJI (includes SJG and all other consolidated subsidiaries):
Tax at Statutory Rate	$	28,481	$	37,791	$	20,633
Increase (Decrease) Resulting from:
State Income Taxes	11,666		7,896		7,813
Federal and State Valuation Allowance	15,069		7,392		—
ESOP Dividend	(608)		(627)		(697)
Impairment on Investment in Equity Method Investee	4,172		—		—
AFUDC	(1,327)		(1,901)		(1,546)
Amortization of Excess Deferred Taxes	(5,354)		(6,174)		(3,475)
Investment and Other Tax Credits	(5,993)		(23,439)		(953)
Other - Net	1,001		1,726		(714)
Income Taxes:
Continuing Operations	47,107		22,664		21,061
Discontinued Operations	14		(66)		(70)
Total Income Tax Expense	$	47,121	$	22,598	$	20,991
SJG:
Tax at Statutory Rate	34,871		30,111		25,245
Increase (Decrease) Resulting from:
State Income Taxes	8,311		8,965		9,542
ESOP Dividend	(517)		(533)		(592)
AFUDC	(461)		(821)		(591)
Amortization of Excess Deferred Taxes	(3,075)		(3,154)		—
Other - Net	(715)		756		(782)
Total Income Tax Expense	38,414		35,324		32,822
The provision for income taxes is comprised of the following (in thousands):
SJI (includes SJG and all other consolidated subsidiaries):	2021		2020		2019

Current:
Federal	$	—	$	—	$	—
State	(235)		823		(482)
Total Current	(235)		823		(482)
Deferred:
Federal	31,209		3,312		11,171
State	16,133		18,529		10,372
Total Deferred	47,342		21,841		21,543
Income Taxes:
Continuing Operations	47,107		22,664		21,061
Discontinued Operations	14		(66)		(70)
Total Income Tax Expense (Benefit)	$	47,121	$	22,598	$	20,991
SJG:
Current:
Federal	$	—	$	—	$	—
State	—		—		—
Total Current	—		—		—
Deferred:
Federal	27,894		23,976		20,744
State	10,520		11,348		12,078
Total Deferred	38,414		35,324		32,822
Total Income Tax Expense	$	38,414	$	35,324	$	32,822

For the year ended December 31, 2021, the change in SJI income tax expense in 2021 compared with 2020 increased primarily due to an increase in income before income taxes of consolidated subsidiaries along with less ITC. For the year ended December 31, 2020, the change in SJI Income Tax expense in 2020 compared with 2019 increased primarily due to an increase in income before income taxes in 2020 compared with the prior year along with the valuation allowance discussed below. These increases were partially offset with the benefits from ITC recorded for fuel cell and solar projects that commenced operations in 2020 (see Note 1). For the year ended 2019, changes in SJI tax expense correlated with changes in income before income taxes. For the years ended 2021, 2020 and 2019, changes in SJG tax expense correlated with changes in income before income taxes.

CARES ACT - Given the impact that COVID-19 has had on the economy, on March 27, 2020 the President signed into law the CARES Act, an economic stimulus package in response to the COVID-19 global pandemic, as a way to provide relief to both businesses and individuals affected by the virus. The CARES Act contains several corporate tax provisions that impacted SJI and SJG, including deferring payments on social security taxes for employees and other employee retention credits. These impacts of the CARES Act, and these provisions, did not have a material effect on income tax expense or deferred tax assets/liabilities.

DEFERRED TAX ASSETS AND LIABILITIES - 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):	2021		2020
Deferred Tax Assets:
Net Operating Loss Carryforward	$	179,518	$	141,252
Investment and Other Tax Credits	251,541		243,827
Deferred State Tax	30,567		24,338
Income Taxes Recoverable Through Rates	88,201		92,739
Pension & Other Post Retirement Benefits	16,575		34,558
Deferred Revenues	5,355		4,530
Provision for Uncollectibles	11,979		8,763

