Note 7: Income Taxes

Provisions for Federal and State Income Taxes reflected as operating expenses in the accompanying consolidated statements of earnings for the years ended December 31, 2012, 2011 and 2010 are shown in the table below:


	($000’s)
	2012			2011			2010
Current Federal Tax Provision (Benefit)
Current Benefit of Operating Loss Carrybacks	$	—		$	—		$	(6,026	)

Total Current Federal Tax Provision (Benefit)		—			—			(6,026	)

Deferred Federal Tax Provision (Benefit)
Utility Plant Differences		6,019			13,002			11,821
Net Operating Loss Carryforwards		2,835			(4,844	)		(5,520	)
Regulatory Assets and Liabilities		472			513			3,338
Other, net		(241	)		(695	)		(480	)

Total Deferred Federal Tax Provision (Benefit)		9,085			7,976			9,159

Total Federal Tax Provision		9,085			7,976			3,133

State
Current		132			1,358			28
Deferred		1,759			691			1,303

Total State Tax Provision		1,891			2,049			1,331

Total Provision for Federal and State Income Taxes	$	10,976		$	10,025		$	4,464

The differences between the Company’s provisions for Income Taxes and the provisions calculated at the statutory federal tax rate, expressed in percentages, are shown below:


	2012			2011			2010
Statutory Federal Income Tax Rate		34	%		34	%		34	%
Income Tax Effects of:
State Income Taxes, Net		5			5			6
Utility Plant Differences		(2	)		(1	)		(7	)
Other, Net		1			—			(1	)

Effective Income Tax Rate		38	%		38	%		32	%

Temporary differences which gave rise to current deferred tax assets and liabilities in 2012 and 2011, are shown below:


Current Deferred Income Taxes (000’s)	2012			2011
Accrued Revenue, Current Portion	$	13,568		$	9,358
Other, net		(168	)		(366	)

Total Current Deferred Income Tax Liabilities	$	13,400		$	8,992

Temporary differences which gave rise to noncurrent deferred tax assets and liabilities in 2012 and 2011 are shown below:


Noncurrent Deferred Income Taxes (000’s)	2012			2011
Utility Plant Differences	$	66,907		$	57,809
Net Operating Loss Carryforwards		(8,521	)		(11,656	)
AMT Tax Credit Carryforwards		(1,538	)		(1,366	)
Regulatory Assets and Liabilities		17,872			23,269
Retirement Benefit Obligations		(38,644	)		(33,591	)
Other, net		2,606			2,829

Total Noncurrent Deferred Income Tax Liabilities	$	38,682		$	37,294

The Company is subject to federal and state income taxes as well as various other business taxes. The Company accounts for income taxes in accordance with the FASB Codification guidance on Income Taxes, which requires an asset and liability approach for the financial accounting and reporting of income taxes. Significant judgments and estimates are required in determining the current and deferred tax assets and liabilities. The Company’s deferred tax assets and liabilities reflect its best assessment of estimated future taxes to be paid. Periodically, the Company assesses the realization of its deferred tax assets and liabilities and adjusts the income tax provision, the current tax liability and deferred taxes in the period in which the facts and circumstances which gave rise to the revision become known.

The Company filed its tax returns for the year ended December 31, 2011 with the Internal Revenue Service (IRS) in September 2012. As of December 31, 2012, the Company had recorded cumulative federal and state net operating loss (NOL) carryforward assets of $8.5 million to offset against taxes payable in future periods. If unused, the Company’s state NOL carryforward assets will begin to expire in 2019 and the federal NOL carryforward assets will begin to expire in 2029. In addition, at December 31, 2012, the Company had $1.5 million of cumulative Alternative Minimum Tax (AMT) credit carryforwards to offset future AMT taxes payable indefinitely.

According to Internal Revenue Code rules, Federal Income Tax refunds in excess of $2.0 million fall under the jurisdiction of the Joint Committee of Congress (Joint Committee) and are subject to review by the IRS and attorneys of the Joint Committee. As a result, the Company, on April 1, 2011, received notice that its federal income tax return filing for the year ended December 31, 2009 would be under examination by the IRS. The IRS has performed all fieldwork procedures and the Company and the IRS entered into a settlement agreement for certain timing items, originally reported in 2009, to be deducted in future periods. The result of the settlement agreement did not have a material impact on the Company’s consolidated financial position or results of operations. On January 22, 2013 the Company received notice of approval from the Joint Committee regarding the settlement agreement.

The Company evaluated its tax positions at December 31, 2012 in accordance with the FASB Codification, and has concluded that no adjustment for recognition, derecognition, settlement and foreseeable future events to any unrecognized tax liabilities or assets as defined by the FASB Codification is required. The Company does not have any unrecognized tax positions for which it is reasonably possible that the total amounts recognized will significantly change within the next 12 months. The Company remains subject to examination by Federal, Maine, Massachusetts, and New Hampshire tax authorities for the tax periods ended December 31, 2009; December 31, 2010; and December 31, 2011.