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INCOME TAXES | 12 Months Ended
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Dec. 31, 2016
INCOME TAXES [Abstract] |
INCOME TAXES | NOTE 3 INCOME TAXES Deferred income taxes reflect temporary differences between the valuation of assets and liabilities for financial and tax reporting. As of December 31, 2016, Artesian Resources had fully utilized all of its federal net operating loss carrybacks and carry-forwards. As of December 31, 2016, Artesian Resources has separate company state net operating loss carry-forwards aggregating approximately $13.4 million. These net operating loss carry-forwards will expire if unused between 2019 and 2037. Artesian Resources has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized due to the expiration of the state net operating loss carry-forwards. The valuation allowance increased to approximately $286,000 in 2016 from approximately $182,000 in 2015. Management believes that it is more likely than not that the Company will realize the benefits of these net deferred tax assets. At December 31, 2016, for federal income tax purposes, there were alternative minimum tax credit carry-forwards aggregating $2.5 million resulting from the payment of alternative minimum tax in prior years. These alternative minimum tax credit carry-forwards may be carried forward indefinitely to offset future regular federal income taxes. The Company remains subject to examination by federal authorities for the tax year 2015 and state authorities for the tax years 2013 through 2015.
Components of Income Tax Expense |  |
In thousands | For the Year Ended December 31, |
State income taxes | 2016 |  |  | 2015 |  |  | 2014 |
Current |  | $ | 1,050 |  |  | $ | 499 |  |  | $ | 173 |
Deferred |  |  | 860 |  |  |  | 1,299 |  |  |  | 1,231 |
Total state income tax expense |  | $ | 1,910 |  |  | $ | 1,798 |  |  | $ | 1,404 |
| For the Year Ended December 31, |
Federal income taxes |  |  | 2016 |  |  |  | 2015 |  |  |  | 2014 |
Current |  | $ | 1,799 |  |  | $ | 2,168 |  |  | $ | (1,073 | )
Deferred |  |  | 4,622 |  |  |  | 3,818 |  |  |  | 6,044 |
Total federal income tax expense |  | $ | 6,421 |  |  | $ | 5,986 |  |  | $ | 4,971 |
Reconciliation of effective tax rate: |
| For the Year Ended December 31, |
In thousands | 2016 |  | 2016 |  | 2015 |  | 2015 |  | 2014 |  | 2014 |
| Amount |  | Percent |  | Amount |  | Percent |  | Amount |  | Percent |
Reconciliation of effective tax rate |  |  |  |  |  |  |  |  |  |  |  |
Income before federal and state income taxes |  | $ | 21,285 |  |  |  | 100.0 | % |  | $ | 19,088 |  |  |  | 100.0 | % |  | $ | 15,881 |  |  |  | 100.0 | %
Amount computed at statutory rate |  |  | 7,237 |  |  |  | 34.0 | % |  |  | 6,490 |  |  |  | 34.0 | % |  |  | 5,400 |  |  |  | 34.0 | %
Reconciling items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State income tax-net of federal tax benefit |  |  | 1,327 |  |  |  | 6.2 | % |  |  | 1,214 |  |  |  | 6.4 | % |  |  | 918 |  |  |  | 5.8 | %
Other |  |  | (233 | ) |  |  | (1.1 | )% |  |  | 80 |  |  |  | 0.4 | % |  |  | 57 |  |  |  | 0.4 | %
Total income tax expense and effective rate |  | $ | 8,331 |  |  |  | 39.1 | % |  | $ | 7,784 |  |  |  | 40.8 | % |  | $ | 6,375 |  |  |  | 40.2 | %
Deferred income taxes at December 31, 2016, 2015, and 2014 were comprised of the following:
|  | For the Year Ended December 31, |
In thousands |  | 2016 |  |  | 2015 |  |  | 2014 |
Deferred tax assets related to: |  |  |  |  |  |  |  |  |
Federal alternative minimum tax credit carry-forwards |  | $ | 2,474 |  |  | $ | 3,971 |  |  | $ | 5,459 |
Federal and state operating loss carry-forwards |  |  | 752 |  |  |  | 675 |  |  |  | 1,045 |
Bad debt allowance |  |  | 104 |  |  |  | 110 |  |  |  | 99 |
Valuation allowance |  |  | (286 | ) |  |  | (182 | ) |  |  | (65 | )
Stock options |  |  | 452 |  |  |  | 415 |  |  |  | 397 |
Other |  |  | 320 |  |  |  | 291 |  |  |  | 269 |
Total deferred tax assets |  | $ | 3,816 |  |  | $ | 5,280 |  |  | $ | 7,204 |
Deferred tax liabilities related to: |  |  |  |  |  |  |  |  |  |  |  |
Property plant and equipment basis differences |  | $ | (70,711 | ) |  | $ | (66,508 | ) |  | $ | (63,427 | )
Uncertain tax position |  |  | (80 | ) |  |  | (247 | ) |  |  | (179 | )
Expenses of rate proceedings |  |  | (19 | ) |  |  | (213 | ) |  |  | (214 | )
Property taxes |  |  | (663 | ) |  |  | (527 | ) |  |  | (505 | )
Other |  |  | (796 | ) |  |  | (756 | ) |  |  | (734 | )
Total deferred tax liabilities |  | $ | (72,269 | ) |  | $ | (68,251 | ) |  | $ | (65,059 | )
Net deferred tax liability |  | $ | (68,453 | ) |  | $ | (62,971 | ) |  | $ | (57,855 | )
Schedule of Valuation Allowance |
| Balance at Beginning of Period |  | Additions Charged to Costs and Expenses |  | Deductions |  | Balance at End of Period |
In thousands |  |  |  |  |  |  |  |
Classification |  |  |  |  |  |  |  |
For the Year Ended December 31, 2016 Valuation allowance for deferred tax assets |  | $ | 182 |  |  | $ | 104 |  |  |  | — |  |  | $ | 286 |
