NOTE 9 – INCOME TAXES

We had an income tax benefit of $0.3 million, $0.5 million and $1.1 million in 2019, 2018 and 2017, respectively. These income tax benefits are due to our election to receive an alternative minimum tax credit refund in lieu of recognizing bonus depreciation.

The liability method of accounting for income taxes is utilized. Under the liability method, deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and for income tax purposes. In accordance with our regulatory accounting treatment, changes in deferred tax assets or liabilities result in the establishment of a regulatory asset or liability. A regulatory asset or liability associated with deferred income taxes generally represents the future increase or decrease in income taxes payable that will be received or settled through future rate revenues. Under this regulatory accounting approach, the income tax expense (benefit) on our consolidated statements of operations includes only the current portion. FERC may require us to change our regulatory accounting treatment.

Components of our net deferred tax liability are as follows (dollars in thousands):


	December 31,		December 31,
	2019		2018
Deferred tax assets
Safe harbor lease receivables	$	14,552	$	17,067
Net operating loss carryforwards		116,797		100,565
Alternative minimum tax credit carryforwards		308		615
Deferred revenues and membership withdrawal		28,185		29,650
Operating lease liabilities		131,817		—
Other		26,587		22,483
		318,246		170,380
Less valuation allowance		(30,468)		—
		287,778		170,380
Deferred tax liabilities
Basis differences- property, plant and equipment		129,427		115,887
Capital credits from other associations		32,789		32,689
Deferred debt prepayment transaction costs		33,542		35,595
Operating lease right-of-use assets		136,930		—
Other		14,027		4,307
		346,715		188,478
Net deferred tax liability	$	(58,937)	$	(18,098)

The $40.8 million increase in net deferred tax liabilities is not recognized as a tax expense in 2019 due to our regulatory accounting treatment of deferred taxes. Instead, the tax expense is deferred and reflected as an increase in the regulatory asset established for deferred income tax expense. This liability method is included in our FERC rate filing, however, FERC may require a different method for the rate recovery of income taxes. The accounting for regulatory assets is discussed further in Note 2—Accounting for Rate Regulation. The regulatory asset balance associated with deferred income tax expense under the liability method is $58.9 and $18.1 million at December 31, 2019 and 2018, respectively.

The reconciliation between the statutory federal income tax rate and the effective tax rate is as follows:


	2019		2018		2017
Federal income tax expense at statutory rate	21.00	%	21.00	%	35.00	%
State income tax expense, net of federal benefit	2.80		2.80		2.63
Patronage exclusion	(23.80)		(23.80)		(37.63)
Asset retirement obligations	(11.33)		3.57		(0.16)
Deferred revenues and membership withdrawal	3.23		(28.78)		5.11
Operating liabilities, net of right-of-use assets (1)	11.29		—		—
Valuation Allowance	67.24		—		—
Other book tax differences	(2.43)		24.42		(2.82)
Regulatory treatment of deferred taxes	(68.68)		(0.46)		(3.91)
Effective tax rate	(0.68)	%	(1.25)	%	(1.78)	%

(1)

Net deferred tax liability established as a result of adopting ASC 842. See Note 11 – Leases.

We had a taxable loss of $46.4 million for 2019. At December 31, 2019, we have a federal net operating loss carryforward of $492.5 million of which pre-2018 tax years are subject to expiration periods between 2031 and 2037. We have $356.2 million of state net operating loss carryforwards subject to expiration periods between 2020 and 2037. We also have $0.3 million of alternative minimum tax credit carryforwards which is fully refundable through 2021. We established a valuation allowance of $30.5 million because it is more likely than not that some of the benefit from the federal and state net operating losses will not be realized in the future.

We file a U.S. federal consolidated income tax return and income tax returns in state jurisdictions where required. The statute of limitations remains open for federal and state returns for the years 2016 forward. We do not have any liabilities recorded for uncertain tax positions.

The Tax Cuts and Jobs Act (“TCJA”), enacted on December 22, 2017, reduced the corporate income tax rate from 35 percent to 21 percent, effective January 1, 2018. The Securities and Exchange Commission issued guidance in Staff Accounting Bulletin 118 (“SAB 118”) which allows registrants to record provisional amounts for the accounting effects of TCJA during a measurement period not to extend beyond one year from the date of enactment. As of December 31, 2017, we recorded a $17.2 million provisional estimate to remeasure deferred tax balances at 21 percent.