Income Taxes

12 Months Ended

Sep. 30, 2020

INCOME TAXES

As a result of the TCJA enacted in January 2018, the Company's statutory federal income tax rate is 21% in fiscal 2020 and 2019, respectively.

Under the provisions of ASC 740 - Income Taxes, the deferred tax assets and liabilities of the Company were revalued in fiscal 2018 to reflect the reduction in the corporate federal income tax rate. The result of this revaluation was a reduction in the net deferred tax liability of approximately $9 million, including approximately $11.8 million reclassified to regulatory liability, a $3 million gross up to reflect pre-tax basis, and $0.26 million increase in income tax expense related to unregulated operations for fiscal 2018. The excess deferred income taxes are reflected on a pretax basis to appropriately contemplate future tax consequences in the periods when the regulatory liability is settled. The excess deferred taxes related to the depreciable property is being returned to customers through reduced billings over the remaining weighted average useful life of the property with a corresponding reduction in income tax expense. The excess deferred taxes related to the other regulatory basis differences are being collected from customers over a five year period.

The details of income tax expense are as follows:


	Years Ended September 30
	2020		2019
Current income taxes:
Federal	$	1,841,124	$	1,698,215
State	342,233		268,488
Total current income taxes	2,183,357		1,966,703
Deferred income taxes:
Federal	644,682		272,079
State	477,621		411,949
Total deferred income taxes	1,122,303		684,028

Total income tax expense	$	3,305,660	$	2,650,731

Income tax expense for the years ended September 30, 2020 and 2019 differed from amounts computed by applying the U.S. federal income tax rate to earnings before income taxes due to the following:


	Years Ended September 30
	2020			2019
Income before income taxes	$	13,870,194		$	11,349,143
Corporate federal income tax rate	21.0		%	21.0		%
Income tax expense computed at the federal statutory rate	$	2,912,741		$	2,383,320
State income taxes, net of federal income tax benefit	647,685			537,545

Net amortization of excess deferred taxes on regulated operations	(162,228)			(212,896)
Tax benefit recognized on stock compensation	(114,984)			(96,499)
Other, net	22,446			39,261
Total income tax expense	$	3,305,660		$	2,650,731

The tax effects of temporary differences that give rise to the deferred tax assets and deferred tax liabilities are as follows:


	September 30
	2020		2019
Deferred tax assets:
Allowance for uncollectibles	$	180,986	$	28,503
Accrued pension and postretirement medical benefits	651,356		782,592
Regulatory effect of change in federal income tax rate	2,814,525		2,867,383
Accrued vacation	140,635		150,882
Over-recovery of gas costs	—		23,979
Cost of gas held in storage	604,962		590,495

Deferred compensation	992,605		803,979
Interest rate swaps	572,343		230,204
Rate refund	—		130,063
Other	97,564		261,125
Total gross deferred tax assets	6,054,976		5,869,205
Deferred tax liabilities:
Utility plant	18,310,474		18,132,022

MVP investment	1,693,075		705,193
Other	25,189		10,513
Total gross deferred tax liabilities	20,028,738		18,847,728
Net deferred tax liability	$	13,973,762	$	12,978,523

FASB ASC No. 740 - Income Taxes provides for the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recognized in the financial statements. The Company has evaluated its tax positions and accordingly has not identified any significant uncertain tax positions. The Company’s policy is to classify interest associated with uncertain tax positions as interest expense in the financial statements. Penalties are netted against other income.

The Company files a consolidated federal income tax return and state income tax returns in Virginia and West Virginia. The federal returns and the state returns for both Virginia and West Virginia for the tax years ended prior to September 30, 2017 are no longer subject to examination.