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INCOME TAXES | 12 Months Ended
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Dec. 31, 2020
INCOME TAXES [Abstract] |
INCOME TAXES | NOTE 5 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 to reflect the decrease in the corporate income tax rate from 34% to 21%, resulting in a decrease in the net deferred income tax liability of approximately $24.3 million of which, $22.8 million was reclassified to a regulatory liability based on DEPSC orders dated January 31, 2019 for Artesian Water and Artesian Wastewater. The regulatory liability amount is subject to certain Internal Revenue Service normalization rules that require the benefits to customers be spread over the remaining useful life of the underlying assets giving rise to the associated deferred income taxes. On January 31, 2019, 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. 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. As of December 31, 2020, the Company fully utilized all of its federal net operating loss carrybacks and carry-forwards. As of December 31, 2020, the Company has separate company state net operating loss carry-forwards aggregating approximately $9.4 million. Most of these net operating loss carry-forwards will expire if unused between 2022 and 2042. The Company 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 $618,000 in 2020 from approximately $335,000 in 2019. 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 |  | 2020 |  |  | 2019 |  |  | 2018 |
Current |  | $ | 2,348 |  |  | $ | 2,405 |  |  | $ | 1,768 |
Deferred |  |  | (279 | ) |  |  | (610 | ) |  |  | 71 |
Total state income tax expense |  | $ | 2,069 |  |  | $ | 1,795 |  |  | $ | 1,839 |
|  | For the Year Ended December 31, |
Federal income taxes |  | 2020 |  |  | 2019 |  |  | 2018 |
Current |  | $ | 5,725 |  |  | $ | 6,015 |  |  | $ | 2,404 |
Deferred |  |  | (2,110 | ) |  |  | (2,629 | ) |  |  | 748 |
Total federal income tax expense |  | $ | 3,615 |  |  | $ | 3,386 |  |  | $ | 3,152 |
Reconciliation of effective tax rate: |
|  | For the Year Ended December 31, |
In thousands |  | 2020 |  |  | 2020 |  |  | 2019 |  |  | 2019 |  |  | 2018 |  |  | 2018 |
|  | Amount |  |  | Percent |  |  | Amount |  |  | Percent |  |  | Amount |  |  | Percent |
Reconciliation of effective tax rate |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income before federal and state income taxes |  | $ | 22,501 |  |  |  | 100.0 | % |  | $ | 20,106 |  |  |  | 100.0 | % |  | $ | 19,270 |  |  |  | 100.0 | %
Amount computed at statutory rate |  |  | 4,725 |  |  |  | 21.0 | % |  |  | 4,222 |  |  |  | 21.0 | % |  |  | 4,047 |  |  |  | 21.0 | %
Reconciling items |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
State income tax-net of federal tax benefit |  |  | 1,704 |  |  |  | 7.6 | % |  |  | 1,414 |  |  |  | 7.0 | % |  |  | 1,350 |  |  |  | 7.0 | %
Regulatory liability adjustment |  |  | (451 | ) |  |  | (2.0 | )% |  |  | (451 | ) |  |  | (2.2 | )% |  |  | (920 | ) |  |  | (4.8 | )%
Federal rate change and TCJA effect |  |  | — |  |  |  | – |  |  |  | — |  |  |  | - |  |  |  | 325 |  |  |  | 1.7 | %
Other |  |  | (294 | ) |  |  | (1.3 | )% |  |  | (4 | ) |  |  | 0.0 | % |  |  | 189 |  |  |  | 1.0 | %
Total income tax expense and effective rate |  | $ | 5,684 |  |  |  | 25.3 | % |  | $ | 5,181 |  |  |  | 25.8 | % |  | $ | 4,991 |  |  |  | 25.9 | %
Deferred income taxes at December 31, 2020 and 2019 were comprised of the following:
|  | For the Year Ended December 31, |
In thousands |  | 2020 |  |  | 2019 |
Deferred tax assets related to: |  |  |  |  |  |
Federal and state operating loss carry-forwards |  | $ | 629 |  |  | $ | 725 |
Less: valuation allowance |  |  | (493 | ) |  |  | (335 | )
Bad debt allowance |  |  | 240 |  |  |  | 73 |
Stock options |  |  | 148 |  |  |  | 185 |
Other |  |  | 75 |  |  |  | 70 |
Total deferred tax assets |  | $ | 599 |  |  | $ | 718 |
Deferred tax liabilities related to: |  |  |  |  |  |  |  |
Property plant and equipment basis differences |  | $ | (48,536 | ) |  | $ | (50,490 | )
Bond retirement costs |  |  | (1,210 | ) |  |  | (1,286 | )
Expenses of rate proceedings |  |  | — |  |  |  | — |
Property taxes |  |  | (481 | ) |  |  | (544 | )
Other |  |  | (685 | ) |  |  | (657 | )
Total deferred tax liabilities |  | $ | (50,912 | ) |  | $ | (52,977 | )
Net deferred tax liability |  | $ | (50,313 | ) |  | $ | (52,259 | )
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, 2020 Valuation allowance for deferred tax assets |  | $ | 335 |  |  | $ | 158 |  |  |  | — |  |  | $ | 493 |
For the Year Ended December 31, 2019 Valuation allowance for deferred tax assets |  | $ | 396 |  |  | $ | 41 |  |  |  | (102 | ) |  | $ | 335 |
For the Year Ended December 31, 2018 Valuation allowance for deferred tax assets |  | $ | 360 |  |  | $ | 36 |  |  |  | — |  |  | $ | 396 |
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. In December 2015, the Company was notified by the IRS that its Federal tax filing for 2014 would be reviewed with respect to the tax accounting method change, 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. During 2020, based upon this audit outcome and the Company’s belief that the deductions taken on its tax returns are appropriate, the Company decided to reverse any liabilities related to the repair deduction from prior years. 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 for 2017 and 2018. The following table provides the changes in the Company's uncertain tax position:
|  | For the years ended December 31, |
In thousands |  | 2020 |  |  | 2019 |
Balance at beginning of year |  | $ | 271 |  |  | $ | 283 |
Additions based on tax positions related to the current year |  |  | — |  |  |  | 37 |
Additions based on tax positions related to prior years |  |  | 21 |  |  |  | 24 |
Reductions for tax positions of prior years |  |  | (83 | ) |  |  | — |
Settlements |  |  | — |  |  |  | — |
Federal tax rate change |  |  | — |  |  |  | — |
Lapses in statutes of limitations |  |  | — |  |  |  | (73 | )
Balance at end of year |  | $ | 209 |  |  | $ | 271 |

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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/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 21 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32857-109319 Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 2 -Subparagraph (SAB Topic 11.C) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330215-122817 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 17 -Subparagraph (b) -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32809-109319 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section S99 -Paragraph 1 -Subparagraph (SAB TOPIC 6.I.5.Q1) -URI http://asc.fasb.org/extlink&oid=116825942&loc=d3e330036-122817 Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 10 -Section 50 -Paragraph 14 -URI http://asc.fasb.org/extlink&oid=84230637&loc=d3e32705-109319 Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 270 -Section 50 -Paragraph 1 -URI http://asc.fasb.org/extlink&oid=6424409&loc=d3e44925-109338 Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -URI http://asc.fasb.org/topic&trid=2144680 Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Publisher FASB -Name Accounting Standards Codification -Topic 740 -SubTopic 30 -Section 50 -Paragraph 2 -Subparagraph (a) -URI http://asc.fasb.org/extlink&oid=6424122&loc=d3e41874-109331 + Details
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