Income Taxes

6 Months Ended

Jun. 30, 2011

Income Taxes

11: INCOME TAXES

Presented in the following table is the difference between the effective income tax rate from continuing operations, excluding noncontrolling interests, and the statutory U.S. federal income tax rate:

Six Months Ended June 30	2011			2010
CMS Energy, Including Consumers
U.S. federal income tax rate		35.0	%		35.0	%
Increase (decrease) in income taxes from:
MCIT law change, net of federal expense		(9.9	)		—
State and local income taxes, net of federal benefit		3.5			4.0
Medicare Part D exempt income, net of law change		(1.1	)		—
Income tax credit amortization		(0.6	)		(0.6	)
Other, net		0.3			0.7
Effective income tax rate		27.2	%		39.1	%
Consumers
U.S. federal income tax rate		35.0	%		35.0	%
Increase (decrease) in income taxes from:
State and local income taxes, net of federal benefit		3.4			3.5
Medicare Part D exempt income, net of law change		(0.8	)		(1.0	)
Plant basis differences		0.2			—
Income tax credit amortization		(0.5	)		(0.5	)
Other, net		(0.3	)		0.1
Effective income tax rate		37.0	%		37.1	%

CMS Energy's effective tax rate for the three months and the six months ended June 30, 2011, was materially reduced due to a one-time  non-cash reduction in tax expense resulting from a change in Michigan tax law.  In May 2011, Michigan enacted the MCIT, effective January 1, 2012. The MCIT, a simplified six percent corporate income tax, will replace the MBT, which is a complex multi-part business tax. Both the MBT and the MCIT are income taxes for financial reporting purposes, for which deferred income tax assets and liabilities are recorded. CMS Energy and Consumers remeasured their Michigan deferred income tax assets and liabilities at June 30, 2011 to reflect this change in law. Unlike the MBT, the MCIT does not allow future tax deductions to offset the book-tax differences that existed upon enactment of the tax. Due primarily to the elimination of these future tax deductions, Consumers eliminated $134 million of net deferred tax assets associated with its utility book-tax temporary differences, recognizing a $134 million regulatory asset (not including the effects of income tax gross-ups), and in addition to the amounts related to Consumers, CMS Energy eliminated $32 million of net deferred tax liabilities associated with its non-utility book-tax temporary differences, recognizing a $32 million deferred income tax benefit.

For the six months ended June 30, 2010, CMS Energy recognized deferred tax expense of $3 million to reflect the enactment of the Health Care Acts. The law change prospectively repealed the tax deduction for the portion of the health care costs reimbursed by the Medicare Part D subsidy for taxable years beginning after December 31, 2012.

Consumers Energy Company [Member]

Income Taxes

11: INCOME TAXES

Presented in the following table is the difference between the effective income tax rate from continuing operations, excluding noncontrolling interests, and the statutory U.S. federal income tax rate:

Six Months Ended June 30	2011			2010
CMS Energy, Including Consumers
U.S. federal income tax rate		35.0	%		35.0	%
Increase (decrease) in income taxes from:
MCIT law change, net of federal expense		(9.9	)		—
State and local income taxes, net of federal benefit		3.5			4.0
Medicare Part D exempt income, net of law change		(1.1	)		—
Income tax credit amortization		(0.6	)		(0.6	)
Other, net		0.3			0.7
Effective income tax rate		27.2	%		39.1	%
Consumers
U.S. federal income tax rate		35.0	%		35.0	%
Increase (decrease) in income taxes from:
State and local income taxes, net of federal benefit		3.4			3.5
Medicare Part D exempt income, net of law change		(0.8	)		(1.0	)
Plant basis differences		0.2			—
Income tax credit amortization		(0.5	)		(0.5	)
Other, net		(0.3	)		0.1
Effective income tax rate		37.0	%		37.1	%

CMS Energy's effective tax rate for the three months and the six months ended June 30, 2011, was materially reduced due to a one-time  non-cash reduction in tax expense resulting from a change in Michigan tax law.  In May 2011, Michigan enacted the MCIT, effective January 1, 2012. The MCIT, a simplified six percent corporate income tax, will replace the MBT, which is a complex multi-part business tax. Both the MBT and the MCIT are income taxes for financial reporting purposes, for which deferred income tax assets and liabilities are recorded. CMS Energy and Consumers remeasured their Michigan deferred income tax assets and liabilities at June 30, 2011 to reflect this change in law. Unlike the MBT, the MCIT does not allow future tax deductions to offset the book-tax differences that existed upon enactment of the tax. Due primarily to the elimination of these future tax deductions, Consumers eliminated $134 million of net deferred tax assets associated with its utility book-tax temporary differences, recognizing a $134 million regulatory asset (not including the effects of income tax gross-ups), and in addition to the amounts related to Consumers, CMS Energy eliminated $32 million of net deferred tax liabilities associated with its non-utility book-tax temporary differences, recognizing a $32 million deferred income tax benefit.

For the six months ended June 30, 2010, CMS Energy recognized deferred tax expense of $3 million to reflect the enactment of the Health Care Acts. The law change prospectively repealed the tax deduction for the portion of the health care costs reimbursed by the Medicare Part D subsidy for taxable years beginning after December 31, 2012.