Income Tax

9 Months Ended

Sep. 30, 2020

INCOME TAX An estimate of annual income tax expense is made each interim period using estimates for annual pre-tax income, regulatory flow-through adjustments, tax credits, and other items. The estimated annual effective tax rate is applied to year-to-date, pre-tax income to determine income tax expense for the interim period consistent with the annual estimate. Discrete events are recorded in the interim period in which they occur or become known.

The effective income tax rate varied from the federal statutory rate due to the following:


	Three Months Ended September 30,
	NW Holdings						NW Natural
In thousands	2020			2019			2020			2019
Income tax at statutory rate (federal)	$	(5,048)		$	(4,799)		$	(5,518)		$	(4,536)
State	(1,452)			(1,708)			(1,595)			(1,641)
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	1,051			2,090			1,051			2,090
Other, net	86			74			5			74
Total provision for income taxes on continuing operations	$	(5,363)		$	(4,343)		$	(6,057)		$	(4,013)
Effective income tax rate for continuing operations	22.3		%	19.0		%	23.1		%	18.6		%
















	Nine Months Ended September 30,
	NW Holdings						NW Natural
In thousands	2020			2019			2020			2019
Income tax at statutory rate (federal)	$	6,628		$	6,703		$	6,550		$	7,388
State	1,892			1,797			1,861			1,975
Increase (decrease):
Differences required to be flowed-through by regulatory commissions	(1,301)			(3,207)			(1,301)			(3,207)
Other, net	(127)			(336)			(168)			(336)
Total provision for income taxes on continuing operations	$	7,092		$	4,957		$	6,942		$	5,820
Effective income tax rate for continuing operations	22.5		%	15.5		%	22.3		%	16.5		%

The NW Holdings and NW Natural effective income tax rates for the nine months ended September 30, 2020 compared to the same periods in 2019 changed primarily as a result of changes in pre-tax income and regulatory amortization of deferred TCJA benefits as approved in the March 2019 OPUC order. See "U.S. Federal TCJA Matters" below and Note 11 in the 2019 Form 10-K for more detail on income taxes and effective tax rates.

The IRS Compliance Assurance Process (CAP) examination of the 2018 tax year was completed during the second quarter of 2020. There were no material changes to the return as filed. The 2019 and 2020 tax years are subject to examination under CAP.

U.S. Federal TCJA Matters

On December 22, 2017, the Tax Cuts and Jobs Act (TCJA) was enacted and permanently lowered the U.S. federal corporate income tax rate to 21% from the previous maximum rate of 35%, effective for the tax year beginning January 1, 2018. The TCJA included specific provisions related to regulated public utilities that provide for the continued deductibility of interest expense and the elimination of bonus tax depreciation for property both acquired and placed into service on or after January 1, 2018. See Note 11 in the 2019 Form 10-K.