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Taxes on Income | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Taxes on Income | Taxes on Income Registrant records deferred income taxes for temporary differences pursuant to the accounting guidance that addresses items recognized for income tax purposes in a different period from when these items are reported in the financial statements. These items include differences in net asset basis (primarily related to differences in depreciation lives and methods, and differences in capitalization methods) and the treatment of certain regulatory balancing accounts and construction contributions and advances. The accounting guidance for income taxes requires that rate-regulated enterprises record deferred income taxes and offsetting regulatory liabilities and assets for temporary differences where the rate regulator has prescribed flow-through treatment for ratemaking purposes (Note 3). Deferred investment tax credits (“ITC”) are amortized ratably to deferred tax expense over the remaining lives of the property that gave rise to these credits. GSWC is included in both AWR’s consolidated federal income tax and its combined California state franchise tax returns. The impact of California’s unitary apportionment on the amount of AWR’s California income tax liability is a function of both the profitability of AWR’s non-California activities and the proportion of AWR’s California sales to its total sales. GSWC’s income tax expense is computed as if GSWC were autonomous and separately files its income tax returns, which is consistent with the method adopted by the CPUC in setting GSWC’s customer rates. On December 22, 2017, the Tax Cuts and Jobs Act (the "Tax Act") was signed into federal law. The provisions of this major tax reform were generally effective on January 1, 2018. Among its significant provisions, the Tax Act (i) reduced the federal corporate income tax rate from 35% to 21%; (ii) eliminated bonus depreciation for regulated utilities, while allowing 100% expensing for the cost of qualified property for non-regulated businesses; (iii) eliminated the provision that treated contributions in aid of construction provided to regulated water utilities as non-taxable; (iv) eliminated the domestic production activities deduction, and (v) limits the amount of net interest that can be deducted; however, this limitation is not applicable to regulated utilities and, therefore has not had, nor is it anticipated to have, a material impact to Registrant’s ability to deduct net interest. Pursuant to ASC Topic 740, "Income Taxes", the effects of changes in tax laws must be recognized within the period in which the tax law is enacted. This required AWR and GSWC to record an adjustment in its 2017 financial statements to reflect the impact of the reduction in the corporate income tax rate from 35% to 21% on its cumulative deferred income-tax balances and its tax-related regulatory assets/liabilities. The remeasurement of Registrant’s deferred income-tax balances and its tax-related regulatory assets/liabilities did not have a significant impact to Registrant's consolidated results of operations in 2017 since the majority of the remeasurement was related to GSWC’s rate-regulated activities and was offset by a corresponding increase to a regulatory liability (Note 3). There were no material updates during the year ended December 31, 2018 to the remeasurement of Registrant's deferred income-tax balances and its tax-related regulatory assets/liabilities in accordance with Staff Accounting Bulletin 118. The significant components of the deferred tax assets and liabilities as reflected in the balance sheets at December 31, 2019 and 2018 are:
|  | AWR |  | GSWC
|  | December 31, |  | December 31,
(dollars in thousands) |  | 2019 |  | 2018 |  | 2019 |  | 2018
Deferred tax assets: |  |  |  |  |  |  |  |  |  |  |  |
Regulatory-liability-related (1) |  | $ | 33,080 |  |  | $ | 33,419 |  |  | $ | 33,080 |  |  | $ | 33,419 |
Contributions and advances |  | 5,777 |  |  | 5,281 |  |  | 6,158 |  |  | 5,666 |
Other |  | 5,792 |  |  | 2,988 |  |  | 6,618 |  |  | 3,310 |
Total deferred tax assets |  | $ | 44,649 |  |  | $ | 41,688 |  |  | $ | 45,856 |  |  | $ | 42,395 |
Deferred tax liabilities: |  |  |  |  |  |  |  |  |  |  |  |
Fixed assets |  | $ | (144,444 | ) |  | $ | (131,413 | ) |  | $ | (147,759 | ) |  | $ | (135,617 | )
Regulatory-asset-related: depreciation and other |  | (20,641 | ) |  | (18,146 | ) |  | (20,641 | ) |  | (18,146 | )
Balancing and memorandum accounts (non-flow-through) |  | (4,868 | ) |  | (6,325 | ) |  | (5,262 | ) |  | (6,873 | )
Total deferred tax liabilities |  | (169,953 | ) |  | (155,884 | ) |  | (173,662 | ) |  | (160,636 | )
Accumulated deferred income taxes - net |  | $ | (125,304 | ) |  | $ | (114,196 | ) |  | $ | (127,806 | ) |  | $ | (118,241 | )
(1) Primarily represents the gross-up portion of the deferred income tax (on the excess-deferred-tax regulatory liability) brought about by the Tax Act’s reduction in the federal income tax rate. The current and deferred components of income tax expense are as follows:
|  | AWR
|  | Year Ended December 31,
(dollars in thousands) |  | 2019 |  | 2018 |  | 2017
Current |  |  |  |  |  |  |  |  |
Federal |  | $ | 12,507 |  |  | $ | 17,252 |  |  | $ | 20,978 |
State |  | 5,540 |  |  | 6,538 |  |  | 5,844 |
