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Income Taxes

12 Months Ended

Dec. 31, 2019

CMS Energy and its subsidiaries file a consolidated U.S. federal income tax return as well as a Michigan Corporate Income Tax return for the unitary business group and various other state unitary group combined income tax returns. Income taxes are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing agreement.

In December 2017, the TCJA was enacted, which changed existing federal tax law and included numerous provisions that affect businesses, with the primary impact being a reduction of the corporate tax rate from 35 percent to 21 percent.

Presented in the following table is the difference between actual income tax expense on continuing operations and income tax expense computed by applying the statutory U.S. federal income tax rate:



In Millions, Except Tax Rate
Years Ended December 31	2019				2018				2017
CMS Energy, including Consumers
Income from continuing operations before income taxes		$	829			$	774			$	886
Income tax expense at statutory rate		174				163				310
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect¹		48				46				26
TCJA excess deferred taxes²		(31		)		(26		)		—
Production tax credits		(20		)		(14		)		(8		)
Accelerated flow-through of regulatory tax benefits³		(13		)		(39		)		(39		)
Research and development tax credits, net⁴		(2		)		(11		)		(1		)
Impact of the TCJA⁵		—				(4		)		148
Other, net		(9		)		—				(12		)
Income tax expense		$	147			$	115			$	424
Effective tax rate		17.7		%		14.9		%		47.9		%
Consumers
Income from continuing operations before income taxes		$	928			$	847			$	971
Income tax expense at statutory rate		195				178				340
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect¹		53				51				30
TCJA excess deferred taxes²		(31		)		(26		)		—
Accelerated flow-through of regulatory tax benefits³		(13		)		(39		)		(39		)
Production tax credits		(12		)		(12		)		(8		)
Research and development tax credits, net⁴		(2		)		(11		)		(1		)
Impact of the TCJA⁵		—				1				33
Other, net		(5		)		—				(16		)
Income tax expense		$	185			$	142			$	339
Effective tax rate		19.9		%		16.8		%		34.9		%

In 2017, CMS Energy completed the evaluation of its methodology for the state apportionment of Consumers’ electricity sales to MISO, taking into account recent state tax law developments in the electric utility sector. To recognize the anticipated refund and the impact of the expected lower effective tax rate on their deferred state tax liabilities, CMS Energy, including Consumers, recorded a $14 million income tax benefit in 2017. These tax benefits were net of reserves for uncertain tax positions and primarily

attributable to Consumers. In 2018, CMS Energy amended its 2013 Michigan Corporate Income Tax return and submitted a refund claim for taxes previously paid. The refund claim was denied by the State of Michigan. In 2019, CMS Energy received an unfavorable informal conference decision and filed a petition with the Michigan Tax Tribunal. A trial is anticipated in 2020. CMS Energy’s uncertain tax position on this matter remains unchanged.


²	In December 2017, Consumers remeasured its deferred tax assets and liabilities at the new federal tax rate enacted by the TCJA and recorded a net $1.6 billion regulatory liability. As a result of an order received in September 2019, Consumers began refunding these excess deferred taxes to customers. For additional details on the order received, see Note 3, Regulatory Matters.


³	In 2013, the MPSC issued an order authorizing Consumers to accelerate the flow-through to electric and gas customers of certain income tax benefits associated primarily with the cost of removal of plant placed in service before 1993. Consumers implemented this regulatory treatment beginning in 2014, with the electric portion ending in 2018 and the gas portion continuing through 2025.


⁴	In March 2018, Consumers finalized a study of research and development tax credits for the tax years 2012 through 2016. As a result, Consumers recognized an $8 million increase in the credit, net of reserves for uncertain tax positions, at that time.


⁵	In December 2017, CMS Energy and Consumers recorded a reasonable estimate to measure and account for the impact of the TCJA. In December 2018, CMS Energy recorded a true-up of their estimate and eliminated the $9 million valuation allowance on the sequestration of alternative minimum tax credits.

Presented in the following table are the significant components of income tax expense on continuing operations:



In Millions
Years Ended December 31	2019				2018				2017
CMS Energy, including Consumers
Current income taxes
Federal		$	(31	)		$	(67	)		$	—
State and local		28				—				6
		$	(3	)		$	(67	)		$	6
Deferred income taxes
Federal		$	97			$	112			$	368
State and local		32				58				36
		$	129			$	170			$	404
Deferred income tax credit		21				12				14
Tax expense		$	147			$	115			$	424
Consumers
Current income taxes
Federal		$	107			$	6			$	159
State and local		41				13				17
		$	148			$	19			$	176
Deferred income taxes
Federal		$	(10	)		$	60			$	120
State and local		26				51				29
		$	16			$	111			$	149
Deferred income tax credit		21				12				14
Tax expense		$	185			$	142			$	339

For the year ended December 31, 2017, the impact of the TCJA was a $148 million increase in deferred income tax expense at CMS Energy, including Consumers, and a $33 million increase in deferred income tax expense at Consumers. The TCJA had no impact on current income tax expense in 2017.

