INCOME TAXES AND CREDITS:

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 the following reasons (in thousands):



	2016			2015			2014
Tax at Statutory Rate	$	37,944		$	36,233		$	35,482
Increase (Decrease) Resulting from:
State Income Taxes	4,096			4,584			1,935
Amortization of Investment Tax Credits	—			(149		)	(211		)
ESOP Dividend	(1,170		)	(1,168		)	(1,109		)
AFUDC	(900		)	(1,109		)	(1,481		)
Research and Development Credits	(613		)	(1,400		)	—
Other - Net	9			(46		)	279
Total Income Tax Expense	$	39,366		$	36,945		$	34,895

The provision for Income Taxes is comprised of the following (in thousands):



	2016			2015			2014
Current:
Federal	$	—		$	—		$	60
State	(1,614		)	(2,203		)	2,642
Total Current	(1,614		)	(2,203		)	2,702
Deferred:
Federal	33,064			30,042			32,069
State	7,916			9,255			335
Total Deferred	40,980			39,297			32,404
Investment Tax Credits	—			(149		)	(211		)
Total Income Tax Expense	$	39,366		$	36,945		$	34,895

Investment Tax Credits are deferred and amortized at the annual rate of 3%, which approximates the life of related assets.

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 liabilities at December 31 (in thousands):



	2016		2015
Deferred Tax Assets:
Net Operating Loss and Tax Credits	$	102,290	$	64,978
Deferred State tax	24,574		20,825
Provision for Uncollectibles	5,170		4,030
Pension & Other Post Retirement Benefits	17,264		28,464
Deferred Revenues	7,696		4,844
Other	3,573		3,985
Total Deferred Tax Assets	$	160,567	$	127,126

Deferred Tax Liabilities:
Book Versus Tax Basis of Property	$	532,330	$	480,682
Deferred Fuel Costs - Net	2,052		3,998
Environmental Remediation	33,573		20,408
Deferred Regulatory Costs	1,554		566
Deferred Pension & Other Post Retirement Benefits	34,432		42,216
Budget Billing - Customer Accounts	3,347		830
Section 461 Prepayments	1,147		1,017
Conservation Incentive Program	11,846		1,132
Other	9,694		8,951
Total Deferred Tax Liabilities	$	629,975	$	559,800

Deferred Tax Liability - Net	$	469,408	$	432,674

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, 2016 and 2015, there were no income taxes due to or from SJI.

As of December 31, 2016 and 2015, SJG has total federal net operating loss carryforwards of $263.0 million and $179.3 million, respectively, that will expire between 2031 and 2036. SJG has a state net operating loss carryforward of $80.2 million that will expire in 2036. SJG has research and development credits of $2.7 million which will expire between 2031 and 2035. A valuation allowance is recorded when it is more likely than not that any of our deferred income tax assets will not be realized. We believe that we will generate sufficient future taxable income to realize the income tax benefits related to our deferred tax assets.

A reconciliation of unrecognized tax benefits is as follows (in thousands):



	2016		2015		2014
Balance at January 1,	$	559	$	552	$	547
Increase as a result of tax position taken in prior years	802		7		5
Balance at December 31,	$	1,361	$	559	$	552

The total unrecognized tax benefits reflected in the table above exclude $0.7 million, of accrued interest and penalties as of December 31, 2016, 2015 and 2014. The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is not significant. Our 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 2016, 2015 or 2014. The majority of the increased tax benefits in 2016 is attributable to research and development credits.SJG 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 2013 forward and state income tax returns from 2012 forward are open and subject to examination.