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INCOME TAXES | 12 Months Ended
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Sep. 30, 2024
Income Tax Disclosure [Abstract] |
INCOME TAXES | 12. INCOME TAXES The income tax provision from operations for the fiscal years ended September 30, consists of the following:
(Thousands) | 2024 | 2023 | 2022
Current: |  |  |
Federal | $ | 691 |  | $ | 13,393 |  | $ | 4,238 |
State | (682) |  | 7,716 |  | 2,104 |
Deferred: |  |  |
Federal | 66,623 |  | 36,825 |  | 55,968 |
State | 18,531 |  | (8,381) |  | 14,185 |
Investment/production tax credits | (257) |  | (278) |  | (300) |
Income tax provision | $ | 84,906 |  | $ | 49,275 |  | $ | 76,195 |
As of September 30, the temporary differences, which give rise to deferred tax assets (liabilities), consist of the following:
(Thousands) | 2024 | 2023
Deferred tax assets |  |
Investment tax credits (1) | $ | 192,238 |  | $ | 191,948 |
State net operating losses | 38,762 |  | 39,612 |
Deferred revenue | 14,107 |  | 8,205 |
Fair value of derivatives | 5,397 |  | 5,386 |
Impairment of equity method investment | 14,004 |  | 14,004 |
Postemployment benefits | 855 |  | 6,502 |
Incentive compensation | 10,142 |  | 8,949 |
Amortization of intangibles | 6,248 |  | 6,308 |
Overrecovered natural gas costs | 9,072 |  | 8,564 |
Allowance for doubtful accounts | 3,744 |  | 4,485 |
Other | 7,226 |  | 7,636 |
Total deferred tax assets | 301,795 |  | 301,599 |
Less: Valuation allowance | (5,621) |  | (5,747) |
Total deferred tax assets net of valuation allowance | $ | 296,174 |  | $ | 295,852 |
Deferred tax liabilities |  |
Property-related items | $ | (563,403) |  | $ | (487,294) |
Remediation costs | (21,656) |  | (18,532) |
Investments in equity investees | (28,704) |  | (28,325) |
Conservation incentive program | (14,379) |  | (14,075) |
Other | (6,065) |  | (4,670) |
Total deferred tax liabilities | $ | (634,207) |  | $ | (552,896) |
Total net deferred tax liabilities | $ | (338,033) |  | $ | (257,044) |
(1)Includes approximately $0.7M for NJNG for both fiscal 2024 and 2023, which is being amortized over the life of the related assets. A reconciliation of the U.S. federal statutory rate to the effective rate from operations for the fiscal years ended September 30, is as follows:
(Thousands) | 2024 | 2023 | 2022
Statutory income tax expense | $ | 78,683 |  | $ | 65,940 |  | $ | 73,735 |
Change resulting from: |  |  |
Investment/production tax credits | (257) |  | (278) |  | (300) |
Cost of removal of assets placed in service prior to 1981 | (5,644) |  | (4,758) |  | (3,533) |
AFUDC equity | (1,444) |  | (1,499) |  | (2,361) |
State income taxes, net of federal benefit | 14,517 |  | 13,293 |  | 13,072 |
Valuation allowance | (126) |  | (16,494) |  | (1,372) |
Tax Act - utility excess deferred income taxes amortized | (3,573) |  | (3,573) |  | (3,573) |
Other | 2,750 |  | (3,356) |  | 527 |
Income tax provision | $ | 84,906 |  | $ | 49,275 |  | $ | 76,195 |
Effective income tax rate | 22.7 | % | 15.7 | % | 21.7 | %
The Company and one or more of its subsidiaries files or expects to file income and/or franchise tax returns in the U.S. federal jurisdiction and in the states of Colorado, Connecticut, Delaware, Florida, Georgia, Indiana, Louisiana, Maryland, Michigan, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Texas, Virginia and West Virginia. The Company neither files in, nor believes it has a filing requirement in, any foreign jurisdictions. The Company’s U.S. federal income tax returns through fiscal 2020 have either been reviewed by the IRS, or the related statute of limitations has expired and all matters have been settled. U.S. federal income tax returns for periods subsequent to fiscal 2020 are open to examination by the IRS. For all periods subsequent to those ended September 30, 2020, the Company’s state income tax returns are statutorily open to examination in all applicable states with the exception of Colorado and Texas. In March 2024, the State of New Jersey commenced an examination of the Company’s Corporate Business Tax return for NJR and certain subsidiaries for the fiscal periods ended September 30, 2019 through September 30, 2022. NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with uncertain tax positions. A tax benefit claimed, or expected to be claimed, on a tax return may be recognized only if it is more likely than not that the tax position will be upheld upon examination by the applicable taxing authority and is measured based on the largest tax benefit that is more than 50% likely to be realized. Interest and penalties related to unrecognized tax benefits, if any, are recognized within income tax expense, and accrued interest and penalties are recognized within other noncurrent liabilities on the Consolidated Balance Sheets. Inflation Reduction Act In August 2022, the President of the U.S. signed the Inflation Reduction Act, which contains provisions addressing inflation, clean energy, healthcare and taxes beginning in 2023. The Inflation Reduction Act imposes a 15% minimum tax rate on corporations with higher