Income Taxes

12 Months Ended

Sep. 30, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

Income Tax Expense

The components of income tax expense from continuing operations for 2021, 2020 and 2019 were as follows:

	2021		2020		2019
	(In thousands)
Current
Federal	$	—	$	—	$	—
State	252		14,193		8,412
Deferred
Federal	128,867		143,039		113,331
State (1)	24,617		(11,879)		17,160
Income tax expense	$	153,736	$	145,353	$	138,903

(1)    Includes a non-cash income tax benefit of $21.0 million in fiscal 2020 resulting from the remeasurement of the rate at which state deferred taxes will reverse in the future as discussed below.

Reconciliations of the provision for income taxes computed at the statutory rate to the reported provisions for income taxes from continuing operations for 2021, 2020 and 2019 are set forth below:

	2021		2020		2019
	(In thousands)
Tax at statutory rate (1)	$	172,053	$	156,827	$	136,565
Common stock dividends deductible for tax reporting	(1,372)		(1,419)		(1,460)
State taxes (net of federal benefit)	19,647		22,791		20,202
Amortization of excess deferred taxes	(45,382)		(16,125)		(14,085)
Remeasurement due to state deferred tax rate change	—		(20,962)		—
Other, net	8,790		4,241		(2,319)
Income tax expense	$	153,736	$	145,353	$	138,903

(1)    Tax expense is calculated at the statutory federal income tax rate of 21.0% for the years ended September 30, 2021, 2020 and 2019.

Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that gave rise to significant components of the deferred tax liabilities and deferred tax assets at September 30, 2021 and 2020 are presented below:

	2021		2020
	(In thousands)
Deferred tax assets:
Employee benefit plans	$	64,316	$	66,991
Interest rate swaps	—		16,719
Net operating loss carryforwards	911,424		476,507
Charitable and other credit carryforwards	7,712		8,712
Regulatory excess deferred tax	148,200		161,565
Lease asset	52,138		53,118
Other	33,591		20,424
Total deferred tax assets	1,217,381		804,036
Valuation allowance	(663)		(1,102)
Net deferred tax assets	1,216,718		802,934
Deferred tax liabilities:
Difference in net book value and net tax value of assets (1)	(2,258,264)		(2,138,966)
Gas cost adjustments	(26,413)		(23,209)
Winter Storm Uri regulatory asset	(471,025)		—
Lease liability	(52,138)		(53,118)
Rate deferral adjustment	(47,445)		(21,945)
Interest rate agreements	(20,156)		—
Other	(47,086)		(22,265)
Total deferred tax liabilities	(2,922,527)		(2,259,503)
Net deferred tax liabilities	$	(1,705,809)	$	(1,456,569)
Deferred credits for rate regulated entities	$	4,181	$	2,537

(1) Includes $129.0 million of deferred tax liability related to goodwill as of September 30, 2021 and 2020.

We deduct our purchased gas costs for federal income tax purposes in the period they are paid. As a result of impacts from Winter Storm Uri, we recorded a $471.0 million (tax effected) increase in our deferred tax liability and an increase in our net operating loss carryforward as of September 30, 2021. At September 30, 2021, we had $850.2 million (tax effected) of federal net operating loss carryforwards. The federal net operating loss carryforwards are available to offset future taxable income. Net operating loss carryforwards incurred prior to December 22, 2017 will begin to expire in 2029. The Company also has $6.0 million in charitable contribution carryforwards to offset future taxable income. The Company’s charitable contribution carryforwards expiration period begins in fiscal 2022.

The Company also has $61.2 million (tax effected) of state net operating loss carryforwards (net of $16.2 million of federal effects) and $1.7 million of state tax credits carryforwards (net of $0.5 million of federal effects). Depending on the jurisdiction in which the state net operating loss was generated, the carryforwards expiration period begins in fiscal 2023.

We believe it is more likely than not that the benefit from certain state net operating loss carryforwards and state credit carryforwards will not be realized. Due to the uncertainty of realizing a benefit from the deferred tax asset recorded for the carryforwards, a valuation allowance of $0.7 million was established for the year ended September 30, 2021.

At September 30, 2021, we had recorded liabilities associated with unrecognized tax benefits totaling $32.8 million. The following table reconciles the beginning and ending balance of our unrecognized tax benefits:

	2021		2020		2019
	(In thousands)
Unrecognized tax benefits - beginning balance	$	30,921	$	27,716	$	26,203
Increase (decrease) resulting from prior period tax positions	671		(26)		(923)
Increase resulting from current period tax positions	1,200		3,231		2,436
Unrecognized tax benefits - ending balance	32,792		30,921		27,716
Less: deferred federal and state income tax benefits	(6,886)		(6,493)		(5,820)
Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year	$	25,906	$	24,428	$	21,896

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties included within interest charges in our consolidated statements of comprehensive income. During the years ended September 30, 2021, 2020 and 2019, the Company recognized approximately $1.4 million, $0.7 million and $2.2 million in interest and penalties. The Company had approximately $10.4 million, $8.2 million and $7.9 million for the payment of interest and penalties accrued at September 30, 2021, 2020 and 2019.

We file income tax returns in the U.S. federal jurisdiction as well as in various states where we have operations. We have concluded substantially all U.S. federal income tax matters through fiscal year 2009 and concluded substantially all Texas income tax matters through fiscal year 2010.

Regulatory Excess Deferred Taxes

Regulatory excess net deferred taxes represent changes in our net deferred tax liability related to our cost of service ratemaking due to the enactment of the Tax Cuts and Jobs Act of 2017 (the TCJA) and a Kansas legislative change enacted in fiscal 2020. As of September 30, 2021 and September 30, 2020, $155.9 million and $20.9 million is recorded in other current liabilities. This amount has increased during fiscal 2021 due to regulatory approvals received during the fiscal year that shortened the refund period in certain of our jurisdictions. As a result, our effective income tax rate decreased to 18.8% for the fiscal year ended September 30, 2021. Our effective income tax rate in the prior year period was 19.5%, which reflected the income tax benefit recognized upon enactment of the new Kansas legislation.

Currently, the regulatory excess net deferred tax liability is being returned over various periods. Of this amount, $532.3 million, is being returned to customers over 35 - 60 months. An additional $115.3 million is being returned to customers on a provisional basis over 15 - 69 years until our regulators establish the final refund periods. The refund of the remaining $12.1 million will be addressed in our next rate proceeding.