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Income Taxes
 12 Months Ended
Dec. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes

Note 3 - Income Taxes

Income tax (benefit) expense differs from the amount computed by applying the statutory rate on book income subject to tax for the following reasons:

(Thousands of Dollars)

Years Ended December 31,

2021

2020

2019

Income Tax at Statutory Rate

$

6,521

$

7,204

$

6,457

Tax Effect of:

Utility Plant Related

(1,290

)

(1,356

)

(802

)

Tangible Property Repairs

(12,281

)

(11,298

)

(10,156

)

State Income Taxes – Net

1,499

1,364

1,173

Other

63

(33

)

188

Total Income Tax (Benefit) Expense

$

(5,488

)

$

(4,119

)

$

(3,140

)

Income tax (benefit) expense is comprised of the following:

(Thousands of Dollars)

Years Ended December 31,

2021

2020

2019

Current:

Federal

$

(8,247

)

$

(4,281

)

$

(3,822

)

State

1,467

2,598

2,246

Deferred:

Federal

933

(1,490

)

(726

)

State

431

(871

)

(761

)

Investment Tax Credits

(72

)

(75

)

(77

)

Total Income Tax (Benefit) Expense

$

(5,488

)

$

(4,119

)

$

(3,140

)

As part of Middlesex’s March 2018 base water rate settlement with the NJBPU, Middlesex received approval for regulatory accounting treatment of income tax benefits associated with the adoption of tangible property regulations issued by the IRS as well as prospective recognition of the income tax benefits for the immediate deduction of repair costs on tangible property. This results in significant reductions in the Company’s effective income tax rate, current income tax (benefit) expense and deferred income tax (benefit) expense.

53

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax purposes. The components of the net deferred tax liability are as follows:

(Thousands of Dollars)

December 31,

2021

2020

Utility Plant Related

$

65,107

$

56,868

Customer Advances

(3,595

)

(3,626

)

Employee Benefits

7,091

7,339

Investment Tax Credits

373

445

Other

524

271

Total Accumulated Deferred Income Taxes

$

69,500

$

61,297

The Company’s federal income tax returns for the tax years 2014 through 2017 were selected for examination by the IRS, which included the tax year in which the Company had adopted the final IRS tangible property regulations and changed its accounting method for the tax treatment of expenditures that qualified as deductible repairs. As a result of the audit examination, the Company agreed to certain modifications of its accounting method for expenditures that qualify as deductible repairs. In 2019, the Company paid $2.7 million in income taxes and $0.1 million in interest in connection with the conclusion of the 2014 through 2017 federal income tax return audits. As of December 31, 2021, the Company’s income tax reserve provision and interest expense liability are $0.5 million and $0.2 million, respectively.

The statutory review periods for federal income tax returns for the years prior to 2018 have been closed. Other than the effects of the provision against refundable taxes discussed above, there are no unrecognized tax benefits resulting from prior period tax positions.