INCOME TAXES

A reconciliation of the United States federal statutory rate of 35 percent to the effective rate from operations for the fiscal years ended September 30, 2012, 2011 and 2010 is as follows:



(Thousands)	2012			2011			2010
Statutory income tax expense	$	35,213		$	48,638		$	63,753
Change resulting from
State income taxes	5,434			3,435			4,626
Depreciation and cost of removal	(3,999		)	(2,558		)	(1,986		)
Investment tax credits (ITC)	(34,397		)	(13,150		)	(769		)
Basis adjustment of solar assets due to ITC	5,974			2,266			91
Other	(496		)	(966		)	(1,023		)
Income tax provision	$	7,729		$	37,665		$	64,692
Effective income tax rate	7.7		%	27.1		%	35.5		%

The effective tax rate decreased to 7.7 percent for fiscal 2012 from 27.1 percent in fiscal 2011, due primarily to the impact of federal ITCs of $27.1 million and $9.6 million, net of deferred tax impact related to required basis adjustment, generated by solar investments placed in service during fiscal 2012 and 2011, respectively.

The income tax provision (benefit) from operations consists of the following:



(Thousands)	2012			2011			2010
Current
Federal	$	14,983		$	14,566		$	(7,343	)
State	4,025			6,618			(981		)
Deferred
Federal	18,757			30,932			65,258
State	4,361			(1,301		)	8,527
Investment tax credits	(34,397		)	(13,150		)	(769		)
Income tax provision	$	7,729		$	37,665		$	64,692

The temporary differences, which give rise to deferred tax assets and (liabilities), consist of the following:



(Thousands)	2012			2011
Deferred tax assets
Investment tax credits	$	32,002		$	3,353
Deferred service contract revenue	3,185			3,191
Incentive compensation	7,666			3,775
Over-recovered gas costs	—			1,866
Other	8,893			5,451
Total deferred tax assets	$	51,746		$	17,636
Deferred tax liabilities
Property related items	$	(284,871	)	$	(258,501	)
Remediation costs	(24,018		)	(30,459		)
Equity investments	(31,610		)	(28,255		)
Post employment benefits	(8,520		)	(4,914		)
Fair value of derivatives	(5,461		)	(16,602		)
Conservation incentive plan	(11,200		)	(3,697		)
Under-recovered gas costs	(2,835		)	—
Other	(4,514		)	(1,492		)
Total deferred tax liabilities	$	(373,029	)	$	(343,920	)

Total net deferred tax liabilities	$	(321,283	)	$	(326,284	)

The Company and one or more of its subsidiaries files or expects to file income and/or franchise tax returns in the United States Federal jurisdiction and in the states of New Jersey, New York, Connecticut, Texas, Delaware, Pennsylvania and Louisiana. The Company neither files in, nor believes it has a filing requirement in, any foreign jurisdictions.

The Company's federal income tax returns through fiscal 2009 have either been reviewed by the IRS, or the related statute of limitations has expired and all matters have been settled. The IRS is currently examining fiscal 2010 tax return.

The State of New Jersey has completed its sales and use tax examinations through March 31, 2010, and its corporate business tax examinations through September 30, 2008. All periods subsequent to those ended September 30, 2008, are statutorily open to examination in all applicable states with the exception of New York. In New York, all periods subsequent to September 30, 2009, are statutorily open to examination.

NJRES amended its New Jersey State Income Tax returns for the periods ended September 30, 2004, 2005, 2006 and 2007, and requested refunds related to a dispute over certain rules surrounding a company's ability to apportion income away from the state. Discussions between NJR and the State of New Jersey on the interpretation of the apportionment rules and relevant case law were completed during fiscal 2011, resulting in a refund of approximately $4.3 million. Accordingly, in fiscal 2011, NJRES recognized a $4.3 million state tax benefit. After fees and federal income taxes, the net impact was $2.4 million, or $0.06 per share.

NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with unrecognized tax benefits. As of September 30, 2012 and 2011, based on its analysis, the Company determined there was no need to recognize any liabilities associated with uncertain tax positions.

As of September 30, 2012, the Company has state income tax net operating losses of approximately $51.1 million, which generally have a life of 20 years. The company has recorded a deferred tax asset of approximately $3 million on the Consolidated Balance Sheets, reflecting the tax benefit associated with the loss carry forwards. These deferred tax assets will expire as follows:



(Thousands)
Fiscal years 2013 - 2017	$	373
Fiscal years 2018 - 2022	—
Fiscal Years 2023 - 2027	—
Fiscal Years 2028 - 2032	2,639
Total	$	3,012

In addition, as of September 30, 2012, the company has an ITC carry forward of approximately $28.8 million, which has a life of 20 years. This carry forward will expire at the end of fiscal year 2032.