Income Taxes

9 Months Ended

Jun. 30, 2020

On December 22, 2017, the TCJA became law. Its most significant impact was the reduction of the maximum corporate federal income tax rate from 35% to 21% beginning January 1, 2018.

Under the provisions of ASC 740 - Income Taxes, the deferred tax assets and liabilities of the Company were revalued to reflect the reduction in the federal tax rate. For unregulated entities, the revaluation of excess deferred income taxes flowed through income tax expense in the period of change. For rate regulated entities such as Roanoke Gas, these excess deferred taxes were originally recovered from its customers based on billing rates derived using a federal income tax rate of 34%. As a result, these net excess deferred taxes must be returned to customers. The Company began refunding these excess deferred taxes in fiscal 2018. As the refunds should have no effect on the income of the Company, the consolidated income statements reflect both a reduction in revenues and a corresponding reduction in income taxes associated with the flow back of these net excess deferred taxes. The result is a lowering of the effective tax rate for the Company.

A reconciliation of income tax expense from applying the federal statutory rates in effect for each period to total income tax expense is presented below:


	Three Months Ended June 30,									Nine Months Ended June 30,
	2020			2019			2020			2019
Income before income taxes	$	1,607,590		$	1,482,585		$	14,323,921		$	10,749,678
Corporate federal tax rate	21.00		%	21.00		%	21.00		%	21.00		%

Income tax expense computed at the federal statutory rate	$	337,593		$	311,342		$	3,008,023		$	2,257,432
State income taxes, net of federal tax benefit	77,349			71,245			666,017			512,315

Net amortization of excess deferred taxes on regulated operations	(14,081)			(13,624)			(138,413)			(186,041)

Other, net	151			(24,933)			(105,536)			(76,835)
Total income tax expense	$	401,012		$	344,030		$	3,430,091		$	2,506,871

Effective tax rate	24.9		%	23.2		%	23.9		%	23.3		%