In accordance with interim reporting requirements, the Company uses an estimated annual effective tax rate for computing its provisions for income taxes. An estimate of annual income tax expense (or benefit) is made each interim period using estimates for annual pre-tax income, income tax adjustments, and tax credits. The estimated annual effective tax rates do not include discrete events such as tax law changes, examination settlements, accounting method changes, or adjustments to tax expense or benefits attributable to prior years. Discrete events are recorded in the interim period in which they occur or become known. The estimated annual tax rate is applied to year-to-date pre-tax income to determine income tax expense (or benefit) for the interim period consistent with the annual estimate. In subsequent interim periods, income tax expense (or benefit) for the period is computed as the difference between the year-to-date amount reported for the previous interim period and the current period’s year-to-date amount.

The following table summarizes the significant factors impacting the difference between our effective tax rate and the federal statutory rate for the three and nine months ended September 30 (dollars in thousands):


	Three months ended September 30,										Nine months ended September 30,
	2021					2020					2021					2020
Federal income taxes at statutory rates	$	1,876		21.0	%	$	1,204		21.0	%	$	22,173		21.0	%	$	15,167		21.0	%
Increase (decrease) in tax resulting from:
Tax effect of regulatory treatment of utility plant differences		(3,277	)	(36.7	)		(2,427	)	(42.3	)		(9,721	)	(9.2	)		(7,244	)	(10.0	)
State income tax expense		143		1.6			(363	)	(6.3	)		975		0.9			539		0.7
Non-plant excess deferred turnaround (1)		—		—			—		—			—		—			(8,476	)	(11.8	)
Settlement of prior year tax returns		(400	)	(4.5	)		524		9.1			(400	)	(0.4	)		1,565		2.2
Flow through related to deduction of meters and mixed service costs (2)		(5,277	)	(59.0	)		—		—			(5,277	)	(5.0	)		—		—
Settlement of equity awards		—		—			—		—			909		0.9			165		0.2
Other		1,503		16.8			1,921		33.5			471		0.4			(244	)	(0.3	)
Total income tax expense (benefit)	$	(5,432	)	(60.8	)%	$	859		15.0	%	$	9,130		8.6	%	$	1,472		2.0	%

(1)

In March 2020, the WUTC approved an all-party settlement agreement related to electric tax benefits that were set aside for Colstrip in the 2020 general rate case order. In the approved settlement agreement, the parties agreed to utilize $10.9 million ($8.4 million when tax-effected) of the electric tax benefits to offset costs associated with accelerating the depreciation of Colstrip Units 3 & 4, to reflect a remaining useful life of those units through December 31, 2025. In the second quarter 2020, the Company recorded a one-time increase to depreciation expense with an offsetting decrease to income tax expense.

(2)

With the approval of the Idaho and Washington general rate cases in September 2021, a change in tax methodology resulted in recognizing a flow through benefit related to meters and mixed service costs.