Note 9: Income Taxes

Provisions for Federal and State Income Taxes reflected as operating expenses in the accompanying consolidated statements of earnings for the years ended December 31, 2017, 2016 and 2015 are shown in the table below:


	($000’s)
	2017		2016		2015
Current Income Tax Provision
Federal	$	—	$	—	$	—
State		—		—		3,530

Total Current Income Taxes		—		—		3,530

Deferred Income Provision
Federal		13,675		11,209		12,413
State		3,862		4,145		(500	)

Total Deferred Income Taxes		17,537		15,354		11,913

Total Income Tax Expense	$	17,537	$	15,354	$	15,443

The differences between the Company’s provisions for Income Taxes and the provisions calculated at the statutory federal tax rate, expressed in percentages, are shown below:


	2017			2016			2015
Statutory Federal Income Tax Rate		34	%		34	%		34	%
Income Tax Effects of:
State Income Taxes, net		6			4			5
Utility Plant Differences		(1	)		(1	)		(2	)
Tax Credits		(1	)		(1	)		(1	)
Other, net		—			—			1

Effective Income Tax Rate		38	%		36	%		37	%

Temporary differences which gave rise to deferred tax assets and liabilities in 2017 and 2016, are shown below:


Temporary Differences (000’s)	2017		2016
Deferred Tax Assets
Retirement Benefit Obligations	$	38,915	$	56,804
Net Operating Loss Carryforwards		12,686		23,921
Tax Credit Carryforwards		3,536		3,365
Other, net		1,155		1,426

Total Deferred Tax Assets	$	56,292	$	85,516

Deferred Tax Liabilities
Utility Plant Differences	$	127,932	$	169,240
Regulatory Assets & Liabilities		9,323		10,594
Other, net		1,894		3,629

Total Deferred Tax Liabilities		139,149		183,463

Net Deferred Tax Liabilities	$	82,857	$	97,947

The Company is subject to federal and state income taxes as well as various other business taxes. The Company accounts for income taxes in accordance with the FASB Codification guidance on Income Taxes which requires an asset and liability approach for the financial accounting and reporting of income taxes. Significant judgments and estimates are required in determining the current and deferred tax assets and liabilities. The Company’s deferred tax assets and liabilities reflect its best assessment of estimated future taxes to be paid. Periodically, the Company assesses the realization of its deferred tax assets and liabilities and adjusts the income tax provision, the current tax liability and deferred taxes in the period in which the facts and circumstances that gave rise to the revision become known.

In December 2017, the Tax Cuts and Jobs Act (TCJA), which included a reduction to the corporate federal income tax rate to 21% effective January 1, 2018, was signed into law. In accordance with GAAP Accounting Standard 740, the Company revalued its Accumulated Deferred Income Taxes (ADIT) at the new 21% tax rate at which the ADIT will be realized in its reversing period. The Company recorded a Regulatory Liability in the amount of $48.9 million as a result of the ADIT revaluation. Subject to regulatory approval, the Company will pass back to ratepayers the excess ADIT according to the Average Rate Assumption Method (ARAM) as prescribed in the TCJA and IRS normalization rules. ARAM amortization refunds excess ADIT at the reversal rate of the underlying tax temporary timing difference. The Company’s regulators and the IRS are each expected to issue guidance in future periods that will determine the final disposition of the re-measurement of regulatory deferred tax balances. At this time, the Company has applied a reasonable interpretation of the impact of the TCJA and a reasonable estimate of the regulatory resolution. Future clarification of the TCJA may change the amounts estimated.

The Company filed its tax returns for the year ended December 31, 2016 with the Internal Revenue Service in September 2017 and generated additional federal net operating loss carryforward (NOLC) assets principally due to current tax repair deductions, tax depreciation and research and development deductions. In 2016, the Company recorded a benefit of approximately $0.7 million for New Hampshire business enterprise tax credits utilized in filing the Company’s 2015 tax return. For the year ended December 31, 2017, the Company decreased its federal NOLC $1.1 million in the calculation of its provisions for income taxes for the period and revalued the NOLC by $10.1 million for federal rate of 21% enacted in the TCJA. As of December 31, 2017, the Company had recorded cumulative federal and state NOLC assets of $12.7 million to offset against taxes payable in future periods. If unused, the Company’s NOLC carryforward assets will begin to expire in 2029. In addition, at December 31, 2017, the Company had $3.5 million of cumulative alternative minimum tax credits, general business tax credit and other state tax credit carryforwards to offset future income taxes payable.

The Company evaluated its tax positions at December 31, 2017 in accordance with the FASB Codification, and has concluded that no adjustment for recognition, derecognition, settlement and foreseeable future events to any tax liabilities or assets as defined by the FASB Codification is required. The Company remains subject to examination by Federal, Maine, Massachusetts, and New Hampshire tax authorities for the tax periods ended December 31, 2014; December 31, 2015; and December 31, 2016.