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Taxes on Income | 12 Months Ended
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Dec. 31, 2014
Income Tax Disclosure [Abstract] |
Taxes on Income | Taxes on Income Registrant provides deferred income taxes for temporary differences under the accounting guidance for income taxes for certain transactions which are recognized for income tax purposes in a period different from that in which they are reported in the financial statements. The most significant items are the tax effects of differences in asset basis (including accelerated depreciation and capitalization methods), certain regulatory balancing accounts and advances for, and contributions in aid of construction. The accounting guidance for income taxes also requires that rate-regulated enterprises record deferred income taxes for temporary differences given flow-through treatment at the direction of a regulatory commission. The resulting deferred tax assets and liabilities are recorded at the expected cash flow to be reflected in future rates. Given that the CPUC has consistently permitted the recovery of flowed-through tax effects, GSWC has established regulatory liabilities and assets offsetting such deferred tax assets and liabilities (Note 2). Deferred investment tax credits (“ITC”) are amortized ratably to deferred tax expense over the lives of the property giving rise to the credits. GSWC is included in AWR’s consolidated federal income tax and combined California state franchise tax returns. California unitary apportionment provides a benefit or detriment to AWR’s state taxes, depending on a combination of the profitability of AWR’s non-California activities as well as the proportion of its California sales to total sales. Consistent with the method adopted for regulatory purposes, GSWC’s tax expense is computed as if GSWC were autonomous and files separate returns. Given that all of GSWC’s activities are conducted within California, GSWC’s state tax expense does not reflect apportionment of its income. As a regulated utility, GSWC treats certain temporary differences as flow-through adjustments in computing its income tax provision consistent with the income tax approach approved by the CPUC for ratemaking purposes. Flow-through adjustments increase or decrease tax expense in one period, with an offsetting decrease or increase occurring in another period. Giving effect to these temporary differences as flow-through adjustments typically results in a greater variance between the effective tax rate (“ETR”) and the statutory federal income tax rate in any given period than would otherwise exist if GSWC were not required to account for its income taxes as a regulated enterprise. The GSWC ETRs deviate from the statutory rate primarily due to state taxes and differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally plant-, rate-case- and compensation-related items). The ETR at the AWR consolidated level also fluctuates as a result of ASUS's state income taxes, which vary among the jurisdictions in which it operates, and certain permanent differences. Changes in Tax Law During the fourth quarter of 2014, the Company reflected a change in its tax method of accounting for certain repair and maintenance expenditures pursuant to regulations issued by the U.S. Treasury Department in September 2013. The Company will file an application for an automatic change in tax accounting method with the Internal Revenue Service ("IRS") for the 2014 tax year to implement the new method effective January 1, 2014. The tax accounting method change will also include a cumulative adjustment for 2013 and prior years, and will permit the expensing of certain utility asset replacement costs that were previously being capitalized and depreciated for book and tax purposes. As a result of the change, the Company will deduct a significant amount of linear asset costs, which consist primarily of water mains and connections. During the fourth quarter of 2014, the Company completed its analysis of the cumulative adjustment for 2013 and prior years, and recorded a deferred income tax liability of $22.5 million for federal and state repair-and-maintenance deductions of $47 million and $107 million, respectively. In addition, the 2014 deduction for both federal and state purposes was $20.3 million, creating an $8.3 million deferred income tax liability. Although this change reduced AWR’s current taxes payable, it did not reduce its total 2014 income tax expense or ETR. Furthermore, as a result of the repair-and-maintenance deductions, AWR and GSWC generated state net operating losses (“NOLs”) and, as of December 31, 2014, such NOL carry-forwards total $3.6 million and $9.3 million, respectively, which will expire in 2034. The Company believes that it is more likely than not that the benefit from the state income tax NOL carryforwards will be realized and therefore requires no valuation allowance. In December 2014, the Tax Increase Prevention Act of 2014 extended 50% bonus depreciation for qualifying property through 2014. Although this change in law reduced AWR’s current taxes payable, it did not reduce its total income tax expense or ETR. The significant components of the deferred tax assets and liabilities as reflected in the balance sheets at December 31, 2014 and 2013 are:
|  | AWR |  | GSWC
|  | December 31, |  | December 31,
(dollars in thousands) |  | 2014 |  | 2013 |  | 2014 |  | 2013
Deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Regulatory-liability-related: ITC |  | $ | 1,001 |  |  | $ | 1,049 |  |  | $ | 1,001 |  |  | $ | 1,049 |
Regulatory-liability-related: California Corp Franchise Tax |  | 4,328 |  |  | 4,337 |  |  | 4,328 |  |  | 4,337 |
Other non-property-related |  | 2,395 |  |  | 4,125 |  |  | 2,136 |  |  | 3,292 |
Contributions and advances |  | 8,335 |  |  | 8,655 |  |  | 8,335 |  |  | 8,655 |
|  | $ | 16,059 |  |  | $ | 18,166 |  |  | $ | 15,800 |  |  | $ | 17,333 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Fixed assets |  | $ | (163,232 | ) |  | $ | (131,534 | ) |  | $ | (164,724 | ) |  | $ | (131,548 | )
Regulatory-asset-related: depreciation and other |  | (22,941 | ) |  | (21,575 | ) |  | (22,941 | ) |  | (21,575 | )
California Corp Franchise Tax |  | (4,069 | ) |  | (2,120 | ) |  | (4,831 | ) |  | (1,749 | )
Other property-related |  | (59 | ) |  | (155 | ) |  | (59 | ) |  | (155 | )
Balancing and memorandum accounts |  | (4,071 | ) |  | (6,663 | ) |  | (4,071 | ) |  | (6,663 | )
Deferred charges |  | (5,461 | ) |  | (6,064 | ) |  | (5,461 | ) |  | (6,064 | )
|  | (199,833 | ) |  | (168,111 | ) |  | (202,087 | ) |  | (167,754 | )
Accumulated deferred income taxes - net |  | $ | (183,774 | ) |  | $ | (149,945 | ) |  | $ | (186,287 | ) |  | $ | (150,421 | )
The current and deferred components of income tax expense are as follows:
|  | AWR
|  | Year Ended December 31,
(dollars in thousands) |  | 2014 |  | 2013 |  | 2012
Current |  |  |  |  |  |  |  |  |
Federal |  | $ | 5,595 |  |  | $ | 13,741 |  |  | $ | 15,585 |
State |  | 137 |  |  | 5,930 |  |  | 5,273 |
Total current tax expense |  | $ | 5,732 |  |  | $ | 19,671 |  |  | $ | 20,858 |
Deferred |  |  |  |  |  |  |  |  |
Federal |  | $ | 24,815 |  |  | $ | 14,769 |  |  | $ | 13,088 |
State |  | 7,501 |  |  | 1,343 |  |  | 1,999 |
Total deferred tax expense |  | 32,316 |  |  | 16,112 |  |  | 15,087 |
Total income tax expense |  | $ | 38,048 |  |  | $ | 35,783 |  |  | $ | 35,945 |
|  | GSWC
|  | Year Ended December 31,
(dollars in thousands) |  | 2014 |  | 2013 |  | 2012
Current |  |  |  |  |  |  |  |  |
Federal |  | $ | 408 |  |  | $ | 10,768 |  |  | $ | 7,957 |
State |  | (2,754 | ) |  | 6,315 |  |  | 3,830 |
Total current tax expense |  | $ | (2,346 | ) |  | $ | 17,083 |  |  | $ | 11,787 |
Deferred |  |  |  |  |  |  |  |  |
Federal |  | $ | 24,373 |  |  | $ | 14,691 |  |  | $ | 12,670 |
State |  | 9,979 |  |  | 1,360 |  |  | 2,043 |
Total deferred tax expense |  | 34,352 |  |  | 16,051 |  |  | 14,713 |
Total income tax expense |  | $ | 32,006 |  |  | $ | 33,134 |  |  | $ | 26,500 |
The reconciliations of the effective tax rates to the federal statutory rate are as follows:
|  | AWR
|  | Year Ended December 31,
(dollars in thousands, except percent) |  | 2014 |  | 2013 |  | 2012
Federal taxes on pretax income at statutory rate |  | $ | 34,687 |  |  | $ | 34,464 |  |  | $ | 31,533 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |
