Income Taxes

The components of income tax expense were:



	2014			2013		2012
Current:
Federal	$	50		(525	)	—
State	(1,146		)	3,093		3,305
Deferred:
Federal	28,493			11,743		12,114
State	(2,426		)	(176	)	123
	$	24,971		14,135		15,542

The following table reconciles income tax expense to the amount computed by applying the federal statutory rate to income before income taxes of $76,777, $36,519 and $37,860 in 2014, 2013 and 2012:



	2014			2013		2012
“Expected” federal income tax	$	26,872		12,782		13,251
Increase (decrease) in taxes attributable to:
State taxes, net of federal income tax benefit	4,155			1,836		2,108
Dividend received deduction	(46		)	(60	)	(59	)
Uncertain tax positions	—			(650	)	82
Sales & Use Enterprise Zone Credit	(880		)	—		—
Tangible Property Regulations	(5,127		)	—		—
Other items, net	(3		)	227		160
	$	24,971		14,135		15,542

The components of the net deferred tax liability as of December 31 was as follows:



	2014		2013
Deferred tax assets:
Advances and contributions	$	16,212	15,598
Unamortized investment tax credit	709		741
Pensions and postretirement benefits	4,216		4,405
California franchise tax	—		1,107
Net operating loss	5,065		5,814
Other	1,697		1,596
Total deferred tax assets	$	27,899	29,261
Deferred tax liabilities:
Utility plant	$	150,662	125,706
Pension and postretirement benefits	47,059		25,649
Investment in stock	2,335		3,228
Deferred gain and other-property related	11,695		13,107
Debt reacquisition costs	443		496
Other	1,211		1,811
Total deferred tax liabilities	$	213,405	169,997
Net deferred tax liabilities	$	185,506	140,736

Management evaluates the realizability of our deferred tax assets based on all available evidence, both positive and negative. The realization of deferred tax assets is dependent on our ability to generate sufficient future taxable income during periods in which the deferred tax assets are expected to reverse. Based on all available evidence, management believes it is more likely than not that SJW Corp. will realize the benefits of these deferred tax assets.

As of December 31, 2014, the Company has a federal net operating loss carry forward of $14,051, which will expire in fiscal year 2031. This amount differs from the amount reported on the consolidated tax returns of $15,603 due to the adoption of ASU 2013-11 which provided explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists that can be utilized to offset unrecognized tax benefits. As of December 31, 2014, the Company has a state net operating loss carryforward of $1,659, which will expire in fiscal year 2034.

The total amount of unrecognized tax benefits, before the impact of deductions for state taxes, excluding interest and penalties was $684 and $565 as of December 31, 2014 and 2013, respectively. The amount of tax benefits, net of any federal benefits for state taxes and inclusive of interest that would impact the effective rate, if recognized, is approximately $14 and $13 as of December 31, 2014 and 2013, respectively.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:



Balance at December 31, 2013	$	535
Increase related to tax positions taken during a prior year, including interest	118
Reductions related to tax positions taken in a prior year, including interest	(4		)
Balance at December 31, 2014	$	649

SJW Corp.'s policy is to classify interest and penalties associated with unrecognized tax benefits, if any, in tax expense. Accrued interest expense, net of the benefit of tax deductions which would be available on the payment of such interest, is approximately $14 as of December 31, 2014. SJW Corp. has not accrued any penalties for unrecognized tax benefits. The amount of interest recognized in 2014 was an expense of $1.

SJW Corp. does not foresee material changes to its gross uncertain tax liability due to the lapse of the statute of limitations within the next 12 months following December 31, 2014.

In the second quarter of 2014, SJW Corp. recorded $880 in State of California enterprise zone sales and use tax credits related to tax years 2008 through 2012. The California Franchise Tax Board selected the Company's fiscal year's 2008 through 2012 refund claims for examination.

On September 13, 2013, the Department of Treasury and the Internal Revenue Service issued final tangible property regulations under provisions that generally are intended to simplify, clarify and make more administrable the 2011 temporary and proposed tangible property regulations. These regulations broadly apply to amounts to acquire, produce or improve tangible property, as well as dispositions of such property and provide criteria for determining whether such amounts can be deducted or should be capitalized as part of the asset. The final regulations generally are effective for tax years beginning on or after January 1, 2014. During the third quarter of 2014, management completed its evaluation of the capitalization elections under the new regulations in order to establish their method of complying with the new regulations and record the impact in the consolidated financial statements. To comply with the new regulations, SJW Corp. will apply the accounting method change in the 2014 tax returns for the expensing of certain utility asset improvement costs for tax purposes as of December 31, 2013 that were previously being capitalized for book and tax purposes. As of December 31, 2014, the 2014 federal and state repairs and maintenance deduction under the new methodology was $11,221, resulting in an estimated $3,927 Federal deferred tax liability and a state income tax benefit of $645. During the year ended December 31, 2014, SJW Corp. also completed a detailed analysis of the repairs and maintenance deduction related to 2013 and prior years, and recorded the estimated federal and state impact in the consolidated financial statements as of December 31, 2014. SJW Corp.'s Internal Revenue Code (“IRC”) §481(a) adjustment for Federal purposes was $35,912 and resulted in a $12,569 deferred tax liability as of December 31, 2014. SJW Corp.'s IRC §481(a) adjustment for state purposes was $77,999 and resulted in a $4,482 reduction to state income tax expense for the year ended December 31, 2014.

SJW Corp. files U.S. federal income tax returns and income tax returns in various states. The Company is no longer subject to tax examination for fiscal years prior to 2012 for federal purposes and 2010 for state purposes. The open tax years for the jurisdictions in which SJW Corp. files are as follows:



Jurisdiction	Years Open
Federal	2012 - 2013
California	2010 - 2013
Arizona	2010 - 2013
Connecticut	2011 - 2013
Florida	2011 - 2012
Tennessee	2011 - 2013
Texas	2010 - 2013