For the Year Ended December 31, 2015 Valuation allowance for deferred tax assets |  | $ | 65 |  |  | $ | 117 |  |  |  | — |  |  | $ | 182 |
For the Year Ended December 31, 2014 Valuation allowance for deferred tax assets |  | $ | 61 |  |  | $ | 4 |  |  |  | — |  |  | $ | 65 |
Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes. In 2014, the Company changed its tax method of accounting for qualifying utility system repairs effective with the tax year ended December 31, 2014 and for prior tax years. The tax accounting method was changed to permit the expensing of qualifying utility asset improvement costs that were previously being capitalized and depreciated for book and tax purposes. The Company will recognize a tax deduction on its 2016 Federal tax return when filed of $2.7 million for qualifying capital expenditures made during the year. The Company establishes reserves for uncertain tax positions based upon management's judgment as to the sustainability of these positions. These accounting estimates related to the uncertain tax position reserve require judgments to be made as to the sustainability of each uncertain tax position based on its technical merits. The Company believes its tax positions comply with applicable law and that it has adequately recorded reserves as required. However, to the extent the final tax outcome of these matters is different than the estimates recorded, the Company would then adjust its tax reserves or unrecognized tax benefits in the period that this information becomes known. The Company has elected to recognize accrued interest (net of related tax benefits) and penalties related to uncertain tax positions as a component of its income tax expense. In December 2015, the Company was notified by the IRS that its Federal tax filing for 2014 would be reviewed along with the effects of the net operating loss generated in 2014 and carryback to the 2012 and 2013 tax years. This review, which began in the first quarter of 2016 and was completed in the second quarter of 2016, resulted in no change to the tax liability. Since the Company had previously recorded a provision for the possible disallowance of a portion of the repair deduction in prior periods, the completion of the audit resulted in the reversal of the reserves, including interest and penalties, in the amount of approximately $201,000. While the Company maintains the belief that the deduction taken on its tax return is appropriate, the methodology for determining the deduction has not been agreed to by the tax authorities. Therefore, as required by FASB ASC 740, the Company has accrued approximately $4,800 in penalties and interest as of December 31, 2016 for any disallowance pertaining to the 2015 tax filing. The Company had previously accrued $22,000 in penalties and interest pertaining to the 2014 tax filing. This amount was reversed during the second quarter of 2016. The Company remains subject to examination by federal authorities for the tax year 2015 and state authorities for the tax years 2013 through 2015. The following table provides the changes in the Company's uncertain tax position:
|  | For the years ended December 31, |
In thousands |  | 2016 |  |  | 2015 |
Balance at beginning of year |  | $ | 247 |  |  | $ | 179 |
Additions based on tax positions related to the current year |  |  | 23 |  |  |  | 51 |
Additions based on tax positions related to prior years |  |  | 11 |  |  |  | 17 |
Reductions for tax positions of prior years |  |  | (201 | ) |  |  | - |
Settlements |  |  | - |  |  |  | - |
Lapses in Statutes of Limitations |  |  | - |  |  |  | - |
Balance at end of year |  | $ | 80 |  |  | $ | 247 |

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- Definition The entire disclosure for income taxes. Disclosures may include net deferred tax liability or asset recognized in an enterprise's statement of financial position, net change during the year in the total valuation allowance, approximate tax effect of each type of temporary difference and carryforward that gives rise to a significant portion of deferred tax liabilities and deferred tax assets, utilization of a tax carryback, and tax uncertainties information. + References Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 235 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SX 210.4-08.(h)) -URI http://asc.fasb.org/extlink&oid=26873400&loc=d3e23780-122690 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 3 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32559-109319 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 15 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32718-109319 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 9 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32639-109319 Reference 5: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 2 -URI http://asc.fasb.org/extlink&oid=65882285&loc=d3e32537-109319 + Details
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