State income tax, net of federal benefit |  | 4,781 |  |  | 5,111 |  |  | 4,957 |
Flow-through on fixed assets |  | 651 |  |  | 646 |  |  | 636 |
Flow-through on pension costs |  | (507 | ) |  | 612 |  |  | 10 |
Flow-through on removal costs |  | (1,571 | ) |  | (2,141 | ) |  | (943 | )
Domestic production activities deduction |  | (643 | ) |  | (2,944 | ) |  | (553 | )
Investment tax credit |  | (91 | ) |  | (91 | ) |  | (91 | )
Other – net |  | 741 |  |  | 126 |  |  | 396 |
Total income tax expense from operations |  | $ | 38,048 |  |  | $ | 35,783 |  |  | $ | 35,945 |
Pretax income from operations |  | $ | 99,106 |  |  | $ | 98,469 |  |  | $ | 90,093 |
Effective income tax rate |  | 38.4 | % |  | 36.3 | % |  | 39.9 | %
|  | GSWC
|  | Year Ended December 31,
(dollars in thousands, except percent) |  | 2014 |  | 2013 |  | 2012
Federal taxes on pretax income at statutory rate |  | $ | 27,952 |  |  | $ | 28,622 |  |  | $ | 23,002 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |
State income tax, net of federal benefit |  | 4,693 |  |  | 5,372 |  |  | 4,048 |
Flow-through on fixed assets |  | 651 |  |  | 646 |  |  | 636 |
Flow-through on pension costs |  | (507 | ) |  | 612 |  |  | 10 |
Flow-through on removal costs |  | (1,571 | ) |  | (2,141 | ) |  | (943 | )
Domestic production activities deduction |  | (55 | ) |  | (1,316 | ) |  | (553 | )
Investment tax credit |  | (91 | ) |  | (91 | ) |  | (91 | )
Other – net |  | 934 |  |  | 1,430 |  |  | 391 |
Total income tax expense from operations |  | $ | 32,006 |  |  | $ | 33,134 |  |  | $ | 26,500 |
Pretax income from operations |  | $ | 79,863 |  |  | $ | 81,776 |  |  | $ | 65,720 |
Effective income tax rate |  | 40.1 | % |  | 40.5 | % |  | 40.3 | %
AWR and GSWC had no unrecognized tax benefits at December 31, 2014, 2013 and 2012. Registrant’s policy is to classify interest on income tax over/underpayments in interest income/expense and penalties in “other operating expenses.” At December 31, 2014, AWR and GSWC included $504,000 and $472,000, respectively, of net interest receivables from taxing authorities in other current and noncurrent assets. AWR and GSWC recognized $19,000 and $14,000, respectively, of interest income from taxing authorities during the year ended December 31, 2014. At December 31, 2013, AWR and GSWC included $757,000 and $704,000, respectively, of net interest receivables from taxing authorities in other current and noncurrent assets. AWR and GSWC recognized $99,000 and $21,000 respectively, of interest income from taxing authorities during the year ended December 31, 2013. At December 31, 2012, AWR and GSWC included $2,838,000 and $2,775,000, respectively, of net interest receivables from taxing authorities in other current and noncurrent assets. AWR and GSWC recognized $473,000 and $461,000, respectively, of interest income from taxing authorities during the year ended December 31, 2012. At December 31, 2014, 2013 and 2012, Registrant had no significant accruals for income-tax-related penalties and did not recognize any significant income-tax-related penalties during the years ended December 31, 2014, 2013 and 2012. Registrant files federal and various state income tax returns. During 2014, the Internal Revenue Service (“IRS”) completed its examination of 2007 and 2008 refund claims and issued refunds for both. AWR’s federal 2010 refund claim came under exam in 2014, and its 2011-2013 tax years remain subject to examination by the IRS. AWR has filed protective refund claims with the applicable state taxing authority for the 2002 through 2008 tax years in connection with the matters on the federal claims for these years and other state tax matters. During 2012, the California Franchise Tax Board commenced examining these claims. The 2009-2013 tax years remain subject to examination by state taxing authorities.

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32718-109319 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher SEC -Name Regulation S-X (SX) -Number 210 -Section 08 -Paragraph h -Article 4 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32537-109319 Reference 6: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=6907707&loc=d3e32559-109319 + Details
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