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INCOME TAXES | 12 Months Ended
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Dec. 31, 2018
INCOME TAXES [Abstract] |
INCOME TAXES | NOTE 4 INCOME TAXES Deferred income taxes reflect temporary differences between the valuation of assets and liabilities for financial and tax reporting. Pursuant to the enactment of the TCJA, the Company adjusted its existing deferred income tax balances as of December 31, 2017 to reflect the decrease in the corporate income tax rate from 34% to 21%, which resulted in an estimated decrease in the net deferred income tax liability of approximately $23.5 million. In 2018, this amount was revised to $24.3 million due to the final bonus deprecation deduction taken on the Company’s 2017 Federal income tax return. In addition, a rate change resulted in Artesian Resources recording a net benefit to continuing operations of approximately $1.0 million in 2017. As of December 31, 2017, a regulatory liability related to deferred income taxes to be passed through to customers in the form of reduced tariff rates was recorded in the estimated amount of $22.5 million. In 2018, this amount was revised to $22.8 million (see Note 1). Certain Internal Revenue Service normalization rules require that the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes. The DEPSC approved the amortization of the regulatory liability amount of $22.2 million over a period of 49.5 years beginning February 1, 2018, subject to audit at a later date. In addition, the Company recognized a one time tax benefit of $0.5 million related to the wastewater regulatory liability. The MDPSC has not issued a final order on the regulatory liability amount of $0.6 million regarding the effects of the TCJA on Maryland customers. At December 31, 2017, for federal income tax purposes, there were alternative minimum tax, or AMT, credit carry-forwards aggregating $2.7 million resulting from the payment of AMT in prior years. Effective January 1, 2018, these AMT credit carry-forwards are available for refund. The Company has reclassified all of its AMT credits into the current income tax receivable as of December 31, 2017 and fully applied them in 2018 against estimated current taxes payable. As of December 31, 2018, Artesian Resources had fully utilized all of its federal net operating loss carrybacks and carry-forwards. As of December 31, 2018, Artesian Resources has separate company state net operating loss carry-forwards aggregating approximately $14.7 million. Approximately $10.0 million of these net operating loss carry-forwards will expire if unused between 2019 and 2039. 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 $396,000 in 2018 from approximately $360,000 in 2017. Management believes that it is more likely than not that the Company will realize the benefit of these deferred tax assets, net of the valuation allowance.
Components of Income Tax Expense |  |
In thousands | For the Year Ended December 31, |
State income taxes | 2018 |  |  | 2017 |  |  | 2016 |
Current |  | $ | 1,768 |  |  | $ | 489 |  |  | $ | 1,050 |
Deferred |  |  | 71 |  |  |  | 1,368 |  |  |  | 860 |
Total state income tax expense |  | $ | 1,839 |  |  | $ | 1,857 |  |  | $ | 1,910 |
| For the Year Ended December 31, |
Federal income taxes |  |  | 2018 |  |  |  | 2017 |  |  |  | 2016 |
Current |  | $ | 2,404 |  |  | $ | (1,418 | ) |  | $ | 1,799 |
Deferred |  |  | 748 |  |  |  | 6,856 |  |  |  | 4,622 |
Total federal income tax expense |  | $ | 3,152 |  |  | $ | 5,438 |  |  | $ | 6,421 |
Reconciliation of effective tax rate: |
| For the Year Ended December 31, |
In thousands | 2018 |  | 2018 |  | 2017 |  | 2017 |  | 2016 |  | 2016 |
| Amount |  | Percent |  | Amount |  | Percent |  | Amount |  | Percent |
Reconciliation of effective tax rate |  |  |  |  |  |  |  |  |  |  |  |
Income before federal and state income taxes |  | $ | 19,270 |  |  |  | 100.0 | % |  | $ | 21,278 |  |  |  | 100.0 | % |  | $ | 21,285 |  |  |  | 100.0 | %
Amount computed at statutory rate |  |  | 4,047 |  |  |  | 21.0 | % |  |  | 7,234 |  |  |  | 34.0 | % |  |  | 7,237 |  |  |  | 34.0 | %
