14. Income Taxes

The provisions for income taxes consist of:

	2019			2018
Federal current	$	1,148		$	1,715
State current		451			718
Federal deferred		475			216
State deferred		205			(119	)
Federal investment tax credit, net of current utilization		(39	)		(39	)
Total income taxes	$	2,240		$	2,491

A reconciliation of the statutory Federal tax provision to the total provision follows:

	2019			2018
Statutory Federal tax provision	$	3,495		$	3,332
State income taxes, net of Federal benefit		574			471
IRS TPR deduction		(1,642	)		(1,307	)
Tax-exempt interest		(25	)		(22	)
Amortization of investment tax credit		(39	)		(39	)
Cash value of life insurance		6			(13	)
Amortization of excess accumulated deferred income taxes on accelerated depreciation		(149	)		–
Other, net		20			69
Total income taxes	$	2,240		$	2,491

The Company filed for a change in accounting method under the IRS TPR effective in 2014. Under the change in accounting method, the Company is permitted to deduct the costs of certain asset improvements that were previously being capitalized and depreciated for tax purposes as an expense on its income tax return. The Company was permitted to make this deduction for prior years (the “catch-up deduction”) and for each year going forward (the “ongoing deduction”). As a result of the catch-up deduction, income tax benefits of $3,887 were deferred as a regulatory liability. After receiving approval from the PPUC in its most recent rate order, the Company began to recognize the catch-up deduction, recorded as a regulatory liability, over 15 years beginning March 1, 2019. As a result, the Company recognized $216 in income taxes during the year ended December 31, 2019. As a result of the ongoing deduction, the net income tax benefits of $1,426 and $1,307 for the years ended December 31, 2019 and 2018, respectively, reduced income tax expense and flowed-through to net income. The ongoing deduction results in a reduction in the effective income tax rate, a net reduction in income tax expense, and a reduction in the amount of income taxes currently payable. Both the ongoing and catch-up deductions result in increases to deferred tax liabilities and regulatory assets representing the appropriate book and tax basis difference on capital additions.

The 2017 Tax Act, among other things, reduces the federal statutory corporate tax rate for tax years beginning in 2018 from 34% to 21%, eliminates certain deductions, and eliminates bonus depreciation on qualified water and wastewater property. This resulted in the remeasurement of the federal portion of the Company’s deferred taxes as of December 31, 2017 to the 21% rate. The effect was recognized in income for the year ended December 31, 2017 for all deferred tax assets and liabilities except accelerated depreciation. Under normalization rules applicable to public utility property included in the 2017 Tax Act, the excess accumulated deferred income taxes on accelerated depreciation is recorded as a regulatory liability. The regulatory liability is a temporary difference so a deferred tax asset is recorded including the gross-up of revenue necessary to return, in rates, the effect of the temporary difference. The Company is recognizing the excess accumulated deferred income taxes on accelerated depreciation, recorded as a regulatory liability, over the remaining useful life of the underlying assets. As a result, the Company recognized $149 in income taxes during the year ended December 31, 2019.

The tax effects of temporary differences between book and tax balances that give rise to significant portions of the deferred tax assets and deferred tax liabilities as of December 31, 2019 and 2018 are summarized in the following table:

	2019		2018
Deferred tax assets:
Reserve for doubtful accounts	$	88	$	88
Compensated absences		148		147
Deferred compensation		1,276		1,143
Excess accumulated deferred income taxes on accelerated depreciation		4,047		4,098
Deferred taxes associated with the gross-up of revenues necessary to return, in rates, the effect of temporary differences		2,104		2,077
Customers' advances for construction and contributions in aid of construction		998		577
Revenue reduction for tax rate change		7		333
Pensions		–		256
Other costs deducted for book, not for tax		69		40
Total deferred tax assets		8,737		8,759

Deferred tax liabilities:
Accelerated depreciation		28,891		28,479
Basis differences from IRS TPR		11,311		9,367
Investment tax credit		384		411
Deferred taxes associated with the gross-up of revenues necessary to recover, in rates, the effect of temporary differences		6,987		6,124
Pensions		525		–
Tax effect of pension regulatory asset		106		887
Unamortized debt issuance costs		531		197
Other costs deducted for tax, not for book		428		256
Total deferred tax liabilities		49,163		45,721

Net deferred tax liability	$	40,426	$	36,962

In accordance with accounting standards, the net deferred tax liability is classified as a noncurrent deferred income tax liability on the balance sheets.

No valuation allowance was required for deferred tax assets as of December 31, 2019 and 2018. In assessing the value of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon expected future taxable income and the current regulatory environment, management believes it is more likely than not that the Company will realize the benefits of these deductible differences.

The Company determined that there were no uncertain tax positions meeting the recognition and measurement test of the accounting standards recorded in the years that remain open for review by taxing authorities, which are 2016 through 2018 for both federal and state income tax returns. The Company has not yet filed tax returns for 2019. The Company believes that it has fully complied with any changes pursuant to the 2017 Tax Act and has not taken any new positions in its 2019 income tax provision.

The Company's policy is to recognize interest and penalties related to income tax matters in other expenses. The Company paid interest and penalties of $0 and $1 for the years ended December 31, 2019 and 2018, respectively.