Presented in the following table are the principal components of deferred income tax assets (liabilities) recognized:



In Millions
December 31	2019				2018
CMS Energy, including Consumers
Deferred income tax assets
Tax loss and credit carryforwards		$	239			$	385
Net regulatory tax liability		385				395
Reserves and accruals		43				39
Total deferred income tax assets		$	667			$	819
Valuation allowance		(2		)		(8		)
Total deferred income tax assets, net of valuation allowance		$	665			$	811
Deferred income tax liabilities
Plant, property, and equipment		$	(2,033	)		$	(1,955	)
Employee benefits		(172		)		(165		)
Securitized costs		(59		)		(65		)
Gas inventory		(32		)		(35		)
Other		(24		)		(78		)
Total deferred income tax liabilities		$	(2,320	)		$	(2,298	)
Total net deferred income tax liabilities		$	(1,655	)		$	(1,487	)
Consumers
Deferred income tax assets
Net regulatory tax liability		$	385			$	395
Tax loss and credit carryforwards		20				64
Reserves and accruals		24				21
Total deferred income tax assets		$	429			$	480
Deferred income tax liabilities
Plant, property, and equipment		$	(1,995	)		$	(1,943	)
Employee benefits		(178		)		(172		)
Securitized costs		(59		)		(65		)
Gas inventory		(32		)		(35		)
Other		(29		)		(74		)
Total deferred income tax liabilities		$	(2,293	)		$	(2,289	)
Total net deferred income tax liabilities		$	(1,864	)		$	(1,809	)

Deferred tax assets and liabilities are recognized for the estimated future tax effect of temporary differences between the tax basis of assets or liabilities and the reported amounts on CMS Energy’s and Consumers’ consolidated financial statements.

Presented in the following table are the tax loss and credit carryforwards at December 31, 2019:



In Millions
	Gross Amount			Tax Attribute			Expiration
CMS Energy, including Consumers
Local net operating loss carryforwards		$	389		$	4	2023 – 2036
General business credits		206			206		2026 – 2039
Alternative minimum tax credits		29			29		Not applicable
Total tax attributes					$	239
Consumers
General business credits		$	20		$	20	2027 – 2039
Total tax attributes					$	20

CMS Energy has provided a valuation allowance of $2 million for the local tax loss carryforward. The TCJA repealed the corporate alternative minimum tax and requires companies to recover (through offsets of regular tax and through cash refunds) all alternative minimum tax credits over the four-year period ending in 2021. Therefore, for the year ended December 31, 2019, CMS Energy reclassified $31 million of alternative minimum tax credits to a current receivable.

CMS Energy and Consumers expect to utilize fully their tax loss and credit carryforwards for which no valuation allowance has been provided. It is reasonably possible that further adjustments will be made to the valuation allowances within one year.

Presented in the following table is a reconciliation of the beginning and ending amount of uncertain tax benefits:



In Millions
Years Ended December 31	2019			2018			2017
CMS Energy, including Consumers
Balance at beginning of period		$	19		$	14		$	5
Additions for current-year tax positions		1			1			10
Additions for prior-year tax positions		3			4			—
Reductions for prior-year tax positions		—			—			(1		)
Balance at end of period		$	23		$	19		$	14
Consumers
Balance at beginning of period		$	28		$	21		$	5
Additions for current-year tax positions		1			2			17
Additions for prior-year tax positions		5			5			—
Reductions for prior-year tax positions		—			—			(1		)
Balance at end of period		$	34		$	28		$	21

If recognized, all of these uncertain tax benefits would affect CMS Energy’s and Consumers’ annual effective tax rates in future years.

CMS Energy and Consumers recognize accrued interest and penalties, where applicable, as part of income tax expense. CMS Energy, including Consumers, recognized no interest or penalties for the years ended December 31, 2019, 2018, or 2017.

The amount of income taxes paid is subject to ongoing audits by federal, state, local, and foreign tax authorities, which can result in proposed assessments. CMS Energy’s federal income tax returns for 2016 and subsequent years remain subject to examination by the IRS. CMS Energy’s Michigan Corporate Income Tax returns for 2013 and subsequent years remain subject to examination by the State of Michigan. CMS Energy’s and Consumers’ estimate of the potential outcome for any uncertain tax issue is highly judgmental. CMS Energy and Consumers believe that their accrued tax liabilities at December 31, 2019 were adequate for all years.

Consumers Energy Company

Income Taxes [Line Items]

Income Taxes