Income Taxes

12 Months Ended

Dec. 31, 2019

The components of income before income taxes for each of the three years ended December 31, 2019 and income tax expense (benefit) attributable thereto were as follows:



	Years Ended December 31,
(Millions of dollars)	2019		2018		2017
Income (loss) before income taxes	$	202.4	$	273.9	$	240.1
Income tax expense (benefit)
Federal - Current	$	15.6	18.4		39.2
Federal - Deferred	21.7		31.0		(50.7		)
State - Current and deferred	10.3		10.9		6.3
Total	$	47.6	$	60.3	$	(5.2	)

The following table reconciles income taxes based on the U.S. statutory tax rate to the Company’s income tax expense (benefit).



	Years Ended December 31,
(Millions of dollars)	2019			2018			2017
Income tax expense based on the U.S. statutory tax rate	$	42.5		$	57.5		$	84.0
State income taxes, net of federal benefit	8.6			8.3			3.0
Effect of U.S. tax law change	—			—			(88.9		)
Federal credits	(2.3		)	(2.0		)	(1.0		)
Other, net	(1.2		)	(3.5		)	(2.3		)
Total	$	47.6		$	60.3		$	(5.2	)

An analysis of the Company’s deferred tax assets and deferred tax liabilities at December 31, 2019 and 2018 showing the tax effects of significant temporary differences is as follows:



	December 31,
(Millions of dollars)	2019			2018
Deferred tax assets
Property costs and asset retirement obligations	$	3.7		$	3.3
Employee benefits	6.1			6.3
Operating leases liability	25.0			—
Other deferred tax assets	2.1			2.6
Total gross deferred tax assets	36.9			12.2
Deferred tax liabilities
Accumulated depreciation and amortization	(191.2		)	(171.6		)
State deferred taxes	(27.9		)	(25.9		)
Operating leases right of use assets	(24.8		)	—
Other deferred tax liabilities	(9.7		)	(6.9		)
Total gross deferred tax liabilities	(253.6		)	(204.4		)
Net deferred tax liabilities	$	(216.7	)	$	(192.2	)

In management’s judgment, the net deferred tax assets in the preceding table will more likely than not be realized as reductions of future taxable income or by utilizing available tax planning strategies.

In December 2017, the Tax Cuts and Jobs Act ("the Act") was enacted, which made major changes to the Federal income tax system for corporations and individuals. Two key corporate provisions of the Act that impacted the Company in 2017 were the reduction of the Federal corporate income tax rate from 35% to 21% and the increase of Federal bonus depreciation from 50% to 100% on certain qualifying assets retroactive to September 27, 2017. As a result, the Company calculated the impact of the Act in its year-end income tax provision in accordance with its understanding of the Act and guidance available as of the date of the filing and as a result recorded $88.9 million as a tax benefit in the fourth quarter of 2017, the period in which the legislation was enacted. The provisional amount related primarily to the remeasurement of certain deferred tax assets and liabilities based on the rates of which they are expected to reverse in the future.

In conjunction with the effectiveness of the Act, the SEC issued Staff Accounting Bulletin No. 118 ("SAB 118") to address the implications of U.S. GAAP in situations where the registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Act. In accordance with SAB 118, the Company made its best estimate and recorded provisional amounts related to certain equity and fixed asset temporary differences based on available information as of December 31, 2017. These amounts were finalized in the fourth quarter of 2018 and with immaterial adjustments being recorded as a component of tax expense.

As of December 31, 2019, the earliest year remaining open for Federal audit and/or settlement is 2016 and for the states it ranges from 2014-2018. Although the Company believes that recorded liabilities for unsettled issues are adequate, additional gains or losses could occur in future periods from resolution of outstanding unsettled matters.

The FASB’s rules for accounting for income tax uncertainties clarify the criteria for recognizing uncertain income tax benefits and require additional disclosures about uncertain tax positions. Under U.S. GAAP the financial statement recognition of the benefit for a tax position is dependent upon the benefit being more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax benefit is then measured and recognized at the largest amount that is greater than 50 percent likely of being realized upon ultimate settlement. Liabilities associated with uncertain income tax positions are included in Deferred Credits and Other Liabilities in the Consolidated Balance Sheets.

A reconciliation of the beginning and ending amount of the consolidated liability for unrecognized income tax benefits during the year ended December 31, 2019 and 2018 is shown in the following table.



	Year Ended December 31,
(Millions of dollars)	2019			2018
Balance at January 1	$	0.7		$	4.4
Additions for tax positions related to prior years	0.5			—
Additions for tax positions related to current year	—			0.2
Settlements with taxing authorities	(0.6		)	(3.9		)
Expiration of statutes of limitation	—			—
Balance at December 31	$	0.6		$	0.7

All additions or reductions to the above liability affect the Company’s effective tax rate in the respective period of change. The Company accounts for any applicable interest and penalties on uncertain tax positions as a component of income tax expense. Income tax expense for the years ended December 31, 2019, 2018 and 2017 included interest and penalties of none, $(1.6) million, and $0.4 million, respectively, associated with uncertain tax positions.

During the next twelve months, the Company currently expects to add immaterial amounts to the liability for uncertain taxes for 2020 events. Although existing liabilities could be reduced by settlement with taxing authorities or lapse due to statute of limitations, the Company believes that the changes in its unrecognized tax benefits due to these events will not have a material impact on the Consolidated Income Statement during 2020.

Total excess tax benefits recognized in the twelve months ended December 31, 2019, 2018 and 2017 were $0.1 million, $2.5 million, and $2.2 million respectively.