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Income Taxes | 12 Months Ended
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Dec. 31, 2018
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of income tax expense were:
| 2018 |  | 2017 |  | 2016
Current: |  |  |  |  |
Federal | $ | 14,485 |  |  | 29,377 |  |  | 21,651 |
State | 5,066 |  |  | 6,452 |  |  | 7,088 |
Deferred: |  |  |  |  |
Federal | (7,702 | ) |  | (1,174 | ) |  | 6,119 |
State | (1,784 | ) |  | 738 |  |  | (1,316 | )
| $ | 10,065 |  |  | 35,393 |  |  | 33,542 |
The following table reconciles income tax expense to the amount computed by applying the federal statutory rate to income before income taxes of $48,832, $96,493 and $86,381 in 2018, 2017 and 2016:
| 2018 |  | 2017 |  | 2016
“Expected” federal income tax | $ | 10,255 |  |  | 33,773 |  |  | 30,233 |
Increase (decrease) in taxes attributable to: |  |  |  |  |
State taxes, net of federal income tax benefit | 3,420 |  |  | 4,986 |  |  | 4,874 |
Dividend received deduction | (4 | ) |  | (18 | ) |  | (21 | )
Uncertain tax positions | 24 |  |  | 12 |  |  | 16 |
Tangible Property Regulations | (899 | ) |  | (1,159 | ) |  | (1,184 | )
Tax reform - rate change impact on deferred taxes | — |  |  | (2,357 | ) |  | — |
Reversal of excess deferred taxes recognized in regulatory liability | (1,383 | ) |  | — |  |  | — |
Stock-based compensation | (1,602 | ) |  | (552 | ) |  | — |
Noncontrolling interest income | — |  |  | (664 | ) |  | — |
Other items, net | 254 |  |  | 1,372 |  |  | (376 | )
| $ | 10,065 |  |  | 35,393 |  |  | 33,542 |
The components of the net deferred tax liability as of December 31 was as follows:
| 2018 |  | 2017
Deferred tax assets: |  |  |
Advances and contributions | $ | 14,592 |  |  | 12,036 |
Unamortized investment tax credit | 418 |  |  | 441 |
Pensions and postretirement benefits | 20,439 |  |  | 21,807 |
California franchise tax | 981 |  |  | 1,278 |
Merger related expenses | 4,527 |  |  | — |
Tax related net regulatory liability | 16,212 |  |  | 17,166 |
Other | 3,336 |  |  | 3,440 |
Total deferred tax assets | $ | 60,505 |  |  | 56,168 |
Deferred tax liabilities: |  |  |
Utility plant | $ | 114,731 |  |  | 114,695 |
Pension and postretirement benefits | 18,534 |  |  | 19,184 |
Investment in California Water Service Group stock | — |  |  | 1,199 |
Deferred gain and other-property related | 5,753 |  |  | 5,640 |
Debt reacquisition costs | 170 |  |  | 204 |
Other | 968 |  |  | 1,041 |
Total deferred tax liabilities | $ | 140,156 |  |  | 141,963 |
Net deferred tax liabilities | $ | 79,651 |  |  | 85,795 |
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 $6,144 in 2018 included non-cash items of $3,342 primarily consisting of regulatory assets and liabilities 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 $1,411 and $1,359 as of December 31, 2018 and 2017, 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 $70 and $46 as of December 31, 2018 and 2017, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| 2018 |  | 2017 |  | 2016
Balance at beginning of year | $ | 1,307 |  |  | $ | 1,132 |  |  | $ | 755 |
Increase related to tax positions taken during a prior year, including interest | 75 |  |  | 185 |  |  | 397 |
Reductions related to tax positions taken in a prior year, including interest | — |  |  | (10 | ) |  | (20 | )
Balance at end of year | $ | 1,382 |  |  | $ | 1,307 |  |  | $ | 1,132 |
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 $70 as of December 31, 2018. SJW Group has not accrued any penalties for unrecognized tax benefits. The amount of interest recognized in 2018 was an expense of $24. 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, 2018. On August 15, 2018, SJW Group received notification that the Texas Comptroller of Public Accounts completed its audit of the Texas Franchise Tax Report for the report year 2015 and has no changes. SJW Group applied the accounting method changes required to comply with the Tangible Property Regulations starting with the 2014 tax returns. The 2018 federal and state repairs and maintenance deduction under the new methodology was $12,873, resulting in an estimated $2,703 federal deferred tax liability and a state income tax benefit of $899. 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. 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 reduction in the corporate income tax rate from 35% to 21%. The rate reduction was effective on January 1, 2018. In accordance with generally accepted accounting principles, SJW Group 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 were based on information known and reasonable estimates used as of December 31, 2017. As such, SJW Group recorded this estimate as a provisional amount. 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 in 2017. SJW Group completed its accounting for the tax effects of tax reform in fourth quarter of 2018. An additional tax expense of $67 and a reduction of $455 in regulatory liability was recorded. 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 customers. 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 benefits associated with regulatory activities is expected to flow back to customers as directed by the CPUC and PUCT, with no impact to net income. As per Advice Letter No. 522A filed with CPUC, the benefit of the reduction in the federal statutory income tax rate from 35% to 21% were reflected in the customer bills effective July 1, 2018. The tax memorandum account only includes the benefit of the reduction in the federal statutory income tax rate through June 30, 2018. The other impacts of the Tax Act were recorded in the tax memorandum account for the entire year. Accordingly, San Jose Water Company recorded $6,504 liability in the tax memorandum account for the year ended December 31, 2018. CLWSC refunded the accrued amounts for the period January 25, 2018, through April 30, 2018, in the second quarter of 2018. The FTCC will continue to be reflected on customer bills every month starting from May 1, 2018 until the implementation of new rates resulting from the next rate case. SJW Group expects the Internal Revenue Service to issue guidance in future periods that will determine the final disposition of the excess deferred taxes and other impacts of the Tax Act. At this time, the Company has applied a reasonable interpretation of the Tax Act. Future clarification of the Tax Act may change the amounts estimated. 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 2015 for federal purposes and 2014 for state purposes. The open tax years for the jurisdictions in which SJW Group files are as follows:
Jurisdiction | Years Open
Federal | 2015 - 2017
California | 2014 - 2017
Arizona | 2014 - 2016
Tennessee | 2015 - 2017
Texas | 2014 - 2017

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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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