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

The provisions for income taxes consist of:
     
   
2021
    
2020
  
Federal current
  
$
710
    
$
1,376
  
State current
    
246
      
554
  
Federal deferred
    
311
      
247
  
State deferred
    
(109
)
    
(120
)
Federal investment tax credit, net of current utilization
    
(38
)
    
(39
)
Total income taxes
  
$
1,120
    
$
2,018
  

A reconciliation of the statutory Federal tax provision to the total provision follows:
     
   
2021
    
2020
  
Statutory Federal tax provision
  
$
3,802
    
$
3,909
  
State income taxes, net of Federal benefit
    
177
      
426
  
IRS TPR deduction
    
(2,620
)
    
(1,979
)
Tax-exempt interest
    
(34
)
    
(29
)
Amortization of investment tax credit
    
(38
)
    
(39
)
Cash value of life insurance
    
(17
)
    
(110
)
Amortization of excess accumulated deferred income taxes
on accelerated depreciation
    
(182
)
    
(182
)
Other, net
    
32
      
22
  
Total income taxes
  
$
1,120
    
$
2,018
  

The Company filed for a change in accounting method under the IRS TPR effective in 2014.  Under the change in accounting method, the Company is permitted to deduct the costs of certain asset improvements that were previously being capitalized and depreciated for tax purposes as an expense on its income tax return.  The Company was permitted to make this deduction for prior years (the “catch-up deduction”) and for each year going forward (the “ongoing deduction”).  As a result of the catch-up deduction, income tax benefits of $3,887 were deferred as a regulatory liability.  After receiving approval from the PPUC in its most recent rate order, the Company began to recognize the catch-up deduction, recorded as a regulatory liability, over 15 years beginning March 1, 2019.  As a result, the Company recognized $259 in income taxes during each of the years ended December 31, 2021 and 2020.  As a result of the ongoing deduction, the net income tax benefits of $2,361 and $1,720 for the years ended  December 31, 2021 and 2020, respectively, reduced income tax expense and flowed through to net income.  The ongoing deduction results in a reduction in the effective income tax rate, a net reduction in income tax expense, and a reduction in the amount of income taxes currently payable.  Both the ongoing and catch-up deductions result in increases to deferred tax liabilities and regulatory assets representing the appropriate book and tax basis difference on capital additions.

The 2017 Tax Act, among other things, reduces the federal statutory corporate tax rate for tax years beginning in 2018 from 34% to 21%,treats customers’ advances for construction and contributions in aid of construction as taxable income, eliminates certain deductions, and eliminates bonus depreciation on qualified water and wastewater property.  This resulted in the remeasurement of the federal portion of the Company’s deferred taxes as of December 31, 2017 to the 21% rate.  The effect was recognized in income for the year ended December 31, 2017 for all deferred tax assets and liabilities except accelerated depreciation.  Under normalization rules applicable to public utility property included in the 2017 Tax Act, the excess accumulated deferred income taxes on accelerated depreciation is recorded as a regulatory liability.  The regulatory liability is a temporary difference so a deferred tax asset is recorded including the gross-up of revenue necessary to return, in rates, the effect of the temporary difference.  The Company is recognizing the excess accumulated deferred income taxes on accelerated depreciation, recorded as a regulatory liability, over the remaining useful life of the underlying assets.  As a result, the Company recognized $182 in income taxes during each of the years ended December 31, 2021 and 2020.  In November 2021, the 2021 Infrastructure Act repealed the tax treatment of customers’ advances for construction and contributions in aid of construction made after December 31, 2020.

The tax effects of temporary differences between book and tax balances that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2021 and 2020 are summarized in the following table:

 
2021
    
2020
  
Deferred tax assets:
            
Reserve for doubtful accounts
  
$
247
    
$
189
  
Compensated absences
    
176
      
151
  
Deferred compensation
    
1,376
      
1,375
  
Excess accumulated deferred income taxes on accelerated depreciation
    
3,942
      
3,995
  
Deferred taxes associated with the gross-up of revenues necessary to
return, in rates, the effect of temporary differences
    
2,348
      
2,456
  
Customers’ advances for construction and contributions in aid of construction
    
1,545
      
1,815
  
Tax effect of pension regulatory liability
    
3,429
      
7
  
Other costs deducted for book, not for tax
    
74
      
64
  
Total deferred tax assets
    
13,137
      
10,052
  
                 
Deferred tax liabilities:
                
Accelerated depreciation
    
30,953
      
29,893
  
Basis differences from IRS TPR
    
16,912
      
13,671
  
Investment tax credit
    
329
      
356
  
Deferred taxes associated with the gross-up of revenues necessary to
recover, in rates, the effect of temporary differences
    
9,553
      
8,088
  
Pensions
    
4,060
      
638
  
Unamortized debt issuance costs
    
469
      
500
  
Other costs deducted for tax, not for book
    
451
      
444
  
Total deferred tax liabilities
    
62,727
      
53,590
  
                 
Net deferred tax liability
  
$
49,590
    
$
43,538
  

In accordance with accounting standards, the net deferred tax liability is classified as a noncurrent deferred income tax liability on the balance sheets.

No valuation allowance was required for deferred tax assets as of December 31, 2021 and 2020.  In assessing the value of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.  The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.  Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment.  Based upon expected future taxable income and the current regulatory environment, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.

The Company determined that there were no uncertain tax positions meeting the recognition and measurement test of the accounting standards recorded in the years that remain open for review by taxing authorities, which are 2018 through 2020 for both federal and state income tax returns.  The Company has not yet filed tax returns for 2021.  The Company believes that it has fully complied with any changes pursuant to the 2017 Tax Act and the 2021 Infrastructure Act and has not taken any new positions in its 2021 income tax provision, apart from compliance with the 2021 Infrastructure Act.

The Company’s policy is to recognize interest and penalties related to income tax matters in other expenses.  The Company paid no interest or penalties for the years ended December 31, 2021 and 2020.