than $1B of annual income, along with a 1% excise tax on corporate stock repurchases. The Inflation Reduction Act raised the ITC from 26% to 30% through the end of 2032, dropping to 26% for property under construction before the end of 2033 and to 22% for property under construction before the end of 2034. The ITC expires starting in 2035 unless it is renewed. There are additional opportunities to increase the credit amount for certain facilities that are placed in service after December 31, 2022. The credit amount can be increased by 10% if certain domestic content requirements are satisfied or if the facility is located in an energy community, such as a brownfield site. ITCs are also expanded to include stand-alone energy storage projects without being integrated into a solar facility, allowing solar to claim production tax credits that are a production-based credit extending for 10 years following the placed-in-service date of the facility, and introducing the concept of transferability of tax credits, providing an additional option to monetize such credits. The Company evaluated the impacts of the Inflation Reduction Act on its financial position, results of operations and cash flows, noting the corporate alternative minimum tax does not impact the Company as the applicable income thresholds have not been met. Upon the repurchase of common stock through the Company’s share repurchase program, the Company would be subject to the 1% excise tax. Other Tax Items As of September 30, 2024 and 2023, the Company has tax credit carryforwards of approximately $191.6M and $191.2M, respectively, which each have a life of 20 years. The Company expects to utilize this entire carryforward prior to expiration, which would begin in fiscal 2036. The impairment of the equity method investment in PennEast created net capital loss attributes totaling approximately $56.6M, which could only be utilized to offset capital gains income and carried back three years and forward five years prior to expiration. During the fourth quarter of fiscal 2023, the Company determined that the tax losses created by the impairment may qualify as an ordinary loss, rather than a capital loss. As of September 30, 2024 and 2023, the Company had a valuation allowance of approximately $5.1M and $5.0M, respectively. As of September 30, 2024, the Company evaluated certain tax benefits recorded in the Consolidated Financial Statements and concluded that a portion of the tax benefits are uncertain at this time. As a result, the Company recorded a reserve for uncertain tax benefits. The reserve for uncertain tax benefits is as follows:
(Thousands) | 2024 | 2023
Balance at October 1, | $ | 4,978 |  | $ | — |
Additions based on tax positions related to the current fiscal period | 15 |  | 4,978 |
Balance at September 30, | $ | 4,993 |  | $ | 4,978 |
As of September 30, 2024 and 2023, there are $5.0M of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The tax benefits relate to fiscal tax years open to examination by the IRS and the state of Pennsylvania and may be subject to subsequent adjustment. As of September 30, 2024 and 2023, the Company has state income tax net operating losses of approximately $634.7M and $631.2M, respectively. These state net operating losses have varying carry-forward periods dictated by the state in which they were incurred; these state carry-forward periods range from seven to 20 years, with the majority expiring after 2037. The Company expects to utilize this entire carryforward, other than as described below. As of September 30, 2022, the Company had a valuation allowance of approximately $17.2M related to the recognition of state net operating loss carryforwards. As of September 30, 2023, it was determined that the realization of certain deferred tax assets was more likely than not, and thus the associated valuation allowance of approximately $15.8M was no longer required. Reversal of the valuation allowance resulted in a corresponding income tax benefit on the Consolidated Statement of Operations. As of September 30, 2024, the remaining valuation allowance of approximately $0.6M related primarily to other state income tax attributes which the Company could not conclude were realizable on a more-likely-than-not basis. The Consolidated Appropriations Act extended the 30% ITC for solar property that is under construction on or before December 31, 2019. Projects placed in service after December 31, 2019, may also qualify for a 30% federal ITC if 5% or more of the total costs of a solar property are incurred before the end of the applicable year and there are continuous efforts to advance toward completion of the project, based on the IRS guidance around ITC safe harbor determination. The credit declined to 26% for property under construction before the end of 2020. The Consolidated Appropriations Act of 2021 extended the 26% tax credit for property under construction during 2021 and 2022. The Inflation Reduction Act raised the ITC from 26% to 30% through the end of 2032, as previously stated.

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