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Income Taxes | 12 Months Ended
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Dec. 31, 2019
Income Tax Disclosure [Abstract] |
Income Taxes | Income Taxes The components of income tax expense were:
| 2019 |  | 2018 |  | 2017
Current: |  |  |  |  |
Federal | $ | 7,577 |  |  | 14,485 |  |  | 29,377 |
State | 2,126 |  |  | 5,066 |  |  | 6,452 |
Deferred: |  |  |  |  |
Federal | (1,929 | ) |  | (7,702 | ) |  | (1,174 | )
State | 680 |  |  | (1,784 | ) |  | 738 |
| $ | 8,454 |  |  | 10,065 |  |  | 35,393 |
The following table reconciles income tax expense to the amount computed by applying the federal statutory rate to income before income taxes of $32,081, $48,832 and $96,493 in 2019, 2018 and 2017:
| 2019 |  | 2018 |  | 2017
“Expected” federal income tax | $ | 6,737 |  |  | 10,255 |  |  | 33,773 |
Increase (decrease) in taxes attributable to: |  |  |  |  |
State taxes, net of federal income tax benefit | 2,251 |  |  | 3,420 |  |  | 4,986 |
Uncertain tax positions | 323 |  |  | 24 |  |  | 12 |
Property flow-through | (2,054 | ) |  | (839 | ) |  | (1,027 | )
Capitalized merger costs | 5,350 |  |  | — |  |  | — |
Tax reform - rate change impact on deferred taxes | 77 |  |  | — |  |  | (2,357 | )
Reversal of excess deferred taxes recognized in regulatory liability | (2,355 | ) |  | (1,383 | ) |  | — |
Pension flow-through | (1,244 | ) |  | — |  |  | — |
Stock-based compensation | (223 | ) |  | (1,602 | ) |  | (552 | )
Other items, net | (408 | ) |  | 190 |  |  | 558 |
| $ | 8,454 |  |  | 10,065 |  |  | 35,393 |
The components of the net deferred tax liability as of December 31 was as follows:
| 2019 |  | 2018
Deferred tax assets: |  |  |
Advances and contributions | $ | 19,547 |  |  | 14,592 |
Unamortized investment tax credit | 649 |  |  | 418 |
Pensions and postretirement benefits | 32,450 |  |  | 20,439 |
Debt premium, net | 7,002 |  |  | — |
California franchise tax | 456 |  |  | 981 |
Net operating loss | 1,046 |  |  | — |
Merger related expenses | — |  |  | 4,527 |
Tax related net regulatory liability | — |  |  | 16,212 |
Other | 7,211 |  |  | 3,336 |
Gross deferred tax assets | 68,361 |  |  | 60,505 |
Valuation allowance | (1,924 | ) |  | — |
Total deferred tax assets | 66,437 |  |  | 60,505 |
Deferred tax liabilities: |  |  |
Utility plant | 211,079 |  |  | 114,731 |
Pension and postretirement benefits | 22,263 |  |  | 18,534 |
Deferred gain and other-property related | 5,872 |  |  | 5,753 |
Regulatory asset - business combinations debt premium, net | 7,002 |  |  | — |
Intangibles | 3,693 |  |  | — |
Deferred revenue | 1,962 |  |  | — |
Regulatory asset - income tax temporary differences, net | 295 |  |  | — |
Section 481(a) adjustments | 5,721 |  |  | — |
Other | 4,148 |  |  | 1,138 |
Total deferred tax liabilities | 262,035 |  |  | 140,156 |
Net deferred tax liabilities | $ | 195,598 |  |  | 79,651 |
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 valuation allowance as of December 31, 2019 relates to state net operating losses assumed from CTWS. Net operating loss carryforwards assumed from the CTWS merger expire beginning in 2029 and ending in 2038. Federal net operating loss carryforward generated after December 31, 2017 have no expiration. As of December 31, 2019, the estimated amount of CTWS net operating loss carryforwards available to offset future taxable income for Federal, Connecticut and Maine purposes are $9,213, $32,604 and $9,506, respectively. SJW Group also assumed from the CTWS merger estimated state tax credit carryforwards of $1,000 which will expire beginning in 2020 and ending in 2040. The valuation allowance, the net operating losses, and the state tax credit carryforwards are expected to be adjusted during the acquisition measurement period. The change in the net deferred tax liabilities of $115,947 in 2019 included $109,435 from recording the acquisition of CTWS and other non-cash items 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 $4,037 and $1,411 as of December 31, 2019 and 2018, 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 $27 and $70 as of December 31, 2019 and 2018, respectively. A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
| 2019 |  | 2018 |  | 2017
Balance at beginning of year | $ | 1,382 |  |  | 1,307 |  |  | 1,132 |
Increase related to tax positions taken during the current year, including interest | 351 |  |  | — |  |  | — |
Increase related to tax positions taken during a prior year, including interest | 3,483 |  |  | 75 |  |  | 185 |
Reductions related to tax positions taken in a prior year, including interest | (1,382 | ) |  | — |  |  | (10 | )
Balance at end of year | $ | 3,834 |  |  | 1,382 |  |  | 1,307 |
The increase in gross unrecognized tax benefits in 2019 was primarily a result of the acquisition of CTWS. 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 $27 as of December 31, 2019. SJW Group has not accrued any penalties for unrecognized tax benefits. The amount of interest recognized in 2019 was a decrease to expense of $43. SJW Group does not foresee material changes to its gross uncertain tax liability within the next 12 months following December 31, 2019. 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 the fourth quarter of 2018. An additional tax expense of $67 and a reduction of $455 in regulatory liability was recorded. The CPUC has directed SJWC 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 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, SJWC recorded $6,504 liability in the tax memorandum account for the year ended December 31, 2018. For discussion on approved refunds, please see “Regulatory Rate Filings” in Note 1. 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 2016 for federal purposes and 2015 for state purposes. The open tax years for the jurisdictions in which SJW Group files are as follows:
Jurisdiction | Years Open
Federal | 2016 - 2018
California | 2015 - 2018
Arizona | 2015 - 2016
Tennessee | 2016 - 2018
Texas | 2015 - 2018
Connecticut | 2016 - 2018
Maine | 2016 - 2018

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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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