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Income Taxes
 12 Months Ended
Dec. 31, 2022
Income Taxes

Note 8: 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, 2022, 2021, and 2020 are shown in the following table:

 

 

 

(in millions)

 

 

 

2022

 

 

2021

 

 

2020

 

Current Income Tax Provision

 

 

 

 

 

 

 

 

 

Federal

 

$

—

 

 

$

—

 

 

$

0.3

 

State

 

 

0.2

 

 

 

0.7

 

 

 

0.6

 

Total Current Income Taxes

 

$

0.2

 

 

$

0.7

 

 

$

0.9

 

Deferred Income Tax Provision

 

 

 

 

 

 

 

 

 

Federal

 

$

6.6

 

 

$

7.3

 

 

$

6.5

 

State

 

 

4.4

 

 

 

3.5

 

 

 

2.8

 

Total Deferred Income Taxes

 

 

11.0

 

 

 

10.8

 

 

 

9.3

 

Total Income Tax Expense

 

$

11.2

 

 

$

11.5

 

 

$

10.2

 

 

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:

 

 

 

2022

 

 

2021

 

 

2020

 

Statutory Federal Income Tax Rate

 

 

21

%

 

 

21

%

 

 

21

%

Income Tax Effects of:

 

 

 

 

 

 

 

 

 

State Income Taxes, net

 

 

6

%

 

 

6

%

 

 

6

%

Utility Plant Differences

 

 

(6

)%

 

 

(3

)%

 

 

(4

)%

Other, net

 

 

—

%

 

 

—

%

 

 

1

%

Effective Income Tax Rate

 

 

21

%

 

 

24

%

 

 

24

%

 

Temporary differences which gave rise to deferred tax assets and liabilities in 2022 and 2021 are shown in the following table:

 

Temporary Differences (in millions)

 

2022

 

 

2021

 

Deferred Tax Assets

 

 

 

 

 

 

Retirement Benefit Obligations

 

$

11.0

 

 

$

34.1

 

Net Operating Loss Carryforwards

 

 

3.5

 

 

 

4.1

 

Tax Credit Carryforwards

 

 

1.0

 

 

 

0.7

 

Other, net

 

 

1.4

 

 

 

1.3

 

Total Deferred Tax Assets

 

$

16.9

 

 

$

40.2

 

Deferred Tax Liabilities

 

 

 

 

 

 

Utility Plant Differences

 

 

168.3

 

 

$

157.4

 

Regulatory Assets & Liabilities

 

 

11.3

 

 

 

9.4

 

Other, net

 

 

0.7

 

 

 

1.1

 

Total Deferred Tax Liabilities

 

 

180.3

 

 

 

167.9

 

Net Deferred Tax Liabilities

 

$

163.4

 

 

$

127.7

 

Under the Company’s 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 December 31, 2022 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, 2021; December 31, 2020; and December 31, 2019.

Income tax filings for the year ended December 31, 2021 have been filed with the IRS, 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, 2021 which were filed with the IRS in October 2022, the Company utilized

federal Net Operating Loss Carryforward (NOLC) assets of $2.4 million. As of December 31, 2022, the Company recognized the utilization of approximately $2.8 million of the NOLC asset to offset current taxes payable. In addition, at December 31, 2022, the Company had $1.0 million of cumulative state tax credit carryforwards to offset future income taxes payable. If unused, the Company’s state tax credit carryforwards will begin to expire in 2027.

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 carryback periods, increases to interest deductibility limitations, and accelerated Alternative Minimum Tax refunds. The Company has evaluated these items and determined that the items do not have a material effect on the Company’s financial statements as of December 31, 2021. Additionally, the CARES Act enacted the Employee Retention Credit (ERC) to incentivize 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.

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.

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 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.

In August 2022, the Inflation Reduction Act of 2022 (IRA) was signed into law. The IRA included new taxes on corporations, including the Corporate Alternative Minimum Tax (AMT) and the Excise Tax on Repurchase of Corporate Stock. The AMT is equal to 15% of a corporation’s adjusted financial statement income (AFSI). The AMT applies to companies that have a 3 year average AFSI of greater than $1 billion. The IRA also extended and modified certain renewable energy related credits.

The Company has evaluated each of the CARES, CAA, ARPA and IRA provisions and determined that they do not have a material effect on the Company’s financial statements as of December 31, 2022. The Company has recorded a reduction in payroll taxes related to the ERC for $0.4 million in 2021 and $0.6 million in 2020. These credits were recorded as a reduction to payroll tax expense which is recorded in Taxes Other Than Income Taxes in the Consolidated Statements of Earnings.

In December 2017, the Tax Cuts and Jobs Act (TCJA), which included a reduction of 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) and recorded a net Regulatory Liability in the amount of $48.9 million at December 31, 2017. 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. The benefit of protected excess ADIT amounts will be subject to flow back to customers in utility rates according to the Average Rate Assumption Method (ARAM). 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. As of December 31, 2022, the Company flowed back $6.4 million to customers in its Massachusetts, Maine, New Hampshire and federal jurisdictions.