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Income Taxes:
 12 Months Ended
Dec. 31, 2020
Income Tax Disclosure [Abstract]  
Income Taxes INCOME TAXES
CARES Act

On March 27, 2020, President Trump signed the CARES Act, which contained, in part, an allowance for deferral of the employer portion of Social Security employment tax liabilities until 2021 and 2022, as well as a COVID-19 employee retention tax credit of up to $5,000 per eligible employee.

Eligible employers are taxpayers experiencing either: (1) a full or partial suspension of business operations stemming from a government COVID-19 related order or (2) a more than 50% drop in gross receipts compared to the corresponding calendar quarter in 2019. This 50% employee retention tax credit applies up to $10,000 in qualified wages paid between March 13, 2020 through December 31, 2020, and is refundable to the extent it exceeds the employer portion of payroll tax liability.

Eligible wages or employer-paid health benefits must be paid for the period of time during which an employee did not provide services. However, employees do not need to stop providing all services to the employer for the credit to potentially apply.
Additionally, the CARES Act accelerates the amount of alternative minimum tax (“AMT”) credits that can be refunded for the 2018 and 2019 annual tax returns. In 2020, we filed for, and received, a refund of approximately $2.4 million of AMT credit carryforwards under this provision.

During the year ended December 31, 2020, we utilized the payroll tax deferral provision which allowed us to defer payment of approximately $10 million of Social Security employment tax liabilities. We are currently reviewing the potential future benefits of the CARES Act related to employee retention tax credits to assess the impact on our financial position, results of operations and cash flows.

TCJA

On December 22, 2017, the U.S. government enacted comprehensive tax legislation commonly referred to as the TCJA. The TCJA reduced the U.S. federal corporate tax rate from 35% to 21%. As such, the Company remeasured the deferred income taxes at the 21% federal tax rate as of December 31, 2017. The entities subject to regulatory construct have made their best estimate regarding the probability of settlements of net regulatory liabilities established pursuant to the TCJA. The amount of the settlements may change based on decisions and actions by the federal and state utility commissions, which could have a material impact on the Company’s future results of operations, cash flows or financial position. As a result of the revaluation at December 31, 2017, deferred tax assets and liabilities were reduced by approximately $309 million. Of the $309 million, approximately $301 million is related to our regulated utilities and is reclassified to a regulatory liability. During the year ended December 31, 2018, we recorded approximately $11 million of additional regulatory liability associated with TCJA related items primarily related to property, completing the revaluation of deferred taxes pursuant to the TCJA. A majority of the excess deferred taxes are subject to the average rate assumption method, as prescribed by the IRS, and will generally be amortized as a reduction of customer rates over the remaining lives of the related assets. As of December 31, 2020, the Company has amortized $13.3 million of the regulatory liability. The portion that was eligible for amortization under the average rate assumption method in 2020, but is awaiting resolution of the treatment of these amounts in future regulatory proceedings, has not been recognized and may be refunded in customer rates at any time in accordance with the resolution of pending or future regulatory proceedings.
Income Tax Expense (Benefit)

Income tax expense (benefit) from continuing operations for the years ended December 31 was (in thousands):
202020192018
Current:
Federal$(6,020)$(8,578)$325 
State847 138 247 
Current income tax expense (benefit)(5,173)(8,440)572 
Deferred:
Federal35,672 34,551 (25,022)
State2,419 3,469 783 
Deferred income tax expense (benefit)38,091 38,020 (24,239)
Income tax expense (benefit)$32,918 $29,580 $(23,667)

Effective Tax Rates

The effective tax rate differs from the federal statutory rate for the years ended December 31, as follows:
202020192018
Federal statutory rate21.0 %21.0 %21.0 %
State income tax (net of federal tax effect)2.4 1.5 2.3 
Non-controlling interest (a)
(1.2)(1.2)(1.3)
Tax credits(b) (c)
(9.2)(3.9)(2.0)
Flow-through adjustments (d)
(1.6)(2.4)(1.6)
Jurisdictional consolidation project (e)
— — (28.5)
Uncertain Tax Benefits1.5 — — 
Valuation Allowance0.7 — — 
Other tax differences0.6 (1.6)(0.1)
TCJA corporate rate reduction (f)
— — 1.6 
Amortization of excess deferred income tax expense (g)
(2.3)(1.2)(0.7)
Effective Tax Rate11.9 %12.2 %(9.3)%
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(a)    The effective tax rate reflects the income attributable to the noncontrolling interest in Black Hills Colorado IPP for which a tax provision was not recorded.
(b)    The current year increase of PTCs reflect full year production of two wind facilities that were acquired/ placed into service during 2019; Top of Iowa purchased February 2019 and Busch Ranch II with an in-service date of November 2019. Additionally, in November 2020, the Corriedale qualifying wind facility was placed in service.
(c)    In 2020, the Company completed a research and development study which encompassed tax years from 2013 to 2019.
(d)    Flow-through adjustments related primarily to accounting method changes for tax purposes that allow us to take a current tax deduction for repair costs and certain indirect costs. We recorded a deferred income tax liability in recognition of the temporary difference created between book and tax treatment and flowed the tax benefit through to tax expense. A regulatory asset was established to reflect the recovery of future increases in taxes payable from customers as the temporary differences reverse. As a result of this regulatory treatment, we continue to record tax benefits consistent with the flow-through method.
(e)    In 2018, the Company restructured certain legal entities from earlier acquisitions, which resulted in additional deferred income tax assets of $73 million, related to goodwill that is amortizable for tax purposes, and deferred tax benefits of $73 million.
(f)    On December 22, 2017, the TCJA was signed into law reducing the federal corporate rate from 35% to 21% effective January 1, 2018. During the year ended December 31, 2018, we recorded $4.0 million of additional tax expense associated with changes in the prior estimated impacts of TCJA related items.
(g)    Primarily TCJA - see above.
Deferred Tax Assets and Liabilities

