Income Taxes

12 Months Ended

Dec. 31, 2016

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	2016				2015				2014
CMS Energy, including Consumers
Income from continuing operations before income taxes		$	826			$	796			$	729

Income tax expense at statutory rate			289				279				255
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect			37				39				36
Accelerated flow-through of regulatory tax benefits1			(39)				(39)				(39)
Employee share-based awards2			(7)				-				-
Other, net			(7)				(8)				(2)
Income tax expense		$	273			$	271			$	250
Effective tax rate			33.1	%			34.0	%			34.3	%
Consumers
Income from continuing operations before income taxes		$	936			$	896			$	873

Income tax expense at statutory rate			328				314				306
Increase (decrease) in income taxes from:
State and local income taxes, net of federal effect			44				42				42
Accelerated flow-through of regulatory tax benefits1			(39)				(39)				(39)
Employee share-based awards2			(6)				-				-
Other, net			(7)				(15)				(3)
Income tax expense		$	320			$	302			$	306
Effective tax rate			34.2	%			33.7	%			35.1	%

Since 2014, Consumers has followed a regulatory treatment ordered by the MPSC that accelerates the return of certain income tax benefits to customers. This change, which also accelerates Consumers’ recognition of the income tax benefits, reduced Consumers’ income tax expense by $39 million for each of the years ended December 31, 2016, 2015, and 2014.

CMS Energy and Consumers elected to adopt ASU 2016-09, Improvements to Employee Share-Based Payment Accounting, as of January 1, 2016. For further details on the implementation of this standard, see Note 2, New Accounting Standards.

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



In Millions
Years Ended December 31	2016			2015			2014
CMS Energy, including Consumers
Current income taxes
Federal		$	-		$	-		$	-
State and local			9			24			24
		$	9		$	24		$	24
Deferred income taxes
Federal		$	200		$	192		$	198
State and local			47			36			31
		$	247		$	228		$	229
Deferred income tax credit			17			19			(3)
Tax expense		$	273		$	271		$	250
Consumers
Current income taxes
Federal		$	9		$	66		$	8
State and local			22			32			36
		$	31		$	98		$	44
Deferred income taxes
Federal		$	227		$	153		$	236
State and local			45			32			29
		$	272		$	185		$	265
Deferred income tax credit			17			19			(3)
Tax expense		$	320		$	302		$	306

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



In Millions
December 31	2016			2015
CMS Energy, including Consumers
Employee benefits		$	(158)		$	(127)
Gas inventory			(65)			(96)
Plant, property, and equipment			(2,902)			(2,429)
Net regulatory tax liability			27			50
Reserves and accruals			69			59
Securitized costs			(118)			(122)
Tax loss and credit carryforwards			871			657
Other			(6)			(5)
		$	(2,282)		$	(2,013)
Less valuation allowance			(5)			(4)
Total net deferred income tax liabilities		$	(2,287)		$	(2,017)
Deferred tax assets, net of valuation reserves		$	962		$	762
Deferred tax liabilities			(3,249)			(2,779)
Total net deferred income tax liabilities		$	(2,287)		$	(2,017)
Consumers
Employee benefits		$	(181)		$	(156)
Gas inventory			(65)			(96)
Plant, property, and equipment			(2,924)			(2,457)
Net regulatory tax liability			27			50
Reserves and accruals			37			30
Securitized costs			(118)			(122)
Tax loss and credit carryforwards			190			46
Other			(8)			(5)
Total net deferred income tax liabilities		$	(3,042)		$	(2,710)
Deferred tax assets, net of valuation reserves		$	254		$	126
Deferred tax liabilities			(3,296)			(2,836)
Total net deferred income tax liabilities		$	(3,042)		$	(2,710)

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, 2016:



In Millions
	Gross Amount			Tax Attribute			Expiration
CMS Energy, including Consumers
Federal net operating loss carryforward		$	1,415		$	495	2025 – 2036
Local net operating loss carryforwards			408			4	2023 – 2036
Alternative minimum tax credits			270			270	No expiration
General business credits			102			102	2018 – 2036
Total tax attributes					$	871
Consumers
Federal net operating loss carryforward		$	447		$	157	2025 – 2036
General business credits			33			33	2032 – 2036
Total tax attributes					$	190

CMS Energy has provided a valuation allowance of $2 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	2016			2015			2014
CMS Energy, including Consumers
Balance at beginning of period		$	6		$	5		$	4
Additions for current-year tax positions			-			1			2
Additions for prior-year tax positions			-			1			1
Reductions for prior-year tax positions			-			(1)			(2)
Settlements			(1)			-			-
Balance at end of period		$	5		$	6		$	5
Consumers
Balance at beginning of period		$	6		$	5		$	4
Additions for current-year tax positions			-			1			2
Additions for prior-year tax positions			-			1			1
Reductions for prior-year tax positions			-			(1)			(2)
Settlements			(1)			-			-
Balance at end of period		$	5		$	6		$	5

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, 2016, 2015, or 2014.

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 2013 and subsequent years remain subject to examination by the IRS. CMS Energy’s Michigan Corporate Income Tax and Michigan Business Tax 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, 2016 were adequate for all years.

Consumers Energy Company [Member]

Income Taxes