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INCOME TAXES
 3 Months Ended
Mar. 31, 2021
Income Tax Disclosure [Abstract]  
Income Taxes
NOTE 8: INCOME TAXES
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 in the following table:
 
    
Three Months Ended March 31,
  
    
2021
    
2020
  
Statutory Federal Income Tax Rate
   
 
21
% 
     21 % 
Income Tax Effects of:
                 
State Income Taxes, net
   
 
6
 
     6  
Utility Plant Differences
   
 
(1
 )
 
     (4 ) 
Other, net
   
 
—  
 
     —    
    
 
 
    
 
 
  
Effective Income Tax Rate
   
 
26
% 
     23 % 
    
 
 
    
 
 
  
Under its Tax Sharing Agreement (the Agreement), which was approved upon the formation of Unitil as a public utility holding company, the Company files consolidated Federal and State tax returns and Unitil Corporation and each of its utility operating subsidiaries recognize the results of their operations in its tax returns as if it were a stand-alone taxpayer. The Agreement provides that the Company will account for income taxes in compliance with U.S. GAAP and regulatory accounting principles. The Company has evaluated its tax positions at March 31, 2021 in accordance with the FASB Codification, and has concluded that no adjustment for recognition,
de-recognition,
settlement or foreseeable future events to any tax liabilities or assets as defined by the FASB Codification is required. The Company remains subject to examination by Maine, Massachusetts, and New Hampshire tax authorities for the tax periods ended December 31, 2017, December 31, 2018, and December 31, 2019.
In March 2021, the American Rescue Plan Act of 2021 (ARPA) was signed into law. The ARPA included certain provisions that provide economic relief for the ongoing
COVID-19
pandemic, such as extending the Employment Retention Credit (ERC) through December 31, 2021, and other future governmental revenue producing provisions, such as expanding the scope for deduction limitations on executive compensation in future years. The Company has evaluated these ARPA provisions and determined that they do not have a material effect on the Company’s financial statements as of March 31, 2021.
In December 2020, the Consolidated Appropriations Act, 2021 (CAA) was signed into law. The CAA included additional funding through tax credits as part of its economic package for 2021. These changes include the temporary removal of deduction limitations on business meals through December 2022 and additional funding for the ERC with expanded benefits extended through June 30, 2021. The expanded ERC is a 70% credit on employee wages for employees that are retained and cannot perform their job duties at 100% capacity as a result of coronavirus pandemic restrictions. The Company evaluated these items in its tax computation as of March 31, 2021 and recorded an ERC of $0.35 million as a reduction to employment tax expense, which is recorded as a reduction to Taxes other than Income Taxes in the consolidated statement of earnings.
In March 2020, the Coronavirus Aid, Relief and Economic Security (CARES) Act was signed into law. The CARES Act included several tax changes as part of its economic package. These changes principally related to expanded Net Operating Loss (NOL) carryback periods, increases to interest deductibility limitations, and accelerated Alternative Minimum Tax (AMT) refunds. The Company has evaluated these items and determined that the items do not have a material effect on its financial statements as of December 31, 2020. Additionally, the CARES Act enacted the ERC to encourage companies to retain employees. The ERC is a 50% credit on employee wages for employees that are retained and cannot perform their job duties at 100% capacity as a result of coronavirus pandemic restrictions. The ERC is take as a credit on employment tax form 941. In the third quarter of 2020, the Company recorded an ERC of $0.6 million as a reduction to employment tax expense, which is recorded as a reduction to Taxes other than Income Taxes in the consolidated statement of earnings.
Income tax filings for the year ended December 31, 2019 have been filed with the Internal Revenue Service, Massachusetts Department of Revenue, the Maine Revenue Service, and the New Hampshire Department of Revenue Administration. In the Company’s federal tax returns for the year ended December 31, 2019 which were filed with the IRS in October 2020, the Company utilized federal Net Operating Loss Carryforward (NOLC) assets of $8.2 million. As of December 31, 2020, the Company had recognized the utilization of the remaining federal NOLC assets of $2.7 million to offset against current taxes payable. The Company received $0.9 million of AMT credits in 2019 and will receive $0.9 million of AMT credits in 2021 as provided for in the CARES Act. In addition, at December 31, 2020, the Company had $0.3 million of cumulative state tax credit carryforwards to offset against future income taxes payable. If unused, the Company’s state tax credit carryforwards will begin to expire in 2023.
In December 2017, the Tax Cuts and Jobs Act (TCJA), which included a reduction to the corporate federal income tax rate to 21% effective January 1, 2018, was signed into law. In accordance with FASB Codification Topic 740, the Company revalued its Accumulated Deferred Income Taxes (ADIT) at the new 21% tax rate at which the ADIT will be reversed in future periods. The Company recorded a net Regulatory Liability in the amount of $48.9 million at December 31, 2017 as a result of the ADIT revaluation. The Company expects to flow through to customers $47.1 million of excess ADIT in utility base rates. Approximately $1.8 million of excess ADIT was created through reconciling mechanisms at December 31, 2017, which had not been previously collected from customers through utility rates. The Company reconciled these excess ADIT amounts through the specific reconciliation mechanisms in each of those individual reconciling mechanisms which were reviewed by state regulators. In addition to the $48.9 million of net excess ADIT, as of December 31, 2018, there was $2.0 million of remaining excess ADIT created by the recognition of Net Operating Loss Carryforward assets (NOLC), and related to the implementation of the new federal tax rate of the TCJA, which had not been previously included in utility rates. The Company recognized the benefit of this excess ADIT in accordance with the regulatory treatment of excess ADIT for each jurisdiction. In 2019, the Company recognized $1.7 million of this amount and the remaining $0.3 million was recognized in 2020.
Based on communications received by the Company from its state regulators in rate cases and other regulatory proceedings in the first quarter of 2018 and, as prescribed in the TCJA, recent FERC guidance and IRS normalization rules, the benefit of these protected excess ADIT amounts will be subject to flow back to customers in future utility rates according to the Average Rate Assumption Method (ARAM). ARAM reconciles excess ADIT at the reversal rate of the underlying book/tax temporary timing differences. The Company estimates the ARAM flow back period for protected and unprotected excess ADIT to be between fifteen and twenty years over the remaining life of the related utility plant. Subject to regulatory approval, the Company expects to flow back to customers a net $47.1 million of protected excess ADIT created as a result of the lowering of the statutory tax rate by the TCJA over periods estimated to be fifteen to twenty years. As of March 31, 2021, the Company flowed back $2.3 million to customers in its Massachusetts, Maine, and federal jurisdictions. New Hampshire
liabilities
will begin to flow back once rate proceedings have finalized in that jurisdiction.