10 INCOME TAXES

Income tax expense (benefit) consisted of the following:

	Federal			State			Total
2014
Current	$	(16,509	)	$	(1,852	)	$	(18,361	)
Deferred		44,730			1,603			46,333

Total	$	28,221		$	(249	)	$	27,972


2013
Current	$	7,974		$	(2,867	)	$	5,107
Deferred		15,667			(305	)		15,362

Total	$	23,641		$	(3,172	)	$	20,469


2012
Current	$	(9,018	)	$	(5,246	)	$	(14,264	)
Deferred		37,196			(1,480	)		35,716

Total	$	28,178		$	(6,726	)	$	21,452

On September 19, 2013, the U. S. Department of the Treasury and Internal Revenue Service (IRS) issued the final and re-proposed tangible property regulations for repairs and maintenance deductions with an effective date of January 1, 2014. These tax regulations allowed the Company to deduct a significant amount of linear asset costs previously capitalized for book and tax purposes. During 2012, the Company filed an application for a change in tax accounting method with the IRS to implement the repairs and maintenance deduction. The Company's 2014, 2013 and 2012 federal qualified repairs and maintenance deductions totaled $45.2 million, $94.8 million, and $102.2 million and created a $15.8 million and $33.2 million deferred income tax liability as of December 31, 2014 and December 31, 2013, respectively.

The total federal NOL carry-forward was $43.8 million and the state NOL carry-forward was $49.9 million as of December 31, 2014 net of any unrecognized tax benefit. The NOL carry-forward amounts are more likely than not to be recovered and therefore require no valuation allowance. The NOL carry-forward does not begin to expire until 2033.

In 2013, the Company recorded $4.0 million net of any unrecognized tax benefit of State of California enterprise zone (EZ) credits for sales and use taxes and hiring incentives for the period from 2008 to 2013 based on an analysis of all district operations. The Company filed amended state income tax returns for tax years 2008, 2009, 2010 and 2011. The 2013 and 2012 State of California hiring EZ credits were included on the Company's 2012 and 2013 state income tax returns. Unused State of California EZ credits can be carried-forward ten years. The Company estimates the carry-forward portion of its State of California EZ credits at $2.3 million net of any unrecognized tax benefit.

The American Taxpayer Relief Act of 2012 provided the Company with additional 50% first-year bonus depreciation for assets placed in service from December 31, 2012 to December 31, 2013. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 provided the Company with additional federal income tax deductions for assets placed in service after September 8, 2010 and before December 31, 2012. On December 19, 2014, President Obama signed into law Tax Increase Prevention Act of 2014, which, among other provisions, extended the 50-percent special allowance for depreciation ("bonus depreciation") for qualified property through the end of 2014. The federal income tax deduction was estimated at $20.4 million in 2014, $16.1 million in 2013, and $14.6 million in 2012. As of December 31, 2014 and 2013 the deferred tax liability for bonus depreciation was $7.1 million and $5.6 million, respectively.

The difference between the total income tax expense and computed tax expense was reconciled in the table below:

	2014			2013			2012
Computed "expected" tax expense	$	29,649		$	23,708		$	24,600
Increase (reduction) in taxes due to:
State income taxes net of federal tax benefit		4,871			3,895			4,041
Effect of regulatory treatment of fixed asset differences		(5,541	)		(4,112	)		(7,030	)
State tax credits		—			(2,465	)		—
Investment tax credits		(74	)		(74	)		(74	)
Other		(933	)		(483	)		(85	)

Total income tax	$	27,972		$	20,469		$	21,452

The effect of regulatory treatment of fixed asset differences includes a 2014 tax accounting method change benefit of $6,279 due to the service mains and hydrant tax repairs, 2013 tax accounting method change benefit of $3,329 due to the service mains and hydrant tax repairs, and 2012 tax accounting method change was a benefit of $7,029 due to the transmission and distribution mains tax repairs.

The tax effects of differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2014 and 2013 are presented in the following table:

	2014		2013
Deferred tax assets:
Developer deposits for extension agreements and contributions in aid of construction	$	44,775	$	44,592
Net operating loss carryforward and tax credits		19,866		9,095
Other		8,904		4,330

Total deferred tax assets		73,545		58,017

Deferred tax liabilities:
Utility plant, principally due to depreciation differences		272,958		231,141
WRAM/MCBA and interim rates balancing accounts		30,871		18,556
Other		4,308		3,789

Total deferred tax liabilities		308,137		253,486

Net deferred tax liabilities	$	234,592	$	195,469

The current portion of our deferred income tax liability is $19,750 and $12,224 as of December 31, 2014 and 2013, respectively, which includes prepaid expenses and billed WRAM/MCBA surcharge, expected to reverse in the following 12 months.

A valuation allowance was not required at December 31, 2014 and 2013. Based on historical taxable income and future taxable income projections over the period in which the deferred assets are deductible, management believes it is more likely than not that the Company will realize the benefits of the deductible differences.

The following table reconciles the changes in unrecognized tax benefits:

	December 31, 2014		December 31, 2013		December 31, 2012
Balance at beginning of year	$	612	$	—	$	831
Additions for tax positions taken during prior year		—		—		—
Additions for tax positions taken during current year		7,304		612		—
Reductions for tax positions taken during a prior year		—		—		—
Lapse of statute of limitations		—		—		(831	)

Balance at end of year	$	7,916	$	612	$	—

As of December 31, 2014 and 2013, the total amount of net unrecognized tax benefits was $7,916 and $612, respectively. The Company accrues interest and penalties related to unrecognized tax benefits in its provision for income taxes. Additionally, the Company does not expect a material change in its unrecognized tax benefits within the next 12 months. The component of unrecognized tax benefits that, if recognized, would affect the effective tax rate at December 31, 2014 for the Company was $1.6 million, with the remaining balance representing the potential deferral of taxes to later years.

The State of Hawaii Department of Taxation is presently auditing the Company's 2010, 2011 and 2012 Hawaii state income tax returns. The State of California Board of Equalization Franchise is presently auditing the Company's 2010, 2011, and 2012 sales and use tax filings. It is uncertain when the State audits will be completed. The Company believes that the final resolution of the state audits will not have a material impact on its financial condition or results of operations.