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Income Taxes | 12 Months Ended
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Dec. 31, 2017
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of income tax expense were:
| 2017 |  | 2016 |  | 2015
Current: |  |  |  |  |
Federal | $ | 29,377 |  |  | 21,651 |  |  | 3,723 |
State | 6,452 |  |  | 7,088 |  |  | 3,924 |
Deferred: |  |  |  |  |
Federal | (1,174 | ) |  | 6,119 |  |  | 16,109 |
State | 738 |  |  | (1,316 | ) |  | (484 | )
| $ | 35,393 |  |  | 33,542 |  |  | 23,272 |
The following table reconciles income tax expense to the amount computed by applying the federal statutory rate to income before income taxes of $96,493, $86,381 and $61,154 in 2017, 2016 and 2015:
| 2017 |  | 2016 |  | 2015
“Expected” federal income tax | $ | 33,773 |  |  | 30,233 |  |  | 21,404 |
Increase (decrease) in taxes attributable to: |  |  |  |  |
State taxes, net of federal income tax benefit | 4,986 |  |  | 4,874 |  |  | 3,332 |
Dividend received deduction | (18 | ) |  | (21 | ) |  | (43 | )
Uncertain tax positions | 12 |  |  | 16 |  |  | 3 |
Sales & Use Enterprise Zone Credit | (9 | ) |  | (117 | ) |  | — |
Tangible Property Regulations | (1,159 | ) |  | (1,184 | ) |  | (1,081 | )
Tax reform - rate change impact on deferred taxes | (2,357 | ) |  | — |  |  | — |
Noncontrolling interest income | (664 | ) |  | — |  |  | — |
Other items, net | 829 |  |  | (259 | ) |  | (343 | )
| $ | 35,393 |  |  | 33,542 |  |  | 23,272 |
The components of the net deferred tax liability as of December 31 was as follows:
| 2017 |  | 2016
Deferred tax assets: |  |  |
Advances and contributions | $ | 9,929 |  |  | 17,196 |
Unamortized investment tax credit | 441 |  |  | 644 |
Pensions and postretirement benefits | 21,349 |  |  | 3,927 |
California franchise tax | 1,058 |  |  | 2,331 |
Other | 3,110 |  |  | 4,802 |
Total deferred tax assets | $ | 35,887 |  |  | 28,900 |
Deferred tax liabilities: |  |  |
Utility plant | $ | 94,414 |  |  | 177,338 |
Pension and postretirement benefits | 19,184 |  |  | 44,737 |
Investment in stock | 1,199 |  |  | 1,280 |
Deferred gain and other-property related | 5,640 |  |  | 9,769 |
Debt reacquisition costs | 204 |  |  | 347 |
Other | 1,041 |  |  | 632 |
Total deferred tax liabilities | $ | 121,682 |  |  | 234,103 |
Net deferred tax liabilities | $ | 85,795 |  |  | 205,203 |
Management evaluates the realizability of 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 Group will realize the benefits of these deferred tax assets. The change in the net deferred tax liabilities of $119,408 in 2017 included non-cash items of $118,972 consisting primarily of the revaluation of deferred tax assets and liabilities which was booked as a regulatory liability. In addition, in connection with its review and revaluation of deferred taxes due to passage of the Tax Act in the fourth quarter of 2017, SJW Group determined that it had previously improperly grossed up regulatory assets and related deferred tax balances related to pensions, accrued vacation, and asset retirement obligations. The impact of this error was to overstate regulatory assets and deferred tax liabilities by $27,833 in 2017 and $47,123 in 2016. There was no associated impact on income, equity (including retained earnings), or cash flows in 2017, 2016, or 2015. Based on quantitative and qualitative factors, SJW Group determined that this amount was not material to quarterly or annual Consolidated Balance Sheets in fiscal year 2017 or 2016. As a result, SJW Group corrected the error in the current period. The change in the net deferred tax liabilities of $6,428 in 2016 included non-cash items of $1,625 for regulatory assets and liabilities primarily relating to income tax temporary differences. The total amount of unrecognized tax benefits, before the impact of deductions for state taxes, excluding interest and penalties was $1,359 and $1,184 as of December 31, 2017 and 2016, 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 $46 and $33 as of December 31, 2017 and 2016, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Balance at December 31, 2016 | $ | 1,132 |
Increase related to tax positions taken during a prior year, including interest | 185 |
Reductions related to tax positions taken in a prior year, including interest | (10 | )
Balance at December 31, 2017 | $ | 1,307 |
SJW Group’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 $46 as of December 31, 2017. SJW Group has not accrued any penalties for unrecognized tax benefits. The amount of interest recognized in 2017 was an expense of $12. SJW Group 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, 2017. In the fourth quarter of 2016, SJW Group recorded $117 in State of California enterprise zone sales and use tax credits related to tax years 2013 and 2014. In the second quarter of 2014, SJW Group had recorded $880 in State of California enterprise zone sales and use tax credits related to tax years 2008 through 2012. On July 24, 2017, SJW Group received notification that the California Franchise Tax Board completed its audit of SJW Group’s refund claims for fiscal years 2008 through 