Income Tax Expense

12 Months Ended

Dec. 31, 2012

Notes To Financial Statements [Abstract]

Income Taxes

NOTE 2:  INCOME TAX EXPENSE

Under ASC 740, we must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. From time to time, the Company is assessed interest and penalties by taxing authorities.  In those cases, the charges would appear on the Other line item on the Income Statement.  There were no such charges for the years ending December 31, 2012, 2011, and 2010.  Additionally, there were no accruals relating to interest, penalties, or uncertain tax positions as of December 31, 2012 and 2011.  The Company remains subject to examination by federal authorities for the 2010 and 2011 tax years, and the state authorities for the 2009 through 2011 tax years.  The Internal Revenue Service commenced an examination of the Company’s federal income tax return for the 2009 tax year during the second quarter of 2011.  The Company received notification in December of 2011 that no change will be made to the 2009 federal tax liability.

Income Tax Expense for the years ended December 31, is comprised of the following:

(in thousands)	2012			2011			2010
Federal Classified as Operating Expense	$	6,103		$	6,709		$	5,513
Federal Classified as Other Utility Income	427			424			368
Federal Classified as Other Income
Land Sales and Donations	477			(176		)	(230		)
Non-Water Sales	748			558			487
Other	(900		)	(276		)	(257		)
Total Federal Income Tax Expense	6,855			7,239			5,881
State Classified as Operating Expense	319			257			(190		)
State Classified as Other Utility Income	121			112			97
State Classified as Other Income
Land Sales and Donations	(97		)	—			—
Non-Water Sales	180			143			120
Other	(47		)	(75		)	(43		)
Total State Income Tax Expense	476			437			(16		)
Total Income Tax Expense	$	7,331		$	7,676		$	5,865

The components of the Federal and State income tax provisions are:

(in thousands)	2012			2011			2010
Current Income Taxes
Federal	$	4,747		$	5,002		$	3,902
State	511			428			338
Total Current	5,258			5,430			4,240
Deferred Income Taxes, Net
Federal
Investment Tax Credit	(71		)	(63		)	(61		)
Deferred Revenue	(77		)	(75		)	(75		)
Land Donations	29			392			201
Depreciation	2,411			1,990			1,909
Other	(184		)	(7		)	5
Total Federal	2,108			2,237			1,979
State
Land Donations	(83		)	—			—
Other	48			9			(354		)
Total State	(35		)	9			(354		)
Total Deferred Income Taxes	2,073			2,246			1,625
Total Income Tax	$	7,331		$	7,676		$	5,865

Deferred income tax (assets) and liabilities are categorized as follows on the Consolidated Balance Sheets:

(in thousands)	2012			2011
Unrecovered Income Taxes	$	(9,871	)	$	(7,355	)
Deferred Federal and State Income Taxes	40,869			31,075
Unfunded Future Income Taxes	8,992			7,355
Unamortized Investment Tax Credits	1,490			1,313
Other	(207		)	(185		)
Net Deferred Income Tax Liability	$	41,273		$	32,203

Net deferred income tax liability increased from December 31, 2011 to December 31, 2012 due to the current year tax effects of temporary differences mostly related to accelerated depreciations, and from the purchase of Maine Water and BSWC.

Deferred income tax (assets) and liabilities are comprised of the following:

(in thousands)	2012			2011
Tax Credit Carryforward (1)	$	(2,487	)	$	(2,533	)
Prepaid Income Taxes on CIAC	(66		)	4
Net Operating Loss Carryforwards (2)	(385		)	—
Other Comprehensive Income	(842		)	(486		)
Accelerated Depreciation	46,379			34,548
Unamortized Investment Tax Credits	1,490			1,313
Other	(2,816		)	(643		)
Net Deferred Income Tax Liability	$	41,273		$	32,203

(1) State tax credit carry-forwards expire beginning in 2013 and ending in 2037.

(2) Net operating loss carry-forwards expire beginning 2029 and ending in 2032.

The calculation of Pre-Tax Income is as follows:

(in thousands)	2012		2011		2010
Pre-Tax Income
Net Income	$	13,640	$	11,300	$	9,798
Income Taxes	7,331		7,676		5,865
Total Pre-Tax Income	$	20,971	$	18,976	$	15,663

In accordance with required regulatory treatment, deferred income taxes are not provided for certain timing differences. This treatment, along with other items, causes differences between the statutory income tax rate and the effective income tax rate.  The differences between the effective income tax rate recorded by the Company and the statutory federal tax rate are as follows:

	2012		2011		2010
Federal Statutory Tax Rate	35.0	%	34.0	%	34.0	%
Tax Effect Differences:
State Income Taxes Net of Federal Benefit	1.3	%	1.5	%	—	%
Property Related Items	(0.1	)%	1.0	%	—	%
Charitable Contributions – Land Donation (Net of Valuation Allowance)	(0.3	)%	(0.9	)%	(1.5	)%
Pension Costs	1.6	%	3.5	%	1.8	%
Unamortized Debt Expense	(2.6	)%	0.4	%	0.5	%
Other	0.1	%	1.0	%	2.6	%
Effective Income Tax Rate	35.0	%	40.5	%	37.4	%

In 2010, State Income Taxes Net of Federal Benefit was offset by additional generation of state credit recognized in the adjustment of prior year income taxes. In the fourth quarter of 2012, five bonds were refinanced allowing for the tax deduction of the associated debt issuance costs creating a decrease in the effective tax rate related to unamortized debt expense.