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Income Taxes: | 12 Months Ended
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Dec. 31, 2021
Income Tax Disclosure [Abstract] |
Income Taxes | INCOME TAXES Winter Storm Uri As discussed in Note 2 above, our Utilities submitted cost recovery applications which seek to recover incremental costs from Winter Storm Uri through a regulatory mechanism. We expect to recover these costs from customers over several years. Winter Storm Uri costs, which will be deductible in our 2021 tax return, created a net deferred tax liability which had a balance of $124 million as of December 31, 2021. The deferred tax liability will reverse with the same timing as the costs are recovered from our customers. The income tax deduction recognized from Winter Storm Uri will create a $509 million NOL in our 2021 federal income tax return and a $375 million NOL in our state income tax returns. Our federal NOL carryforwards related to Winter Storm Uri and other recent adjustments no longer expire due to the TCJA; however, our state NOL carryforwards expire at various dates from 2022 to 2041. We do not anticipate material changes to our valuation allowance against the state NOL carryforwards from Winter Storm Uri. Therefore, we did not record an additional valuation allowance against the state NOL carryforwards as of December 31, 2021. 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. 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, of which $4.8 million was subsequently paid in 2021 and the remaining portion will be paid in 2022. During the year ended December 31, 2021, we completed our study of the CARES Act employee retention tax credits and recognized $1.2 million of gross payroll tax credits. 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. 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, 2021, the Company has amortized, or provided bill credits for, $23 million of the regulatory liability. The portion that was eligible for amortization under the average rate assumption method in 2021 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):
| 2021 | 2020 | 2019
Current: |  |  |
Federal | $ | 574 |  | $ | (6,020) |  | $ | (8,578) |
State | (666) |  | 847 |  | 138 |
Current income tax (benefit) | (92) |  | (5,173) |  | (8,440) |
Deferred: |  |  |
Federal | 2,170 |  | 35,672 |  | 34,551 |
State | 5,091 |  | 2,419 |  | 3,469 |
Deferred income tax expense | 7,261 |  | 38,091 |  | 38,020 |
Income tax expense | $ | 7,169 |  | $ | 32,918 |  | $ | 29,580 |
Effective Tax Rates The effective tax rate differs from the federal statutory rate for the years ended December 31, as follows:
| 2021 | 2020 | 2019
Federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | %
State income tax (net of federal tax effect) | 1.2 |  | 2.4 |  | 1.5 |
Non-controlling interest (a) | (1.2) |  | (1.2) |  | (1.2) |
Tax credits(b) | (8.4) |  | (9.2) |  | (3.9) |
Flow-through adjustments (c) | (3.2) |  | (1.6) |  | (2.4) |
Uncertain Tax Benefits | 0.3 |  | 1.5 |  | — |
Valuation Allowance | — |  | 0.7 |  | — |
Other tax differences | (0.2) |  | 0.6 |  | (1.6) |
Amortization of excess deferred income tax expense (d) | (3.1) |  | (2.3) |  | (1.2) |
TCJA bill credits (e) | (3.6) |  | — |  | — |
Effective Tax Rate | 2.8 | % | 11.9 | % | 12.2 | %
____________________ (a) The effective tax rate reflects the income attributable to the non-controlling interest in Black Hills Colorado IPP for which a tax provision was not recorded. (b) In 2020, the Company completed a research and development study which encompassed tax years from 2013 to 2019. (c) Flow-through adjustments related primarily to accounting method changes for tax purposes that allow us to take a current tax deduction for repair costs, certain indirect costs and gain deferral. 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. (d) Primarily TCJA - see above. (e) As discussed in Note 2 above, Colorado Electric and Nebraska Gas bill credits, which represent a disposition of excess deferred income tax benefits resulting from the TCJA, were delivered to customers in 2021. These bill credits, which resulted in a reduction in revenue, were offset by a reduction in income tax expense and resulted in a minimal impact to Net income for the year ended December 31, 2021. 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):
| 2021 | 2020
Deferred tax assets: |  |
Regulatory liabilities | $ | 77,099 |  | $ | 90,535 |
State tax credits | 23,342 |  | 23,339 |
Federal NOL (a) | 227,535 |  | 96,155 |
State NOL (a) | 33,639 |  | 9,914 |
Partnership | 13,395 |  | 15,601 |
Credit Carryovers | 68,646 |  | 51,445 |
Other deferred tax assets | 31,996 |  | 40,143 |
Less: Valuation allowance | (14,719) |  | (13,943) |
Total deferred tax assets | 460,933 |  | 313,189 |
Deferred tax liabilities: |  |
Accelerated depreciation, amortization and other property-related differences | (597,284) |  | (551,137) |
Regulatory assets (a) | (124,582) |  | (28,007) |
Goodwill | (45,471) |  | (30,590) |
State deferred tax liability (a) | (109,136) |  | (73,910) |
Other deferred tax liabilities | (49,848) |  | (38,169) |
Total deferred tax liabilities | (926,321) |  | (721,813) |
Net deferred tax liability | $ | (465,388) |  | $ | (408,624) |
____________________ (a) Increase primarily driven by Winter Storm Uri — see above. Net Operating Loss Carryforwards At December 31, 2021, we have federal and state NOL carryforwards that will expire at various dates as follows (in thousands):
|  | Amounts |  | Expiration Dates
Federal NOL Carryforward |  | $ | 476,033 |  |  | 2022 | to | 2037
Federal NOL Carryforward |  | $ | 607,465 |  |  | No expiration
State NOL Carryforward (a) |  | $ | 572,203 |  |  | 2022 | to | 2041
____________________ (a) The carryforward balance is reflected on the basis of apportioned tax losses to jurisdictions imposing state income taxes. As of December 31, 2021, we had a $1.1 million valuation allowance against the state NOL carryforwards. Our 2021 analysis of the ability to utilize such NOLs resulted in no increase in the valuation allowance. If the valuation allowance is adjusted due to higher or lower than anticipated utilization of the NOLs, the offsetting amount will affect tax expense. 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: | 2021 | 2020 | 2019
Beginning balance | $ | 8,383 |  | $ | 4,165 |  | $ | 3,583 |
Additions for prior year tax positions | 448 |  | 3,788 |  | 446 |
Reductions for prior year tax positions | (732) |  | (1,313) |  | (862) |
Additions for current year tax positions | 2,455 |  | 1,743 |  | 998 |
Ending balance | $ | 10,554 |  | $ | 8,383 |  | $ | 4,165 |
The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $5.1 million. We recognized no interest expense associated with income taxes for the years ended December 31, 2021, December 31, 2020 and December 31, 2019. We had no accrued interest (before tax effect) associated with income taxes at December 31, 2021 and December 31, 2020. 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, 2021, 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, 2022. State tax credits have been generated and are available to offset future state income taxes. At December 31, 2021, we had the following state tax credit carryforwards (in thousands):
State Tax Credit Carryforwards | Amounts | Expiration Year
ITC | $ | 23,060 |  | 2023 | to | 2041
Research and development | $ | 282 |  | No expiration
As of December 31, 2021, we had a $13.6 million valuation allowance against the state ITC carryforwards. Our 2021 analysis of the ability to utilize such ITC resulted in a $0.8 million increase in the valuation allowance, which resulted in an increase to tax expense of $0.8 million. The valuation allowance adjustment was primarily attributable to changes in forecasted future state taxable income.

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