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Taxes on Income
 12 Months Ended
Dec. 31, 2021
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 November 15, 2021, the Infrastructure Investment and Jobs Act (“IIJA”) was signed into federal law. Among its significant provisions, IIJA restores, on a retroactive basis to January 1, 2021, the provision that treats contributions in aid of construction provided to regulated water utilities as non-taxable, which TCJA had repealed. Further, IIJA broadens the provision to also treat government grants for water infrastructure as non-taxable.
The significant components of the deferred tax assets and liabilities as reflected in the balance sheets at December 31, 2021 and 2020 are:
 AWRGSWC
 December 31,December 31,
(dollars in thousands)2021202020212020
Deferred tax assets:    
Regulatory-liability-related (1)
$32,220 $32,640 $30,410 $30,782 
Contributions and advances6,850 6,390 7,227 6,771 
Other 5,324 6,092 5,689 6,663 
Total deferred tax assets$44,394 $45,122 $43,326 $44,216 
Deferred tax liabilities:    
Fixed assets$(150,290)$(146,688)$(144,719)$(141,422)
Regulatory-asset-related: depreciation and other(25,914)(22,205)(24,858)(21,060)
Balancing and memorandum accounts (non-flow-through)(8,480)(7,401)(6,063)(6,315)
Total deferred tax liabilities(184,684)(176,294)(175,640)(168,797)
Accumulated deferred income taxes, net$(140,290)$(131,172)$(132,314)$(124,581)
 (1) Primarily represents the gross-up portion of the deferred income tax (on the excess-deferred-tax regulatory liability) brought about by TCJA’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)202120202019
Current   
Federal$19,592 $19,240 $12,507 
State7,270 6,714 5,540 
Total current tax expense$26,862 $25,954 $18,047 
Deferred   
Federal$2,802 $1,814 $6,407 
State759 429 216 
Total deferred tax (benefit) expense3,561 2,243 6,623 
Total income tax expense $30,423 $28,197 $24,670 
 GSWC
 Year Ended December 31,
(dollars in thousands)202120202019
Current   
Federal$13,698 $14,674 $9,616 
State6,089 5,849 5,480 
Total current tax expense$19,787 $20,523 $15,096 
Deferred   
Federal$2,251 $949 $4,924 
State57 232 157 
Total deferred tax (benefit) expense2,308 1,181 5,081 
Total income tax expense$22,095 $21,704 $20,177 
The differences between AWR’s and GSWC’s effective tax rates and the federal statutory rate are mostly attributable to (i) state taxes; (ii) permanent differences including the excess tax benefits from share-based payments, which are reflected in the income statements and reduced income tax expense; (iii) continuing amortization of the excess deferred income tax liability, 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-jurisdictional 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)202120202019
Federal taxes on pretax income at statutory rate $26,202 $24,071 $22,872 
Increase (decrease) in taxes resulting from: 
State income tax, net of federal benefit6,425 5,764 4,758 
Excess deferred tax amortization(1,356)(1,550)(1,579)
Flow-through on fixed assets1,069 1,056 1,244 
Flow-through on removal costs(1,962)(1,031)(1,582)
Investment tax credit(71)(71)(71)
Other – net116 (42)(972)
Total income tax expense from operations$30,423 $28,197 $24,670 
Pretax income from operations$124,770 $114,622 $109,012 
Effective income tax rate24.4 %24.6 %22.6 %
.
 GSWC
Year Ended December 31,
(dollars in thousands)202120202019
Federal taxes on pretax income at statutory rate$19,175 $18,202 $18,236 
Increase (decrease) in taxes resulting from: 
State income tax, net of federal benefit4,923 4,920 4,656 
Excess deferred tax amortization(1,184)(1,477)(1,579)
Flow-through on fixed assets1,008 1,042 1,244 
Flow-through on removal costs(1,954)(1,026)(1,582)
Investment tax credit(71)(71)(71)
Other – net198 114 (727)
Total income tax expense from operations$22,095 $21,704 $20,177 
Pretax income from operations$91,310 $86,675 $86,840 
Effective income tax rate24.2 %25.0 %23.2 %
AWR and GSWC had no unrecognized tax benefits at December 31, 2021, 2020 and 2019.
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, 2021 and 2020, nor did it recognize any material interest income/expense or accrue any material tax-related penalties during the years ended December 31, 2021, 2020 and 2019.
Registrant files federal, California and various other state income tax returns. AWR's 2018—2020 tax years remain subject to examination by the Internal Revenue Service. AWR filed refund claims with the California Franchise Tax Board ("FTB") for the 2005 through 2008 and 2011 through 2016 tax years in connection with the matters reflected on prior federal refund claims along with other state tax items. The FTB continues to review the claims, and the 2009, 2010, and 2017—2020 tax years remain subject to examination by the FTB.