Reconciling items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State income tax-net of federal tax benefit |  |  | 1,350 |  |  |  | 7.0 | % |  |  | 1,297 |  |  |  | 6.1 | % |  |  | 1,327 |  |  |  | 6.2 | %
Regulatory liability adjustment |  |  | (920 | ) |  |  | (4.8 | )% |  |  | — |  |  |  | 0.0 | % |  |  | — |  |  |  | 0.0 | %
Federal rate change and TCJA effect |  |  | 325 |  |  |  | 1.7 | % |  |  | (957 | ) |  |  | (4.5 | )% |  |  | — |  |  |  | 0.0 | %
Other |  |  | 189 |  |  |  | 1.0 | % |  |  | (279 | ) |  |  | (1.3 | )% |  |  | (233 | ) |  |  | (1.1 | )%
Total income tax expense and effective rate |  | $ | 4,991 |  |  |  | 25.9 | % |  | $ | 7,295 |  |  |  | 34.3 | % |  | $ | 8,331 |  |  |  | 39.1 | %
Deferred income taxes at December 31, 2018, 2017, and 2016 were comprised of the following:
|  | For the Year Ended December 31, |
In thousands |  | 2018 |  |  | 2017 |  |  | 2016 |
Deferred tax assets related to: |  |  |  |  |  |  |  |  |
Federal alternative minimum tax credit carry-forwards |  | $ | — |  |  | $ | — |  |  | $ | 2,474 |
Federal and state operating loss carry-forwards |  |  | 1,050 |  |  |  | 1,094 |  |  |  | 752 |
Less: valuation allowance |  |  | (396 | ) |  |  | (360 | ) |  |  | (286 | )
Bad debt allowance |  |  | 65 |  |  |  | 80 |  |  |  | 104 |
Stock options |  |  | 202 |  |  |  | 207 |  |  |  | 452 |
Other |  |  | 85 |  |  |  | 161 |  |  |  | 320 |
Total deferred tax assets |  | $ | 1,006 |  |  | $ | 1,182 |  |  | $ | 3,816 |
Deferred tax liabilities related to: |  |  |  |  |  |  |  |  |  |  |  |
Property plant and equipment basis differences |  | $ | (53,296 | ) |  | $ | (52,629 | ) |  | $ | (70,711 | )
Bond retirement costs |  |  | (1,361 | ) |  |  | (1,437 | ) |  |  | — |
Uncertain tax position |  |  | (283 | ) |  |  | (145 | ) |  |  | (80 | )
Expenses of rate proceedings |  |  | (2 | ) |  |  | (8 | ) |  |  | (19 | )
Property taxes |  |  | (521 | ) |  |  | (500 | ) |  |  | (663 | )
Other |  |  | (597 | ) |  |  | (600 | ) |  |  | (796 | )
Total deferred tax liabilities |  | $ | (56,060 | ) |  | $ | (55,319 | ) |  | $ | (72,269 | )
Net deferred tax liability |  | $ | (55,054 | ) |  | $ | (54,137 | ) |  | $ | (68,453 | )
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, 2018 Valuation allowance for deferred tax assets |  | $ | 360 |  |  | $ | 36 |  |  |  | — |  |  | $ | 396 |
For the Year Ended December 31, 2017 Valuation allowance for deferred tax assets |  | $ | 286 |  |  | $ | 74 |  |  |  | — |  |  | $ | 360 |
For the Year Ended December 31, 2016 Valuation allowance for deferred tax assets |  | $ | 182 |  |  | $ | 104 |  |  |  | — |  |  | $ | 286 |
Under FASB ASC Topic 740, the Company established two reserves for uncertain tax positions based upon management’s judgment as to the sustainability of these positions. 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 recognized a tax deduction of $4.5 million on its 2017 tax return and expects to recognize a tax deduction of $4.2 million in 2018 for qualifying capital expenditures made during the year. 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 reserve, 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 reserved an additional liability related to a portion of the repair deduction for 2017 and 2018. Additionally, the Company reserved a liability related to the difference in the tax depreciation utilizing the half-year convention rather than the mid-quarter convention. The following table provides the changes in the Company's uncertain tax position:
|  | For the years ended December 31, |
In thousands |  | 2018 |  |  | 2017 |
Balance at beginning of year |  | $ | 145 |  |  | $ | 80 |
Additions based on tax positions related to the current year |  |  | 130 |  |  |  | 118 |
Additions based on tax positions related to prior years |  |  | 13 |  |  |  | 8 |
Reductions for tax positions of prior years |  |  | — |  |  |  | — |
Settlements |  |  | — |  |  |  | — |
Federal tax rate change |  |  | (5 | ) |  |  | (61 | )
Lapses in statutes of limitations |  |  | — |  |  |  | — |
Balance at end of year |  | $ | 283 |  |  | $ | 145 |

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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://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 + Details
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