Income Taxes

12 Months Ended

Dec. 31, 2022

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The components of income tax expense were:

	2022		2021	2020
Current:
Federal	$	8,570	8,587	11,349
State	3,170		2,633	2,528
Deferred:
Federal	(3,223)		(3,811)	(8,073)
State	(21)		960	2,576
	$	8,496	8,369	8,380

The following table reconciles income tax expense to the amount computed by applying the federal statutory rate to income before income taxes of $82,324, $68,847 and $69,895 in 2022, 2021 and 2020, respectively:

	2022		2021	2020
Income tax at federal statutory rate	$	17,288	14,458	14,678
Increase (decrease) in taxes attributable to:
State taxes, net of federal income tax benefit	5,328		4,572	4,142
Uncertain tax positions	1,483		1,678	1,351
Property flow-through	(13,091)		(8,573)	(9,215)
Capitalized merger costs	—		—	(296)
Reversal of excess deferred taxes recognized in regulatory liability	(3,885)		(3,295)	(2,912)
Pension flow-through	27		429	92
Stock-based compensation	(297)		(331)	(333)
Other items, net	1,643		(569)	873
	$	8,496	8,369	8,380

The components of the net deferred tax liability as of December 31 was as follows:

	2022		2021
Deferred tax assets:
Advances and contributions	$	25,462	24,584
Unamortized investment tax credit	575		599
Pensions, postretirement benefits and stock-based compensation	23,161		32,396
Debt premium, net	4,868		5,579
California franchise tax	640		514
Deferred revenue	1,444		—
Other	6,627		8,128
Total deferred tax assets	62,777		71,800
Deferred tax liabilities:
Utility plant	229,500		216,497
Pension and postretirement	17,709		24,779
Deferred gain and other-property	5,982		5,901
Regulatory asset - business combinations debt premium, net	4,868		5,579
Intangibles	2,943		3,193
Deferred revenue	—		773
Regulatory asset - income tax temporary differences, net	12,849		6,867
Section 481(a) adjustments	1,573		3,111
Other	5,508		5,551
Total deferred tax liabilities	280,932		272,251
Net deferred tax liabilities	$	218,155	200,451

Management evaluates the realizability of deferred tax assets based on all available evidence, both positive and negative. The realization of deferred tax assets is dependent on our ability to generate sufficient future taxable income during periods in which the deferred tax assets are expected to reverse. Based on all available evidence, management believes it is more likely than not that SJW Group will realize the benefits of its deferred tax assets. Accordingly, the valuation allowance relating to deferred tax assets acquired from CTWS was released in 2020 through purchase accounting adjustments made within the measurement period. Net operating loss carryforwards expire beginning in 2032 and ending in 2039. As of December 31, 2022, the estimated amount of net operating loss carryforwards available to offset future taxable income for Connecticut purposes is $22,966. The estimated state tax credit carryforwards are $694 which will expire beginning in 2023 and ending in 2040.

The change in the net deferred tax liabilities of $17,704 in 2022 included other non-cash items primarily consisting of regulatory assets and liabilities relating to income tax temporary differences.

The total amount of unrecognized tax benefits, before the impact of deductions for state taxes, excluding interest and penalties was $9,004 and $7,961 as of December 31, 2022 and 2021, respectively. The amount of tax benefits, net of any federal benefits for state taxes that would impact the effective rate, if recognized, is approximately $8,262 and $7,009 as of December 31, 2022 and 2021, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

	2022		2021	2020
Balance at beginning of year	$	7,961	6,468	3,834
Increase related to tax positions taken during the current year	1,549		1,376	1,104
Increase related to tax positions taken during a prior year	—		117	1,530
Reductions related to statute expiration	(284)		—	—
Reductions related to tax positions taken in a prior year	(222)		—	—
Balance at end of year	$	9,004	7,961	6,468

The increase in gross unrecognized tax benefits in 2022 was primarily due to the uncertain tax position relating to repairs tax deductions.

SJW Group’s policy is to classify interest and penalties associated with unrecognized tax benefits, if any, in tax expense. Accrued interest expense, net of the benefit of tax deductions which would be available on the payment of such interest, is approximately $606 as of December 31, 2022. SJW Group has not accrued any penalties for unrecognized tax benefits. The amount of interest recognized in 2022 was an increase to expense of $230.

SJW Group currently does not expect uncertain tax positions to change significantly over the next 12 months, except in the case of lapse of the statute of limitations.

SJW Group files U.S. federal income tax returns and income tax returns in various states and is subject to ordinary statute of limitation of three years for federal and three or four years for different state returns. However, due to tax attribute carryforwards, SJW Group is subject to examination for tax years 2009 forward for federal and 2012 forward for state returns of CTWS and its subsidiaries. The statute of limitation for SJW Group returns is closed for these extended years and remains open for 2019 and forward for federal and 2018 or 2019 and forward for different states.