INCOME TAXES:

SJI files a consolidated federal income tax return. State income tax returns are filed on a separate company basis in states where SJI has operations and/or a requirement to file. Total income taxes applicable to operations differ from the tax that would have resulted by applying the statutory Federal income tax rate to pre-tax income for the following reasons (in thousands):



	2016			2015			2014

Tax at Statutory Rate	$	60,624		$	37,440		$	35,727
Increase (Decrease) Resulting from:
State Income Taxes	6,438			3,985			1,960
ESOP Dividend	(1,300		)	(1,298		)	(1,232		)
Amortization of Investment Tax Credits - Utility	—			(149		)	(211		)
AFUDC	(900		)	(1,109		)	(1,481		)
Investment and Other Tax Credits	(10,706		)	(37,503		)	(30,661		)
Other - Net	(5		)	(6		)	347
Income Taxes:
Continuing Operations	54,151			1,360			4,449
Discontinued Operations	(133		)	(257		)	(312		)
Total Income Tax Expense	$	54,018		$	1,103		$	4,137

The provision for Income Taxes is comprised of the following (in thousands):

	2016			2015			2014
Current:
Federal	$	—		$	—		$	(62	)
State	(1,638		)	(2,352		)	3,052
Total Current	(1,638		)	(2,352		)	2,990
Deferred:
Federal	44,246			(4,622		)	1,707
State	11,543			8,483			(37		)
Total Deferred	55,789			3,861			1,670
Investment Tax Credit - Utility	—			(149		)	(211		)
Income Taxes:
Continuing Operations	54,151			1,360			4,449
Discontinued Operations	(133		)	(257		)	(312		)
Total Income Tax Expense	$	54,018		$	1,103		$	4,137

For the year ended December 31, 2016, the Company's overall tax expense increased primarily due to a decrease in the investment tax credits available on renewable energy facilities at Marina, along with higher income before income taxes.

Investment Tax Credits attributable to SJG are deferred and amortized at the annual rate of 3.0%, which approximates the life of related assets.

The net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial reporting and income tax purposes resulted in the following net deferred tax assets and liabilities at December 31 (in thousands):



	2016		2015
Deferred Tax Assets:
Net Operating Loss Carryforward	$	211,004	$	195,358
Investment and Other Tax Credits	213,946		200,491
Derivatives / Unrealized Gain	—		5,652
Deferred State Tax	28,833		24,833
Pension & Other Post Retirement Benefits	19,351		29,998
Deferred Revenues	7,669		4,924
Provision for Uncollectibles	5,231		4,200
Other	8,368		6,448
Total Deferred Tax Asset	$	494,402	$	471,904

Deferred Tax Liabilities:
Book versus Tax Basis of Property	$	732,535	$	675,521
Deferred Gas Costs - Net	2,052		3,998
Derivatives / Unrealized Loss	1,794		—
Environmental Remediation	32,885		19,207
Deferred Regulatory Costs	1,554		566
Budget Billing - Customer Accounts	3,347		830
Deferred Pension & Other Post Retirement Benefits	34,432		42,216
Conservation Incentive Program	11,846		1,132
Equity In Loss Of Affiliated Companies	3,092		9,111
Other	14,414		15,268
Total Deferred Tax Liability	$	837,951	$	767,849

Deferred Tax Liability - Net	$	343,549	$	295,945

As of December 31, 2016, SJI has the following federal and state net operating loss carryforwards (in thousands):



	Net Operating Loss Carryforwards
Expire in:	Federal		State
2031	$	163,572	$	45,866
2032	42,988		19,356
2033	67,496		34,940
2034	119,122		28,622
2035	70,992		9,860
2036	93,508		81,369
	$	557,678	$	220,013

As of December 31, 2016, SJI has the following investment tax credit carryforwards (in thousands):



Expire in:	Investment Tax Credit Carryforward
2030	$	11,628
2031	25,664
2032	32,071
2033	45,606
2034	37,699
2035	45,097
2036	11,659
	$	209,424

SJI has $1.2 million of federal alternative minimum tax credits which have no expiration date. SJI also has research and development credits of $3.3 million that will expire between 2031 and 2035. A valuation allowance is recorded when it is more likely than not that any of SJI's deferred tax assets will not be realized. SJI believes that it will generate sufficient future taxable income to realize the income tax benefits related to SJI's net deferred tax assets.

The total unrecognized tax benefits as of December 31, 2016, 2015, and 2014 were $1.4 million, $0.6 million, and $0.6 million, respectively, which excludes $0.7 million, of accrued interest and penalties for each period.

A reconciliation of the beginning and ending amount of unrecognized tax benefits for the years ended December 31, is as follows (in thousands):



	2016		2015		2014
Balance at January 1,	$	559	$	552	$	547
Increase as a result of tax positions taken in prior years	886		7		5
Balance at December 31,	$	1,445	$	559	$	552

The amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate is not significant. The Company's policy is to record interest and penalties related to unrecognized tax benefits as interest expense and other expense, respectively. These amounts were not significant in 2016, 2015 or 2014. The majority of the increased tax position in 2016 is attributable to research and development credits. The Company does not anticipate any significant changes in the total unrecognized tax benefits within the next 12 months.

The unrecognized tax benefits are primarily related to an uncertainty of state income tax issues relating to the Company's nexus in certain states and tax credits. Federal income tax returns from 2013 forward and state income tax returns from 2008 forward are open and subject to examination.