NOTE 4. INCOME TAXES

The 2017 Tax Reform Act includes a broad range of tax reform provisions affecting Questar Gas, as discussed in Note 2. The 2017 Act Reform Act reduces the corporate income tax rate from 35% to 21% for tax years beginning after December 31, 2017. At the date of enactment, federal deferred tax assets and liabilities were remeasured based upon the enacted 21% tax rate expected to apply when temporary differences are to be realized and settled. The specific provisions related to regulated public utilities in the 2017 Tax Reform Act generally allows for the continued deductibility of interest expense, changes the tax depreciation of certain property acquired after September 27, 2017, and continues certain rate normalization requirements for accelerated depreciation benefits.

As indicated in Note 2, Questar Gas’ operations, including accounting for income taxes are subject to regulatory treatment. Reductions in accumulated deferred income tax balances due to the reduction in the corporate income tax rates to 21% under the provisions of the 2017 Tax Reform Act may result in amounts previously collected from utility customers for these deferred taxes to be refundable to such customers, generally through reductions in future rates. The 2017 Tax Reform Act includes provisions that stipulate how these excess deferred taxes are to be passed back to customers for certain accelerated tax depreciation benefits. Potential refunds of other deferred taxes will be determined by Questar Gas’ state regulators. See Note 10 for more information.

Questar Gas has completed or has made a reasonable estimate for the measurement and accounting of certain effects of the 2017 Tax Reform Act which have been reflected in the December 31, 2017 financial statements. The changes in deferred taxes were recorded as either an increase to a regulatory liability or as an adjustment to Questar Gas’ deferred tax provision.

The items reflected as provisional amounts are related to accelerated depreciation for tax purposes of certain property acquired and placed into service after September 27, 2017 and the impact of accelerated depreciation on state income taxes to the extent there is uncertainty on conformity to the new federal tax system.

The determination of the impact of the income tax effects of these items and the items reflected as provisional amounts represents a reasonable estimate, but will require additional analysis of historical records and further interpretation of the 2017 Tax Reform Act from yet to be issued U.S. Department of the Treasury regulations which will require more time, information and resources than currently available to Questar Gas.

Details of Questar Gas’ income tax expense and deferred income taxes are provided in the following tables. The components of income tax expense were as follows:

Year Ended December 31,	2017		2016			2015
(millions)
Current:
Federal	$	1.1	$	1.2		$	(16.0	)
State		0.2		0.2			(2.0	)
Total current expense (benefit)		1.3		1.4			(18.0	)
Deferred:
Federal		39.8		29.9			48.8
State		5.4		5.9			4.2
Investment tax credits		—		(0.1	)		(0.2	)
Total deferred expense		45.2		35.7			52.8
Total income tax expense	$	46.5	$	37.1		$	34.8

The accounting for the reduction in the corporate income tax rate increased deferred income tax expense by $3.0 million for the year ending December 31, 2017.

The difference between the statutory federal income tax rate and Questar Gas’ effective income tax rate is explained as follows:

Year Ended December 31,	2017			2016			2015
(millions)
Federal income taxes statutory rate		35.0	%		35.0	%		35.0	%
Increases (reductions) resulting from:
State taxes, net of federal benefit		3.2			4.2			1.4
Amortization of investment tax credits related to rate-regulated assets		—			(0.1	)		(0.2	)
Legislative change - federal		2.6			—			—
Other		—			0.2			(1.1	)
Effective income tax rate		40.8	%		39.3	%		35.1	%

In 2017, Questar Gas’ effective tax rates reflect the net detriment of remeasuring deferred taxes resulting from the lower corporate income tax rate promulgated by the 2017 Tax Reform Act.

Significant components of Questar Gas’ deferred income taxes were as follows:

Year Ended December 31,	2017			2016
(millions)
Deferred income taxes:
Total deferred income tax assets	$	65.8		$	2.0
Total deferred income tax liabilities		341.9			477.8
Total deferred income tax liabilities	$	276.1		$	475.8
Total deferred income taxes:
Property, plant and equipment	$	317.1		$	448.2
2017 Tax Reform Act impact		(60.7	)		—
Employee benefits		19.3			27.9
Deferred compensation		(1.4	)		(0.6	)
Purchased gas costs		1.5			0.1
Other		0.3			0.2
Total net deferred income tax liabilities	$	276.1		$	475.8

The most significant impact reflected for the 2017 Tax Reform Act is the adjustment of the net accumulated deferred income tax liability for the reduction in the corporate income tax rate to 21%. In addition to amounts recognized in deferred income tax expense, the impacts of the 2017 Tax Reform Act decreased the accumulated deferred income tax liability by $184.2 million at December 31, 2017. The December 31, 2017 balance sheet reflects the impact of the 2017 Tax Reform Act on Questar Gas’ regulatory liabilities which increased regulatory liabilities by $244.9 million, and a related deferred tax asset of $60.7 million. This adjustment had no impact on our 2017 cash flows.

There were no unrecognized tax benefits at the beginning or end of the years ended December 31, 2017, 2016 or 2015. The 2017 federal income tax return has not been filed.