Income Taxes

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

Note 15. Income Taxes

Although the Company is a Delaware limited partnership, we are subject to corporate income tax on our share of the Partnership’s earnings because of our election to be treated as a corporation for U.S. federal and state income tax purposes. The provision (benefit) for income taxes consisted of:

	Year Ended December 31,
(in millions)	2021		2020		2019
Federal
Current	$	0.1	$	-	$	-
Deferred taxes and other accruals		12.5		6.2		(0.1	)
State		2.0		1.1		-
Total provision (benefit) for income taxes	$	14.6	$	7.3	$	(0.1	)

The difference between the effective income tax rate and the U.S. statutory rate is reconciled below:

	Year Ended December 31,
	2021				2020				2019
U.S. statutory rate		21.0		%		21.0		%		21.0		%
Non-taxable income from pre-Restructuring period		-				-				(21.4	)
Noncontrolling interest in partnership		(19.0	)			(19.7	)			0.4
State tax		0.3				0.2				-
Effective rate		2.3		%		1.5		%		-		%

On March 1, 2019, HIP acquired Hess Water Services (see Note 4, Acquisitions). For the periods prior to March 1, 2019, Hess Water Services was included in the consolidated income tax returns of Hess. The provision for Hess Water Services’ income taxes and income tax assets and liabilities were determined as if it were a standalone taxpayer for all periods presented.

Prior to the Restructuring on December 16, 2019, the Partnership was not a separate taxable entity for U.S. federal and state income tax purposes; therefore, we did not recognize income tax expense or benefit in those periods. Each partner was subject to income taxes on its share of the Partnership’s earnings. In connection with the Restructuring, we became a partial owner of the Partnership and recognize income tax expense or benefit on our allocable share of the Partnership’s income or loss subsequent to the Restructuring. As part of the Restructuring, we recognized a deferred tax asset of $49.8 million for the temporary differences related to our investment in the Partnership. The effect of recognizing the deferred tax asset was included in Class A shareholders’ equity balance in the accompanying consolidated statement of changes in partners’ capital due to the Restructuring being characterized as a transaction among or with shareholders.

In addition, as a result of the equity offering transactions on March 15, 2021 and October 8, 2021, as well as the Repurchase Transaction on August 10, 2021 (see Note 3, Equity Transactions), we recognized an additional deferred tax asset in the total amount of $89.0 million related to the change in the temporary difference between carrying amount and tax basis of our investment in the Partnership. The effect of recognizing the additional deferred tax asset was included in Class A shareholders’ equity balance in the accompanying consolidated statement of changes in partners’ capital due to the transactions being characterized as transactions among or with shareholders.

The components of deferred tax assets and liabilities are as follows:

	December 31,
	2021			2020
(in millions)
Deferred tax liabilities
Investments	$	(0.4	)	$	(0.3	)
Total deferred tax liabilities		(0.4	)		(0.3	)
Deferred tax assets
Investments		102.3			39.0
Net operating loss carryforwards		15.0			3.8
Total deferred tax assets		117.3			42.8
Net deferred tax assets (liabilities)	$	116.9		$	42.5

At December 31, 2021, we have recognized a deferred tax asset of $12.4 million related to U.S. federal net operating loss carryforwards which do not expire and $2.6 million related to U.S. state net operating loss carryforwards which begin to expire in 2040. We have no unrecognized tax benefits or interest and penalties related to tax liabilities recorded in the financial statements. For the years presented, we earned all net income before taxes in the United States. We file income tax returns in the U.S. and various states. We are not subject to corporate income tax examination for years prior to 2019.