INCOME TAXES

A reconciliation of the U.S. federal statutory rate of 35 percent to the effective rate from operations for the fiscal years ended September 30, 2015, 2014 and 2013 is as follows:



(Thousands)	2015			2014			2013
Statutory income tax expense	$	84,239		$	67,834		$	52,661
Change resulting from
State income taxes	8,233			7,785			5,168
Depreciation and cost of removal	(5,149		)	(4,437		)	(5,769		)
Investment/production tax credits	(30,096		)	(23,083		)	(18,749		)
Basis adjustment of solar assets due to ITC	4,861			3,959			3,225
Other	(2,364		)	(218		)	(961		)
Income tax provision	$	59,724		$	51,840		$	35,575
Effective income tax rate	24.8		%	26.8		%	23.6		%

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



(Thousands)	2015			2014			2013
Current
Federal	$	20,492		$	37,904		$	12,248
State	5,473			11,096			1,763
Deferred
Federal	56,480			24,963			34,127
State	7,375			960			6,186
Investment/production tax credits	(30,096		)	(23,083		)	(18,749		)
Income tax provision	$	59,724		$	51,840		$	35,575

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



(Thousands)	2015			2014
Deferred tax assets
Investment tax credits ⁽¹⁾	$	24,770		$	10,341
Deferred service contract revenue	3,440			3,299
Incentive compensation	10,369			14,632
Fair value of derivatives	—			14,350
State net operating losses	12,757			8,962
Conservation incentive plan	2,091			2,312
Underrecovered gas costs	2,827			—
Other	12,762			10,078
Total deferred tax assets	$	69,016		$	63,974
Deferred tax liabilities
Property related items	$	(440,420	)	$	(371,017	)
Remediation costs	(7,641		)	(12,429		)
Equity investments	(37,930		)	(35,474		)
Post employment benefits	(2,976		)	(10,268		)
Fair value of derivatives	(3,180		)	—
Under-recovered gas costs	—			(5,056		)
Other	(13,409		)	(11,751		)
Total deferred tax liabilities	$	(505,556	)	$	(445,995	)

Total net deferred tax liabilities	$	(436,540	)	$	(382,021	)

(1) Includes $2.7 million and $2.8 million for NJNG for fiscal 2015 and fiscal 2014, respectively, which is being amortized over the life of the related assets and $22.1 million and $7.5 million for NJRCEV for fiscal 2015 and fiscal 2014, respectively, which is ITC carryforward.

The Company and one or more of its subsidiaries files or expects to file income and/or franchise tax returns in the U.S. Federal jurisdiction and in the states of New Jersey, New York, Connecticut, Texas, Delaware, Pennsylvania, North Carolina, Louisiana, Montana, Kansas, Iowa and the City of New York. The Company neither files in, nor believes it has a filing requirement in, any foreign jurisdictions, except Canada.

The Company's federal income tax returns through fiscal 2010 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 tax returns for fiscal 2011 through fiscal 2013.

The State of New Jersey is currently conducting a sales and use tax examination for the period from July 1, 2011 through June 30, 2015, and a corporate business tax examination for the period from October 1, 2009 through September 30, 2013. All periods subsequent to those ended September 30, 2010, are statutorily open to examination in all applicable states with the exception of New York. In New York, all periods subsequent to September 30, 2012, are statutorily open to examination.

In May 2013, the State of New Jersey completed their audit of NJRES for the periods ended September 30, 2008, 2009 and 2010. The audit resulted in a refund of $1.1 million that was related primarily to state apportionment differences.

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, 2015 and 2014, based on its analysis, the Company determined there was no need to recognize any liabilities associated with uncertain tax positions.

As of September 30, 2015, the Company has state income tax net operating losses of approximately $218.1 million, which generally have a life of 20 years. The company has recorded a deferred state tax asset of approximately $12.8 million on the Consolidated Balance Sheets, reflecting the tax benefit associated with the loss carryforwards. In addition, as of September 30, 2015 and 2014, the Company has recorded a valuation allowance of $176,000 and $212,000, respectively, because it believes that it is more likely than not that the net operating losses related to CR&R and NJR will expire unused.

In addition, as of September 30, 2015, the Company has an ITC/PTC carryforward of approximately $22.1 million, which has a life of 20 years. This carryforward will begin to expire in fiscal 2035. The Company expects to utilize this entire carryforward in fiscal 2016.

The deferred tax assets will expire as follows:



(Thousands)
Fiscal years 2016 - 2019	$	—
Fiscal years 2020 - 2024	—
Fiscal years 2025 - 2029	43
Fiscal years 2030 - 2035	34,814
Total	$	34,857

In September 2013, the U.S. Department of the Treasury and the IRS released final regulations that provide guidance on applying Section 263(a) of the Internal Revenue Code to amounts paid to acquire, produce, or improve tangible property, as well as rules for materials and supplies. Implementation of these final regulations in September 2013 had no material impact on NJR's and its subsidiaries' results of operations, financial condition or cash flow.