Income Taxes

12 Months Ended

Dec. 31, 2022

Income Taxes [Abstract]

Income Taxes

Note 3 – Income Taxes

Income tax (benefit) expense differs from the amount computed by applying the statutory rate on book income subject to tax for the following reasons:

	(Thousands of Dollars)
	Years Ended December 31,
	2022			2021			2020
Income Tax at Statutory Rate	$	9,590		$	6,521		$	7,204
Tax Effect of:
Utility Plant Related		(1,106	)		(1,290	)		(1,356	)
Tangible Property Repairs		(6,767	)		(12,281	)		(11,298	)
State Income Taxes – Net		1,296			1,499			1,364
Other		227			63			(33	)
Total Income Tax Expense (Benefit)	$	3,240		$	(5,488	)	$	(4,119	)

Income tax expense (benefit) is comprised of the following:

	(Thousands of Dollars)
	Years Ended December 31,
	2022			2021			2020
Current:
Federal	$	425		$	(8,247	)	$	(4,281	)
State		1,381			1,467			2,598
Deferred:
Federal		1,242			933			(1,490	)
State		260			431			(871	)
Investment Tax Credits		(68	)		(72	)		(75	)
Total Income Tax (Benefit) Expense	$	3,240		$	(5,488	)	$	(4,119	)

As part of Middlesex’s March 2018 base water rate settlement with the NJBPU, Middlesex received approval for regulatory accounting treatment of income tax benefits associated with the adoption of tangible property regulations issued by the IRS (fully amortized as of March 31, 2022) as well as prospective recognition of the income tax benefits for the immediate deduction of repair costs on tangible property. This results in significant reductions in the Company’s effective income tax rate, current income tax expense (benefit) and deferred income tax expense (benefit).

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. The components of the net deferred tax liability are as follows:

	(Thousands of Dollars)
	December 31,
	2022			2021
Utility Plant Related	$	72,996		$	65,107
Customer Advances		(3,568	)		(3,595	)
Employee Benefits		7,380			7,091
Investment Tax Credits		304			373
Other		671			524
Total Accumulated Deferred Income Taxes	$	77,783		$	69,500

The Company’s federal income tax returns for the tax years 2014 through 2017 were selected for examination by the IRS, which included the tax year in which the Company had adopted the final IRS tangible property regulations and changed its accounting method for the tax treatment of expenditures that qualified as deductible repairs. As a result of the audit examination, the Company agreed to certain modifications of its accounting method for expenditures that qualify as deductible repairs. In 2019, the Company paid $2.7 million in income taxes and $0.1 million in interest in connection with the conclusion of the 2014 through 2017 federal income tax return audits. The statutory review period for 2018 and prior federal income tax returns has now closed, and as such, in the third quarter of 2022 the Company reversed the December 31, 2021 income tax reserve provision and interest expense liability of $0.5 million and $0.2 million, respectively.

The statutory review periods for federal income tax returns for the years prior to 2019 have been closed. There are no unrecognized tax benefits resulting from prior period tax positions.