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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Tax Disclosure [Abstract]  
Income Taxes
Note 12 - Income Taxes
Southwest Gas Holdings, Inc.:
The following is a summary of income (loss) before taxes and noncontrolling interests for domestic and foreign operations:
Year ended December 31,
(Thousands of dollars)202220212020
U.S.$(302,581)$221,507 $282,489 
Foreign29,244 25,343 22,249 
Total income (loss) before income taxes$(273,337)$246,850 $304,738 
Income tax expense (benefit) consists of the following:
Year Ended December 31,
(Thousands of dollars)202220212020
Current:
Federal$(949)$(2,872)$6,287 
State7,123 (11,516)8,617 
Foreign9,089 6,524 4,666 
15,263 (7,864)19,570 
Deferred:
Federal(76,984)39,117 44,547 
State(12,828)8,239 414 
Foreign(1,104)156 1,222 
(90,916)47,512 46,183 
Total income tax expense (benefit)$(75,653)$39,648 $65,753 
Deferred income tax expense (benefit) consists of the following significant components:
Year Ended December 31,
(Thousands of dollars)202220212020
Deferred federal and state:
Property-related items$41,191 $35,072 $50,504 
Purchased gas cost adjustments76,306 73,613 (5,726)
Employee benefits12,223 (1,484)459 
Regulatory adjustments(15,482)(10,101)(9,885)
Deferred payroll taxes(6,344)(6,344)(9,055)
Deferred revenue5,751 6,021 588 
Net operating loss(120,704)(64,981)2,331 
Goodwill impairment(105,507)— — 
Alternative minimum tax— — 4,409 
All other deferred21,669 15,768 12,610 
Total deferred federal and state(90,897)47,564 46,235 
Deferred ITC, net(19)(52)(52)
Total deferred income tax expense (benefit)$(90,916)$47,512 $46,183 
References above and below to Deferred payroll taxes relate to the employer portion of Social Security tax, for which deferment of remittance was permissible under the Coronavirus Aid, Relief, and Economic Security (“CARES”) Act.
A reconciliation of the U.S. federal statutory rate to the consolidated effective tax rate (and the sources of these differences and the effect of each) are summarized as follows:
Year Ended December 31,
202220212020
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %
Net state taxes3.2 1.0 3.0 
Tax credits0.2 (0.5)(0.5)
Company-owned life insurance(0.8)(1.1)(0.8)
Amortization of excess deferred taxes5.2 (4.3)(0.8)
All other differences(1.1)— (0.3)
Consolidated effective income tax rate27.7 %16.1 %21.6 %
Deferred tax assets and liabilities consist of the following:
December 31,
(Thousands of dollars)20222021
Deferred tax assets:
Deferred income taxes for future amortization of ITC and excess deferred taxes$109,093 $116,496 
Employee benefits29,307 39,181 
Net operating losses223,557 102,853 
Deferred payroll taxes— 6,344 
Lease-related item19,745 18,462 
Goodwill impairment105,507 — 
Other13,197 12,149 
Valuation allowance(2,197)(4,902)
498,209 290,583 
Deferred tax liabilities:
Property-related items, including accelerated depreciation873,328 843,559 
Regulatory balancing accounts154,124 77,818 
Debt-related costs(2,365)2,277 
Intangibles105,668 97,860 
Lease-related item21,164 17,254 
Other28,275 20,562 
1,180,194 1,059,330 
Net noncurrent deferred tax liabilities$681,985 $768,747 
Net noncurrent deferred tax liabilities above at December 31, 2022 and 2021 are reflected net of $82,000 and $121,000 of noncurrent deferred tax assets associated with the Company’s Canadian operations, which are shown separately on the Company’s Consolidated Balance Sheets.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,
(Thousands of dollars)20222021
Unrecognized tax benefits at beginning of year$2,629 $1,928 
Gross increases – tax positions in prior period389 442 
Gross increases – current period tax positions54 259 
Gross decreases – current period tax positions— — 
Settlements— — 
Lapse in statute of limitations— — 
Unrecognized tax benefits at end of year$3,072 $2,629 
Southwest Gas Corporation:
The following is a summary of income before taxes:
Year ended December 31,
(Thousands of dollars)202220212020
Total income before income taxes$184,921 $216,473 $194,873 
 Income tax expense (benefit) consists of the following:
Year Ended December 31,
(Thousands of dollars)202220212020
Current:
Federal$(78)$(3,643)$(4,678)
State7,805 (6,556)(179)
7,727 (10,199)(4,857)
Deferred:
Federal23,710 36,842 38,561 
State(896)2,695 2,051 
22,814 39,537 40,612 
Total income tax expense$30,541 $29,338 $35,755 
Deferred income tax expense (benefit) consists of the following significant components:
Year Ended December 31,
(Thousands of dollars)202220212020
Deferred federal and state:
Property-related items$29,633 $23,077 $36,029 
Purchased gas cost adjustments76,306 73,613 (5,726)
Employee benefits5,332 5,508 11,437 
Regulatory adjustments(15,482)(10,101)(9,885)
Deferred payroll taxes(892)(892)(1,810)
Alternative minimum tax— — 4,409 
Net operating loss(76,080)(59,119)— 
All other deferred4,016 7,503 6,210 
Total deferred federal and state22,833 39,589 40,664 
Deferred ITC, net(19)(52)(52)
Total deferred income tax expense$22,814 $39,537 $40,612 
A reconciliation of the U.S. federal statutory rate to the consolidated effective tax rate (and the sources of these differences and the effect of each) are summarized as follows:
Year Ended December 31,
202220212020
U.S. federal statutory income tax rate21.0 %21.0 %21.0 %
Net state taxes1.6 0.3 1.7 
Tax credits(0.3)(0.6)(0.7)
Company-owned life insurance0.6 (0.9)(1.0)
Amortization of excess deferred taxes(6.9)(4.9)(1.3)
All other differences0.5 (1.3)(1.4)
Effective income tax rate16.5 %13.6 %18.3 %
Deferred tax assets and liabilities consist of the following:
December 31,