Total current tax expense |  | $ | 18,047 |  |  | $ | 23,790 |  |  | $ | 26,822 |
Deferred |  |  |  |  |  |  |  |  |
Federal |  | $ | 6,407 |  |  | $ | (4,334 | ) |  | $ | 11,543 |
State |  | 216 |  |  | (1,439 | ) |  | 609 |
Total deferred tax (benefit) expense |  | 6,623 |  |  | (5,773 | ) |  | 12,152 |
Total income tax expense |  | $ | 24,670 |  |  | $ | 18,017 |  |  | $ | 38,974 |
|  | GSWC
|  | Year Ended December 31,
(dollars in thousands) |  | 2019 |  | 2018 |  | 2017
Current |  |  |  |  |  |  |  |  |
Federal |  | $ | 9,616 |  |  | $ | 14,488 |  |  | $ | 15,044 |
State |  | 5,480 |  |  | 5,932 |  |  | 5,045 |
Total current tax expense |  | $ | 15,096 |  |  | $ | 20,420 |  |  | $ | 20,089 |
Deferred |  |  |  |  |  |  |  |  |
Federal |  | $ | 4,924 |  |  | $ | (5,531 | ) |  | $ | 11,770 |
State |  | 157 |  |  | (1,286 | ) |  | 2,200 |
Total deferred tax (benefit) expense |  | 5,081 |  |  | (6,817 | ) |  | 13,970 |
Total income tax expense |  | $ | 20,177 |  |  | $ | 13,603 |  |  | $ | 34,059 |
The AWR and GSWC effective tax rates differ from the federal statutory tax rate primarily due to (i) state taxes; (ii) permanent differences including the excess tax benefits from share-based payments, which were reflected in the income statements and resulted in a reduction to income tax expense; (iii) amortization, commencing in 2018, of the excess deferred income tax liability brought about by the lower federal corporate income tax rate, and (iv) differences between book and taxable income that are treated as flow-through adjustments in accordance with regulatory requirements (principally from plant, rate-case, and compensation expenses). As a regulated utility, GSWC treats certain temporary differences as flow-through in computing its income tax expense consistent with the income tax method used in its CPUC-jurisdiction ratemaking. Flow-through items either increase or decrease tax expense and thus impact the ETR. The reconciliations of the effective tax rates to the federal statutory rate are as follows:
|  | AWR
|  | Year Ended December 31,
(dollars in thousands) |  | 2019 |  | 2018 |  | 2017
Federal taxes on pretax income at statutory rate (21% in 2019 and 2018; 35% in 2017) |  | $ | 22,872 |  |  | $ | 17,196 |  |  | $ | 37,919 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |
State income tax, net of federal benefit |  | 4,758 |  |  | 3,693 |  |  | 4,382 |
Change in tax rate |  | — |  |  | (14 | ) |  | (82 | )
Excess deferred tax amortization |  | (1,579 | ) |  | (2,101 | ) |  | — |
Flow-through on fixed assets |  | 1,244 |  |  | 429 |  |  | 845 |
Flow-through on removal costs |  | (1,582 | ) |  | (1,445 | ) |  | (1,980 | )
Domestic production activities deduction |  | — |  |  | (26 | ) |  | (1,421 | )
Investment tax credit |  | (71 | ) |  | (69 | ) |  | (93 | )
Other – net |  | (972 | ) |  | 354 |  |  | (596 | )
Total income tax expense from operations |  | $ | 24,670 |  |  | $ | 18,017 |  |  | $ | 38,974 |
Pretax income from operations |  | $ | 109,012 |  |  | $ | 81,888 |  |  | $ | 108,341 |
Effective income tax rate |  | 22.6 | % |  | 22.0 | % |  | 36.0 | %
|  | GSWC
|  | Year Ended December 31,
(dollars in thousands) |  | 2019 |  | 2018 |  | 2017
Federal taxes on pretax income at statutory rate (21% in 2019 and 2018; 35% in 2017) |  | $ | 18,236 |  |  | $ | 12,939 |  |  | $ | 30,736 |
Increase (decrease) in taxes resulting from: |  |  |  |  |  |  |
State income tax, net of federal benefit |  | 4,656 |  |  | 3,335 |  |  | 4,924 |
Change in tax rate |  | — |  |  | — |  |  | 1,063 |
Excess deferred tax amortization |  | (1,579 | ) |  | (2,101 | ) |  | — |
Flow-through on fixed assets |  | 1,244 |  |  | 429 |  |  | 845 |
Flow-through on removal costs |  | (1,582 | ) |  | (1,445 | ) |  | (1,980 | )
Domestic production activities deduction |  | — |  |  | (25 | ) |  | (1,148 | )
Investment tax credit |  | (71 | ) |  | (69 | ) |  | (93 | )
Other – net |  | (727 | ) |  | 540 |  |  | (288 | )
Total income tax expense from operations |  | $ | 20,177 |  |  | $ | 13,603 |  |  | $ | 34,059 |
Pretax income from operations |  | $ | 86,840 |  |  | $ | 61,615 |  |  | $ | 87,816 |
Effective income tax rate |  | 23.2 | % |  | 22.1 | % |  | 38.8 | %
AWR and GSWC had no unrecognized tax benefits at December 31, 2019, 2018 and 2017. Registrant’s policy is to classify interest on income tax over/underpayments in interest income/expense and penalties in “other operating expenses.” Registrant did not have any material interest receivables/payables from/to taxing authorities as of December 31, 2019 and 2018, nor did it recognize any material interest income/expense or accrue any material tax-related penalties during the years ended December 31, 2019, 2018 and 2017. Registrant files federal, California and various other state income tax returns. AWR's 2016 - 2018 tax years remain subject to examination by the Internal Revenue Service. AWR filed refund claims with the California Franchise Tax Board ("FTB") for the 2002 through 2008 tax years in connection with the matters reflected on the federal refund claims along with other state tax items. In the first quarter of 2017, the FTB issued a refund to AWR for the 2002 - 2004 claims of approximately $2.2 million. The FTB continues to review the 2005 - 2008 refund claims. The 2009 - 2018 tax years remain subject to examination by the FTB.

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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