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Income Taxes
 12 Months Ended
Dec. 31, 2024
Income Taxes [Abstract]  
Income Taxes

Note 3 – Income Taxes

 

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

 

   (In Thousands)
   Years Ended December 31,
   2024  2023  2022
Income Tax at Statutory Rate  $10,764   $6,839   $9,590 
Tax Effect of:               
Utility Plant Related   (659)   (1,495)   (1,106)
Tangible Property Repairs   (4,535)   (5,475)   (6,767)
State Income Taxes – Net   1,270    1,117    1,296 
Other   65    55    227 
Total Income Tax Expense  $6,905   $1,041   $3,240 

  

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

 

   (In Thousands)
   Years Ended December 31,
   2024  2023  2022
Current:         
Federal  $1,554   $2,952   $425 
State   1,126    1,066    1,381 
Deferred:               
Federal   3,802    (3,261)   1,242 
State   482    348    260 
Investment Tax Credits   (59)   (64)   (68)
Total Income Tax Expense  $6,905   $1,041   $3,240 

 

As part of Middlesex’s March 2018 general rate case 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 (fully amortized as of March 31, 2022) 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 expense and deferred income tax expense (benefit).

 

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:

 

   (In Thousands)
   December 31,
   2024  2023
Utility Plant Related  $95,877   $84,330 
Customer Advances   (3,525)   (3,546)
Employee Benefits   7,888    7,100 
Investment Tax Credits   181    240 
Other   814    612 
Total Accumulated Deferred Income Taxes  $101,235   $88,736 

The determination of our provision for income taxes requires the use of estimates and the interpretation and application of tax laws. Judgment is required in assessing the deductibility and recoverability of certain tax benefits. We use the asset and liability method to determine and record deferred tax assets and liabilities, representing future tax benefits and taxes payable, which result from the differences in basis recorded in GAAP financial statements and amounts recorded in the income tax returns. The deferred tax assets and liabilities are recorded utilizing the statutorily enacted tax rates expected to be in effect at the time the assets are realized and/or the liabilities settled. An offsetting valuation allowance is recorded when it is more likely than not that some or all of the deferred income tax assets won’t be realized. Any significant changes to the estimates and judgments with respect to the interpretations, timing or deductibility could result in a material change to earnings and cash flows.

 

Occasionally, federal and state taxing authorities determine that it is necessary to make certain changes to the income tax laws. These changes may include but are not limited to changes in the tax rates and/or the treatment of certain items of income or expense. Accounting guidance requires that the Company reflect the effect of changes in tax laws or tax rates at the date of enactment. Additionally, the Company is required to re-measure its deferred tax assets and liabilities as of the date of enactment. For non-regulated entities, the effects of changes in tax laws or tax rates are required to be included in income from continuing operations for the period that includes the enactment date. For regulated entities, if as the result of an action by a regulator it is probable that the future increase or decrease in taxes payable for items such as changes in tax laws or rates will be recovered from or returned to customers through future rates, an asset or liability shall be recognized for that probable increase or decrease in future revenue. Accounting guidance also requires that regulatory liabilities and/or assets be considered a temporary difference for which a related deferred tax asset and/or liability shall be recognized.

 

Accounting guidance requires that we establish reserves for uncertain tax positions, if any, when it is more likely than not that the positions will not be sustained when challenged by taxing authorities. Any changes to the estimates and judgments with respect to the interpretations, timing or deductibility could result in a change to earnings and cash flows.

 

Interest and penalties related to unrecognized tax benefits, if any, are recognized within interest charges and other expense, respectively.