Income Tax

9 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Tax

INCOME TAX

An estimate of annual income tax expense is made each interim period using estimates for annual pre-tax income, regulatory flow-through adjustments, tax credits, and other items. The estimated annual effective tax rate is applied to year-to-date, pre-tax income to determine income tax expense for the interim period consistent with the annual estimate. Discrete events are recorded in the interim period in which they occur or become known.

The effective income tax rate varied from the federal statutory rate due to the following:

	Three Months Ended September 30,
	NW Holdings						NW Natural
In thousands	2021			2020			2021			2020
Income tax at statutory rate (federal)	$	(5,834)		$	(5,048)		$	(5,928)		$	(5,518)
State income tax	(2,599)			(1,452)			(2,618)			(1,595)
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	1,318			1,051			1,318			1,051
Other, net	(12)			86			16			5
Total benefit for income taxes on continuing operations	$	(7,127)		$	(5,363)		$	(7,212)		$	(6,057)
Effective income tax rate for continuing operations	25.7		%	22.3		%	25.5		%	23.1		%

	Nine Months Ended September 30,
	NW Holdings						NW Natural
In thousands	2021			2020			2021			2020
Income tax at statutory rate (federal)	$	10,764		$	6,628		$	11,195		$	6,550
State income tax	4,660			1,892			4,748			1,861
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	(2,266)			(1,301)			(2,266)			(1,301)
Other, net	(41)			(127)			(49)			(168)
Total provision for income taxes on continuing operations	$	13,117		$	7,092		$	13,628		$	6,942
Effective income tax rate for continuing operations	25.6		%	22.5		%	25.6		%	22.3		%

The NW Holdings and NW Natural effective income tax rates for the nine months ended September 30, 2021 compared to the same period in 2020 changed primarily as a result of changes in pre-tax income, Oregon's Corporate Activity Tax (CAT), and regulatory amortization of deferred Tax Cuts and Jobs Act (TCJA) benefits. See Note 11 in the 2020 Form 10-K for more detail on income taxes and effective tax rates.

The IRS Compliance Assurance Process (CAP) examination of the 2019 tax year was completed during the first quarter of 2021. There were no material changes to the return as filed. The 2020 and 2021 tax years are subject to examination under CAP.