(Thousands of dollars)20222021
Deferred tax assets:
Deferred income taxes for future amortization of ITC and excess deferred taxes$94,273 $101,133 
Employee benefits(12,604)(4,671)
Net operating losses135,200 59,119 
Deferred payroll taxes— 892 
Other2,512 6,777 
Valuation allowance— (22)
219,381 163,228 
Deferred tax liabilities:
Property-related items, including accelerated depreciation733,011 703,374 
Regulatory balancing accounts154,124 77,818 
Debt-related costs2,062 2,277 
Other14,132 18,587 
903,329 802,056 
Net deferred tax liabilities$683,948 $638,828 
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
December 31,
(Thousands of dollars)20222021
Unrecognized tax benefits at beginning of year$2,362 $1,793 
Gross increases – tax positions in prior period259 310 
Gross decreases – tax positions in prior period— — 
Gross increases – current period tax positions23 259 
Gross decreases – current period tax positions— — 
Settlements— — 
Lapse in statute of limitations— — 
Unrecognized tax benefits at end of year$2,644 $2,362 
In assessing whether uncertain tax positions should be recognized in its financial statements, management first determines whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based on the technical merits of the position. In evaluations of whether a tax position has met the more-likely-than-not recognition threshold, management presumes that the position will be examined by the appropriate taxing authority that would have full knowledge of all relevant information. For tax positions that meet the more-likely-than-not recognition threshold, management measures the amount of benefit recognized in the financial statements at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. Unrecognized tax benefits are recognized in the first financial reporting period in which information becomes available indicating that such benefits will more-likely-than-not be realized. For each reporting period, management applies a consistent methodology to measure unrecognized tax benefits, and all unrecognized tax benefits are reviewed periodically and adjusted as circumstances warrant. Measurement of
unrecognized tax benefits is based on management’s assessment of all relevant information, including prior audit experience, the status of audits, conclusions of tax audits, lapsing of applicable statutes of limitation, identification of new issues, and any administrative guidance or developments.
At December 31, 2022, the total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $3.1 million for the Company and $2.6 million for Southwest. No significant increases or decreases in unrecognized tax benefits are expected within the next 12 months.
The Company and Southwest recognize interest expense and income and penalties related to income tax matters in income tax expense. There was $0, $21,000, and $523,000 of tax-related interest income for 2022, 2021, and 2020, respectively.
The Company’s regulated operations accounting for income taxes is impacted by the FASB’s ASC Topic 980 – Regulated Operations. Reductions in accumulated deferred income tax balances due to the reduction in the corporate income tax rates to 21% under the provisions of the Tax Cuts and Jobs Act (the “TCJA”), enacted in December 2017, may continue to result in a refund of excess deferred taxes to customers, generally through reductions in future rates. The TCJA included provisions that stipulate how these excess deferred taxes may be passed back to customers for certain accelerated tax depreciation benefits. The December 31, 2022 Consolidated Balance Sheets of Southwest and the Company reflect the impact of the TCJA and the remaining unamortized balance of the regulatory liability (including a gross-up), barring further changes to income tax rates. See also Note 5 - Regulatory Assets and Liabilities.
The Company and its subsidiaries file a consolidated federal income tax return in the U.S. and in various states, as well as separate returns in Canada. With few exceptions, the Company is no longer subject to U.S. federal, state and local, or Canadian income tax examinations for years before 2018.
The Company and each of its subsidiaries, including Southwest, participate in a tax sharing agreement to establish the method for allocating tax benefits and losses among members of the consolidated group. The consolidated federal income tax is apportioned among the subsidiaries using a separate return method.
The acquisition of MountainWest by the Company was a taxable transaction for U.S. federal and state income tax purposes. As a result, the Company obtained a step-up in the basis of the assets acquired (as determined for income tax purposes), without succeeding to the holding period, accounting methods, or historical income tax liabilities associated with MountainWest. Accordingly, the deferred income taxes were redetermined on the date of acquisition, December 31, 2021.
At December 31, 2022, the Company has a U.S. federal net operating loss carryforward of $932.8 million. The Company also has general business credits of $4 million, which begin to expire in 2041. The Company has no capital loss carryforwards. At December 31, 2022, the Company has an income tax net operating loss carryforward related to Canadian operations of $21.2 million, which begins to expire in 2034. As of the same date, the Company has $519 million of state net operating loss carryforwards. Depending on the jurisdiction in which the state net operating loss was generated, the carryforwards will begin to expire in 2031.
Management intends to continue to permanently reinvest any future foreign earnings in Canada.