Income Tax

12 Months Ended

Dec. 31, 2011

Income Tax

Income Tax

22. Income Tax

        As discussed in Note 2, all changes in the tax bases of assets and liabilities are allocated among continued operations and items charged or credited directly to equity. During the fourth quarter of 2011, the Partnership determined it had understated its deferred tax liability related to its investment in consolidated subsidiaries for timing differences created as a result of items charged or credited directly to equity. The Partnership evaluated the materiality of the error from a qualitative and quantitative perspective and concluded that the error was not material to any prior period.

        In the accompanying Consolidated Balance Sheet as of December 31, 2010, the correction of the error discussed above results in an increase in long-term deferred tax liabilities and a corresponding decrease in equity of $77.5 million as compared to the amounts previously reported. In the accompanying Consolidated Statement of Changes in Equity, the correction resulted in a cumulative decrease in the balances associated with common units and total equity of $77.5 million, $69.8 million, and $59.6 million as of December 31, 2010, 2009, and 2008, respectively. This cumulative adjustment gives effect to the Deferred tax impact of equity transactions, which was previously not reported, of $7.6 million and $10.2 million for the years ended December 31, 2010 and 2009, respectively.

        The components of the provision for income tax expense (benefit) are as follows (in thousands):

	Year ended December 31,
	2011			2010			2009
Current income tax expense:
Federal	$	15,039		$	5,850		$	6,525
State		2,539			1,805			1,547
Total current		17,578			7,655			8,072
Deferred income tax (benefit) expense:
Federal		(4,732	)		(3,870	)		(43,409	)
State		803			(596	)		(6,679	)
Total deferred		(3,929	)		(4,466	)		(50,088	)
Provision for income tax	$	13,649		$	3,189		$	(42,016	)

        A reconciliation of the provision for income tax and the amount computed by applying the federal statutory rate of 35% to the income before income taxes for the years ended December 31, 2011, 2010 and 2009 is as follows (in thousands):

Year ended December 31, 2011:

	Corporation			Partnership			Eliminations			Consolidated
Income before provision for income tax.	$	3,813		$	124,087		$	(8,006	)	$	119,894
Federal statutory rate		35	%		0	%		0	%
Federal income tax at statutory rate		1,335			—			—			1,335
Permanent items		36			—			—			36
State income taxes net of federal benefit		102			2,742			—			2,844
Current year change in valuation allowance		(64	)		—			—			(64	)
Prior period adjustments and tax rate changes		163			—			—			163
Provision on income from Class A units(1)		9,323			—			—			9,323
Other		12			—			—			12
Provision for income tax	$	10,907		$	2,742		$	—		$	13,649

Year ended December 31, 2010:

	Corporation			Partnership			Eliminations			Consolidated
(Loss) income before provision for income tax	$	(8,120	)	$	47,761		$	(5,350	)	$	34,291
Federal statutory rate		35	%		0	%		0	%
Federal income tax at statutory rate		(2,842	)		—			—			(2,842	)
Permanent items		20			—			—			20
State income taxes net of federal benefit		(272	)		1,299			—			1,027
Current year change in valuation allowance		(1,022	)		—			—			(1,022	)
Prior period adjustments and tax rate changes		70			—			—			70
Provision on income from Class A units(1)		5,753			—			—			5,753
Other		183			—			—			183
Provision for income tax	$	1,890		$	1,299		$	—		$	3,189

Year ended December 31, 2009:

	Corporation			Partnership			Eliminations			Consolidated
Loss before provision for income tax	$	(112,506	)	$	(32,800	)	$	(10,064	)	$	(155,370	)
Federal statutory rate		35	%		0	%		0	%
Federal income tax at statutory rate		(39,377	)		—			—			(39,377	)
Permanent items		1			—			—			1
State income taxes net of federal benefit		(4,186	)		(1,439	)		—			(5,625	)
Current year change in valuation allowance		1,562			—			—			1,562
Tax rate changes		1,497			—			—			1,497
Provision on income from Class A units(1)		(525	)		—			—			(525	)
Write-off of deferred income tax assets		293			—			—			293
Other		158			—			—			158
Provision for income tax	$	(40,577	)	$	(1,439	)	$	—		$	(42,016	)

(1)

The Corporation pays tax on its share of the Partnership's income or loss as a result of its ownership of Class A units as discussed in Note 2. This amount includes intra period allocations to continued operations and excludes allocations to equity.

        The deferred tax assets and liabilities resulting from temporary book-tax differences are comprised of the following (in thousands):

	December 31,
	2011			2010
Current deferred tax assets:
Accruals and reserves	$	78		$	64
Derivative instruments		14,807			16,031
Current deferred tax assets		14,885			16,095
Current deferred tax liabilities:
Derivative instruments		—			16
Current deferred tax liabilities		—			16
Current subtotal		14,885			16,079
Long-term deferred tax assets:
Accruals and reserves		48			34
Derivative instruments		20,301			14,241
Phantom unit compensation		2,103			1,684
Capital loss carryforward		971			975
State net operating loss carryforward		101			156
Long-term deferred tax assets		23,524			17,090
Valuation allowance		(977	)		(1,036	)
Net long-term deferred tax assets		22,547			16,054
Long-term deferred tax liabilities:
Property, plant and equipment and intangibles		2,123			3,529
Phantom unit compensation		—			31
Investment in affiliated groups		114,088			100,345
Derivative instruments		—			30
Long-term deferred tax liabilities		116,211			103,935
Long-term subtotal		(93,664	)		(87,881	)
Net deferred tax liability	$	(78,779	)	$	(71,802	)

        Significant judgment is required in evaluating tax positions and determining the Corporation's provision for income taxes. During the ordinary course of business, there may be transactions and calculations for which the ultimate tax determination is uncertain. However, the Corporation did not have any material uncertain tax positions for the years ended December 31, 2011, 2010 or 2009. As of December 31, 2011, the Corporation had state net operating loss carryforwards of approximately $0.1 million that expire between 2024 and 2027. The Corporation expects that future taxable income will likely be apportioned to states other than those in which the net operating loss was generated. As a result, the Corporation believes it is more likely than not that the state net operating losses will not be realized and has provided a 100% valuation allowance against this long-term deferred tax asset. As of December 31, 2011, the Corporation had a capital loss carryforward of approximately $1.0 million that expires in 2014. The Corporation does not anticipate utilizing this carryforward and has provided a 100% valuation allowance against this long-term deferred tax asset. While the Corporation's consolidated federal tax return and any significant state tax returns are not currently under examination, the tax years 2007 through 2010 remain open to examination by the major taxing jurisdictions to which the Corporation is subject.