Other	15,461		17,691
Total Deferred Tax Asset	599,197		567,698
Valuation Allowance	(22,484)		(7,392)
Total Deferred Tax Asset, net of Valuation Allowance	$	576,713	$	560,306
Deferred Tax Liabilities:
Book versus Tax Basis of Property	$	586,081	$	512,357
Deferred Gas Costs - Net	14,102		13,737
Derivatives / Unrealized Gain	2,567		1,215
Environmental Remediation	49,378		50,262
Deferred Regulatory Costs	19,165		13,360
Budget Billing - Customer Accounts	6,310		5,248
Deferred Pension & Other Post Retirement Benefits	21,973		33,307
CIP	5,196		6,178
Equity In Loss Of Affiliated Companies	3,744		16,019
Goodwill Amortization	41,517		28,013
Other	8,176		8,977
Total Deferred Tax Liability	$	758,209	$	688,673
Deferred Tax Liability - Net	$	181,496	$	128,367
SJG:
Deferred Tax Assets:
Net Operating Loss and Tax Credits	$	27,688	$	35,301
Deferred State Tax	25,039		22,918
Provision for Uncollectibles	6,997		4,887
Income Taxes Recoverable Through Rates	54,900		58,573
Pension & Other Post Retirement Benefits	8,742		20,857
Deferred Revenues	5,479		4,739
Other	2,717		2,813
Total Deferred Tax Assets	$	131,562	$	150,088
Deferred Tax Liabilities:
Book Versus Tax Basis of Property	$	456,216	$	435,764
Deferred Fuel Costs - Net	18,015		10,189
Environmental Remediation	45,496		46,857
Deferred Regulatory Costs	17,209		15,087
Deferred Pension & Other Post Retirement Benefits	13,064		21,398
Budget Billing - Customer Accounts	6,310		5,248
Section 461 Prepayments	1,528		1,469
CIP	5,196		6,178
Other	11,930		11,507
Total Deferred Tax Liabilities	$	574,964	$	553,697
Deferred Tax Liability - Net	$	443,402	$	403,609

    

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, 2021 and 2020, there were no income taxes due to or from SJI.

NOL AND ITC CARRYFORWARD - As of December 31, 2021, SJI has the following federal and state net operating loss carryforwards (in thousands):

	Net Operating Loss Carryforwards
Expire in:	Federal		State
2031	$	—	$	11,395
2032	21,541		3,108
2033	57,515		18,557
2034	107,043		13,658
2035	51,385		25,063
2036	102,256		126,344
2037	85,444		96,697
2038	—		127,846
2039	—		129,940
2040	—		82,476
2041	—		132,396
Indefinite	161,029		—
	$	586,213	$	767,480

As of December 31, 2021, SJI has the following investment tax credit carryforwards (in thousands):

Expire in:	Investment Tax Credit Carryforwards
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
2039	—
2040	23,814
2041	4,364
	$	238,284

SJI and SJG also have federal research and development credits of $7.7 million and $3.2 million, respectively, which will expire between 2031 and 2040. SJI and SJG have state credits of $6.8 million and $3.8 million, respectively, that will expire between 2024 and 2041.

As of December 31, 2021 and 2020, SJG has total federal net operating loss carryforwards of $33.6 million and $67.7 million, respectively, that will expire between 2036 and 2037. As of December 31, 2021 and 2020, SJG has a state net operating loss carryforward of $192.0 million and $212.8 million, respectively, that will expire between 2036 and 2039.

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. As of December 31, 2021 and 2020, SJI had a total federal and state valuation allowance of $22.5 million and $7.4 million, respectively, recorded on the consolidated balance sheets. SJI recorded a valuation allowance of $14.2 million in 2021 against the federal deferred tax asset related to the capital loss that resulted from the other-than-temporary impairment charge taken on the Company's investment in PennEast (see Note 3). SJI recorded a valuation allowance of $7.4 million in 2020 related to certain state net operating loss and state credit carryforwards expected to expire prior to being fully utilized. SJG believes 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):	2021		2020		2019
Balance at January 1,	$	2,372	$	1,566	$	1,147
Increase as a result of tax positions taken in prior years	14,611		806		419
Balance at December 31,	$	16,983	$	2,372	$	1,566
SJG:
Balance at January 1,	$	1,129	$	1,104	$	1,063
Increase as a result of tax position taken in prior years	14,023		25		41
Balance at December 31,	$	15,152	$	1,129	$	1,104

The total unrecognized tax benefits reflected in the table above exclude $1.9 million, $0.9 million and $0.8 million of accrued interest and penalties for each of the years ended December 31, 2021, 2020 and 2019 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 2021, 2020 or 2019. The majority of the increased tax position in 2021 and 2020 is attributable to research and development credits and specified liability loss carryback claims. The Company does not anticipate any significant changes in the total unrecognized tax benefits within the next 12 months.

The Company evaluates certain tax benefits that have been recorded in the financial statements for uncertainties. In 2021, SJG recorded a reserve of $13.9 million for a portion of tax benefits related to tax positions taken in prior years. The reserve is recorded in Other Noncurrent Liabilities in the consolidated balance sheets as of December 31, 2021. The amount of income taxes we pay is subject to ongoing audits by federal and state tax authorities, which could result in proposed assessments. Future results may include favorable or unfavorable adjustments to our estimated tax liabilities in the period any assessments are determined or resolved or as such statutory audit periods are closed. We are not aware of any other matters that would result in significant changes to the amount of unrecognized income tax benefits reflected on the consolidated balance sheets as of December 31, 2021.

The unrecognized tax benefits are primarily related to an uncertainty of state income tax issues relating to the Company's nexus in certain states, tax credits and federal carryback claims. The IRS has finalized its audits of the Company's consolidated federal income tax returns through 2013. Federal income tax returns from 2014 forward and state income tax returns from 2013 forward are open and subject to examination.