The temporary differences, which gave rise to the net deferred tax liability, for the years ended December 31 were as follows (in thousands):
20202019
Deferred tax assets:
Regulatory liabilities$90,535 $89,754 
State tax credits23,339 23,261 
Federal NOL96,155 120,624 
State NOL9,914 13,537 
Partnership15,601 14,030 
Credit Carryovers51,445 27,139 
Other deferred tax assets40,143 33,395 
Less: Valuation allowance(13,943)(12,063)
Total deferred tax assets313,189 309,677 
Deferred tax liabilities:
Accelerated depreciation, amortization and other property-related differences(551,137)(533,292)
Regulatory assets(28,007)(23,586)
Goodwill(30,590)(15,875)
State deferred tax liability(73,910)(72,911)
Other deferred tax liabilities(38,169)(24,732)
Total deferred tax liabilities(721,813)(670,396)
Net deferred tax liability$(408,624)$(360,719)


Net Operating Loss Carryforwards

At December 31, 2020, we have federal and state NOL carryforwards that will expire at various dates as follows (in thousands):
AmountsExpiration Dates
Federal NOL Carryforward$378,236 2022to2037
Federal NOL Carryforward$79,644 No expiration
State NOL Carryforward (a)
$173,867 2021to2040
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(a)    The carryforward balance is reflected on the basis of apportioned tax losses to jurisdictions imposing state income taxes.

As of December 31, 2020, we had a $1.1 million valuation allowance against the state NOL carryforwards. Our 2020 analysis of the ability to utilize such NOLs resulted in a $0.8 million increase in the valuation allowance reduced by previously reserved expiring NOL of $0.2 million, which results in an increase to tax expense of $0.8 million net of federal income tax and a decrease to the state NOL deferred tax asset of $0.2 million. The valuation allowance adjustment was primarily attributable to statutory rate reduction for years beyond 2020.
Unrecognized Tax Benefits

The following table reconciles the total amounts of unrecognized tax benefits, without interest, at the beginning and end of the period included in Other deferred credits and other liabilities on the accompanying Consolidated Balance Sheets (in thousands):
Changes in Uncertain Tax Positions
Beginning balance at January 1, 2018$3,263 
Additions for prior year tax positions251 
Reductions for prior year tax positions(417)
Additions for current year tax positions486 
Settlements— 
Ending balance at December 31, 20183,583 
Additions for prior year tax positions446 
Reductions for prior year tax positions(862)
Additions for current year tax positions998 
Settlements— 
Ending balance at December 31, 20194,165 
Additions for prior year tax positions3,788 
Reductions for prior year tax positions(1,313)
Additions for current year tax positions1,743 
Settlements— 
Ending balance at December 31, 2020$8,383 

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $4.3 million.

We recognized no interest expense associated with income taxes for the years ended December 31, 2020, December 31, 2019 and December 31, 2018. We had no accrued interest (before tax effect) associated with income taxes at December 31, 2020 and December 31, 2019.

The Company is subject to federal income tax as well as income tax in various state and local jurisdictions. Black Hills Gas, Inc. and subsidiaries, which filed a separate consolidated tax return from BHC and subsidiaries through March 31, 2018, is under examination by the IRS for 2014. BHC is no longer subject to examination for tax years prior to 2017.

As of December 31, 2020, we do not have any tax positions for which it is reasonably possible that the total amount of unrecognized tax benefits will significantly increase or decrease on or before December 31, 2021.

State tax credits have been generated and are available to offset future state income taxes. At December 31, 2020, we had the following state tax credit carryforwards (in thousands):
State Tax Credit CarryforwardsExpiration Year
ITC$23,060 2023to2041
Research and development$278 No expiration

As of December 31, 2020, we had a $12.8 million valuation allowance against the state ITC carryforwards. Our 2020 analysis of the ability to utilize such ITC resulted in a $1.3 million increase in the valuation allowance, which resulted in an increase to tax expense of $1.3 million. The valuation allowance adjustment was primarily attributable to changes in forecasted future state taxable income.