2012. SJW Group received a refund of $1,294 from the California Franchise Tax Board in the third quarter of 2017 which includes net operating loss carryback refund of $404. On February 5, 2018, SJW Group received notification from the Texas Comptroller of Public Accounts regarding an audit of the Texas Franchise Tax Report for the tax year 2015. SJW Group is in the process of providing a response to the audit questionnaire. SJW Group applied the accounting method changes required to comply with the Tangible Property Regulations starting with the 2014 tax returns. As of December 31, 2017, the 2017 federal and state repairs and maintenance deduction under the new methodology was $20,168, resulting in an estimated $7,059 federal deferred tax liability and a state income tax benefit of $1,159. As of December 31, 2016, the 2016 federal and state repairs and maintenance deduction under the new methodology was $20,611, resulting in an estimated $7,214 federal deferred tax liability and a state income tax benefit of $1,184. On December 22, 2017, the Tax Act was signed into law. The Tax Act includes a number of changes in existing tax law impacting businesses including, among other things, a permanent reduction in the corporate income tax rate from 35% to 21%. The rate reduction is effective on January 1, 2018. The SEC issued guidance in Staff Accounting Bulletin 118 (“SAB 118”) which provides for up to a one year period in which to complete the required analysis and income tax accounting for the Tax Act. SAB 118 describes three scenarios associated with a company’s status of accounting for income tax reform (1) a company is complete with its accounting for certain effects of tax reform, (2) a company is able to determine a reasonable estimate for certain effects of tax reform and records that estimate as a provisional amount, or (3) a company is not able to determine a reasonable estimate and therefore continues to apply the provisions of the tax laws that were in effect immediately prior to the Tax Act being effective. In accordance with Generally Accepted Accounting Principles (“GAAP”), SJW Group has recorded the revaluation of deferred taxes and related impacts using the new corporate tax rate in its December 31, 2017 consolidated financial statements. The amounts recorded are based on information known and reasonable estimates used as of December 31, 2017, but are subject to change based on a number of factors, including further actions of regulators, SJW Group filing its tax returns for the year ended December 31, 2017, and completion of SJW Group’s interim and annual consolidated financial statements for the year ending December 31, 2018. As such, SJW Group has recorded this estimate as a provisional amount. Under GAAP, the net deferred tax liabilities are required to be revalued during the period in which the new tax legislation is enacted. Accordingly, SJW Group revalued its deferred tax assets and liabilities in the fourth quarter of 2017. SJW Group recorded a tax benefit of $2,357 related to the deferred taxes revaluation impacting non-regulated operations due to the tax rate reduction. However, for regulated operations governed by state public utility commissions, the lower tax rate benefits are expected to flow back to customers under current normalization rules and agreed-upon methods with the commissions. The revaluation of deferred tax assets and liabilities of the regulated operations resulted in a decrease in net deferred tax liabilities of $83,666 which was recorded as a regulatory liability. The reduction in corporate tax rate is expected to result in overall lower tax expense beginning in 2018. The CPUC has directed San Jose Water Company to establish a memorandum account to capture all of the impacts of the Tax Act including the benefit of the reduction in the federal statutory income tax rate from 35% to 21% on its regulated revenue requirement. The CPUC has indicated that the net benefit from implementing the new law should ultimately be passed on to the ratepayers. The PUCT has directed water utilities to record as a regulatory liability the difference between the revenues collected under existing rates and the revenue that would have been collected had the existing rates been set using the new federal statutory income tax rate. The benefit associated with regulatory activities are expected to flow back to ratepayers as directed by the CPUC and PUCT, with no impact to net income. SJW Group files U.S. federal income tax returns and income tax returns in various states. SJW Group is no longer subject to tax examination for fiscal years prior to 2014 for federal purposes and 2013 for state purposes. The open tax years for the jurisdictions in which SJW Group files are as follows:
Jurisdiction | Years Open
Federal | 2014 - 2016
California | 2013 - 2016
Arizona | 2013 - 2016
Connecticut | 2014
Tennessee | 2014 - 2016
Texas | 2013 - 2016

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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 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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