INCOME TAXES

The income tax expense on income from continuing operations for each of the three years in the period ended December 31, 2014 consisted of the following (in millions):



	2014			2013			2012
Current:
Federal	$	11.2		$	17.1		$	4.3
State	2.8			2.1			0.8
Current	14.0			19.2			5.1
Deferred:
Federal	(7.8		)	(5.7		)	(9.0		)
State	(7.6		)	(2.4		)	(2.0		)
Deferred	(15.4		)	(8.1		)	(11.0		)
Total continuing operations tax expense (benefit)	$	(1.4	)	$	11.1		$	(5.9	)

Income tax expense for 2014, 2013 and 2012 differs from amounts computed by applying the statutory federal rate to income from continuing operations before income taxes for the following reasons (in millions):



	2014			2013			2012
Computed federal income tax expense	$	10.1		$	8.3		$	—
State income taxes	(4.1		)	1.0			(0.3		)
Non-deductible transaction costs	—			1.6			1.7
Charitable contribution	—			(0.2		)	(3.5		)
Federal solar tax credits	(11.3		)	—			(2.9		)
Other—net	3.9			0.4			(0.9		)
Income tax expense (benefit)	$	(1.4	)	$	11.1		$	(5.9	)

The effective income tax rate for the year ended December 31, 2014 was lower than the statutory rate due primarily to federal and state tax credits related to the Company's investment in KRS II.

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31 of each year are as follows (in millions):



	2014		2013
Deferred tax assets:
Benefit plans	$	30.7	$	21.1
Capitalized costs	21.9		24.1
Charitable contribution	—		1.5
Joint ventures and other investments	19.0		13.0
Impairment and amortization	6.7		0.5
Insurance and other reserves	4.2		6.7
Solar credit*	4.9		3.5
Other	9.8		5.4
Total deferred tax assets	97.2		75.8

Deferred tax liabilities:
Tax-deferred gains on real estate transactions	252.5		225.4
Basis differences for property and equipment	19.3		23.4
Straight-line rental income and advanced rent	8.4		7.2
Other	2.7		5.2
Total deferred tax liabilities	282.9		261.2

Net deferred tax liability	$	185.7	$	185.4

* The Company's recent solar investment made in 2014 resulted in approximately $3.7 million of state solar tax credit carryforwards as of December 31, 2014, which is included above, and under state law do not expire and may be carried forward indefinitely.

The Company’s income taxes payable has been reduced by the tax benefits from share-based compensation. The Company receives an income tax benefit for exercised stock options calculated as the difference between the fair market value of the stock issued at the time of exercise and the option exercise price, tax effected. The Company also receives an income tax benefit for restricted stock units when they vest, measured as the fair market value of the stock issued at the time of vesting, tax effected. The net tax benefits from share-based transactions were $1.3 million and $1.6 million for 2014 and 2013, respectively, and the portion of the tax benefit related to the excess of the amount reported as the tax deduction over expense was reflected as an increase to equity in the Consolidated Statements of Equity.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in millions):



Balance at January 1, 2012	$	2.5
Additions for tax positions of prior years	—
Additions for tax positions of current year	—
Reductions for tax positions of prior years	(2.5		)
Reductions for lapse of statute of limitations	—
Balance at December 31, 2012	—
Additions for tax positions of prior years	—
Additions for tax positions of current year	—
Reductions for tax positions of prior years	—
Reductions for lapse of statute of limitations	—
Balance at December 31, 2013	—
Additions for tax positions of prior years	—
Additions for tax positions of current year	—
Reductions for tax positions of prior years	—
Reductions for lapse of statute of limitations	—
Balance at December 31, 2014	$	—

The Company is included in the consolidated tax return of Matson, Inc. (formerly "Alexander & Baldwin Holding, Inc.") for results occurring prior to June 30, 2012. Subsequent to June 30, 2012, the Company began reporting as a separate taxpayer. The current and deferred income tax expense recorded in the short period ended June 30, 2012 has been determined by applying the provisions of ASC 740 as if the Company were a separate taxpayer.

Upon Separation, the Company’s unrecognized tax benefits were reflected on Matson Inc.’s (“Matson”) financial statements because Matson is considered the successor parent to the former Alexander & Baldwin, Inc. affiliated tax group. In connection with the Separation, the Company entered into a Tax Sharing Agreement with Matson. As of December 31, 2014, there were no amounts recognized as a liability for the indemnity to Matson in the event the Company’s pre-Separation unrecognized tax benefits are not realized. As of December 31, 2014, the Company has not identified any material unrecognized tax positions.

On September 13, 2013, the U.S. Treasury Department released final income tax regulations on the deduction and capitalization of expenditures related to tangible property. These final regulations apply to tax years beginning on or after January 1, 2014. Application of these provisions will require the Company to file a tax accounting method change with the IRS and record a cumulative adjustment.

In July 2014, the Company invested $23.8 million in KRS II, an entity that owns and operates a 12-megawatt solar farm in Koloa, Kauai. The Company accounts for its investment in KRS II under the equity method. The investment return from the Company's investment in KRS II is principally composed of federal and state tax benefits, including tax credits. These tax credits are accounted for using the flow-through method, which reduces the provision for income taxes in the year the tax credits first become available. The total KRS II net tax benefits that the Company recognized for book purposes in 2014 was approximately $13.7 million. As tax benefits are realized over the life of the investment, the Company recognizes a non-cash reduction to the carrying amount of its investment in KRS II. For the year ended December 31, 2014, the Company recorded a net, non-cash reduction of $14.7 million (net of earnings from the investment) in Other income (expense) in the Consolidated Statements of Income. The Company expects that future reductions to its investment in KRS II will be recognized as tax benefits are realized.

The company is subject to taxation by the United States and various state and local jurisdictions. As of December 31, 2014, the Company’s tax years 2012 and 2013 are open to examination by the tax authorities. In addition, tax years 2011 and 2012, for which the Company was included in the consolidated tax group with Matson, are open to examination by the tax authorities in the company’s material jurisdictions. In addition, the 2010 tax year is also open to examination by California. The Company is not currently under examination by any tax authorities.