Income Taxes

12 Months Ended

Dec. 31, 2015

14:Income Taxes

CMS Energy and its subsidiaries file a consolidated U.S. federal income tax return and a unitary Michigan income tax return. Income taxes are allocated based on each company’s separate taxable income in accordance with the CMS Energy tax sharing agreement.

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	2015				2014				2013
CMS Energy, including Consumers
Income from continuing operations before income taxes		$	796			$	729			$	756

Income tax expense at statutory rate			279				255				265
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect			39				36				37
Accelerated flow-through of regulatory tax benefits			(39)				(39)				-
Other, net			(8)				(2)				-
Income tax expense		$	271			$	250			$	302
Effective tax rate			34.0	%			34.3	%			39.9	%
Consumers
Income from continuing operations before income taxes		$	896			$	873			$	880

Income tax expense at statutory rate			314				306				308
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect			42				42				43
Accelerated flow-through of regulatory tax benefits			(39)				(39)				-
Other, net			(15)				(3)				(5)
Income tax expense		$	302			$	306			$	346
Effective tax rate			33.7	%			35.1	%			39.3	%

Prior to 2014, Consumers recognized the income tax benefits associated with the removal costs of plant placed in service before 1993 as payments were made and the tax benefits were flowed through to customers. In 2013, the MPSC issued an order authorizing Consumers to flow through to customers the income tax benefits on a straight-line basis over an accelerated period. This regulatory treatment, which Consumers implemented in January 2014, will accelerate the return of $209 million of income tax benefits over five years to electric customers and $260 million of income tax benefits over 12 years to gas customers. This treatment reduced Consumers’ income tax expense by $39 million for each of the years ended December 31, 2015 and 2014.

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



In Millions
Years Ended December 31	2015			2014			2013
CMS Energy, including Consumers
Current income taxes
Federal		$	-		$	-		$	-
State and local			24			24			34
		$	24		$	24		$	34
Deferred income taxes
Federal		$	192		$	198		$	248
State and local			36			31			23
		$	228		$	229		$	271
Deferred income tax credit			19			(3)			(3)
Tax expense		$	271		$	250		$	302
Consumers
Current income taxes
Federal		$	66		$	8		$	137
State and local			32			36			45
		$	98		$	44		$	182
Deferred income taxes
Federal		$	153		$	236		$	147
State and local			32			29			20
		$	185		$	265		$	167
Deferred income tax credit			19			(3)			(3)
Tax expense		$	302		$	306		$	346

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



In Millions
December 31	2015			2014
CMS Energy, including Consumers
Employee benefits		$	(127)		$	(72)
Gas inventory			(96)			(117)
Plant, property, and equipment			(2,429)			(2,217)
Net regulatory tax liability			50			65
Reserves and accruals			59			63
Securitized costs			(122)			(144)
Tax loss and credit carryforwards			657			676
Other			(5)			-
		$	(2,013)		$	(1,746)
Less valuation allowance			(4)			(2)
Total net deferred income tax liabilities		$	(2,017)		$	(1,748)
Deferred tax assets, net of valuation reserves		$	762		$	802
Deferred tax liabilities			(2,779)			(2,550)
Total net deferred income tax liabilities		$	(2,017)		$	(1,748)
Consumers
Employee benefits		$	(156)		$	(103)
Gas inventory			(96)			(117)
Plant, property, and equipment			(2,457)			(2,263)
Net regulatory tax liability			50			65
Reserves and accruals			30			34
Securitized costs			(122)			(144)
Tax loss and credit carryforwards			46			45
Other			(5)			(2)
		$	(2,710)		$	(2,485)
Less valuation allowance			-			(1)
Total net deferred income tax liabilities		$	(2,710)		$	(2,486)
Deferred tax assets, net of valuation reserves		$	126		$	143
Deferred tax liabilities			(2,836)			(2,629)
Total net deferred income tax liabilities		$	(2,710)		$	(2,486)

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, 2015:



In Millions
	Gross Amount			Tax Attribute			Expiration
CMS Energy, including Consumers
Federal net operating loss carryforward		$	885		$	311	2025 – 2034
Local net operating loss carryforwards			414			4	2023 – 2034
Alternative minimum tax credits			270			270	No expiration
Charitable contribution carryover			2			1	2016 – 2019
General business credits			71			71	2018 – 2035
Total tax attributes					$	657
Consumers
Federal net operating loss carryforward		$	121		$	42	2025 – 2034
Charitable contribution carryover			2			1	2016 – 2019
General business credits			3			3	2032 – 2035
Total tax attributes					$	46

CMS Energy has provided a valuation allowance of $1 million for the local tax loss carryforward, and $3 million for general business credits. CMS Energy and Consumers expect to utilize fully 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	2015			2014			2013
CMS Energy, including Consumers
Balance at beginning of period		$	5		$	4		$	1
Additions for current-year tax positions			1			2			-
Additions for prior-year tax positions			1			1			3
Reductions for prior-year tax positions			(1)			(2)			-
Balance at end of period		$	6		$	5		$	4
Consumers
Balance at beginning of period		$	5		$	4		$	1
Additions for current-year tax positions			1			2			-
Additions for prior-year tax positions			1			1			3
Reductions for prior-year tax positions			(1)			(2)			-
Balance at end of period		$	6		$	5		$	4

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, 2015, 2014, or 2013.

In April 2014, the IRS completed its audit of the federal income tax returns of CMS Energy and its subsidiaries for 2010 and 2011. The audit resulted in no significant adjustments to CMS Energy’s or Consumers’ taxable income or income tax expense.

CMS Energy’s federal income tax returns for 2012 and subsequent years remain subject to examination by the IRS. CMS Energy’s MCIT and MBT returns for 2008 and subsequent years remain subject to examination by the State of Michigan.

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 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, 2015 were adequate for all years.

Consumers Energy Company [Member]

Income Taxes