INCOME TAXES

A reconciliation of the United States federal statutory rate of 35 percent to the effective rate from operations for the fiscal years ended September 30, 2011, 2010 and 2009 is as follows:



(Thousands)	2011			2010			2009
Statutory income tax expense	$	48,638		$	63,753		$	13,516
Change resulting from
State income taxes	3,435			4,626			2,763
Depreciation and cost of removal	(2,558		)	(1,986		)	(2,191		)
Investment tax credits (ITC)	(13,150		)	(769		)	(322		)
Basis adjustment of solar assets due to ITC	2,266			91			—
Fin 48 (ASC 740) and other interest released	—			—			(1,272		)
Other	(966		)	(1,023		)	(1,118		)
Income tax provision	$	37,665		$	64,692		$	11,376
Effective income tax rate	27.1		%	35.5		%	29.5		%

The effective tax rate decreased to 27.1 percent for fiscal 2011 from 35.5 percent in fiscal 2010, due primarily to federal ITCs generated by NJRCEV's and NJRHS' solar investments placed into service in fiscal 2011.

The Income tax provision (benefit) from operations consists of the following:



(Thousands)	2011			2010			2009
Current
Federal	$	14,566		$	(7,343	)	$	26,860
State	6,618			(981		)	7,603
Deferred
Federal	30,932			65,258			(17,713		)
State	(1,301		)	8,527			(5,052		)
Investment tax credits	(13,150		)	(769		)	(322		)
Income tax provision	$	37,665		$	64,692		$	11,376

The temporary differences, which give rise to deferred tax assets and (liabilities), consist of the following:



(Thousands)	2011			2010
Current
Overrecovered gas costs	$	1,865		$	—
Pension liability	15,202			9,260
Deferred service contract revenue	3,191			2,838
Other	2,669			2,382
Total current deferred tax assets	$	22,927		$	14,480
Underrecovered gas costs	$	—		$	(14,738	)
Conservation incentive plan	(3,696		)	(6,050		)
Fair value of derivatives	(16,571		)	(18,107		)
Other	(1,162		)	(1,141		)
Total current deferred tax (liabilities)	$	(21,429	)	$	(40,036	)
Total net current deferred tax assets (liabilities)	$	1,498		$	(25,556	)
Noncurrent
Unamortized investment tax credits	$	3,353		$	3,526
Other	6,557			5,149
Total noncurrent deferred tax assets	$	9,910		$	8,675
Pension/OPEB	$	(20,116	)	$	(17,765	)
Equity investments	(28,255		)	(24,460		)
Property related items	(258,501		)	(212,825		)
Remediation costs	(30,459		)	(30,582		)
Deferred gain	(330		)	(11		)
Fair value of derivatives	(31		)	(1,583		)
Total noncurrent deferred tax (liabilities)	$	(337,692	)	$	(287,226	)
Total net noncurrent deferred tax (liabilities)	$	(327,782	)	$	(278,551	)
Total net deferred tax (liabilities)	$	(326,284	)	$	(304,107	)

The Company and one or more of its subsidiaries files or expects to file income and/or franchise tax returns in the United States Federal jurisdiction and in the states of New Jersey, New York, Connecticut, Texas, Delaware and Louisiana. The Company neither files in, nor believes it has a filing requirement in, any foreign jurisdictions.

During the second quarter of fiscal 2009, the Company settled the September 30, 2005 Internal Revenue Service (IRS) tax audit. The settlement resulted in an additional reduction to the remaining Fin 48 balance of $3.8 million bringing it to its current balance of zero. The prior balance of $3.8 million related to one issue which has been settled and resulted in no changes to the Company's tax liability related to the issue.

The Company's federal income tax returns through fiscal 2006 have either been reviewed by the IRS, or the related statute of limitations has expired and all matters have been settled. The IRS is examining returns for fiscal 2007 and fiscal 2008, which is expected to be completed during the second quarter of fiscal 2012.

The Company is currently under examination in the State of New Jersey. The period being examined is from October 1, 2004 through March 31, 2010, for sales and use tax, as well as October 1, 2004 through September 30, 2008, for corporate business tax. All periods subsequent to those ended September 30, 2004, are statutorily open to examination in all applicable states with the exception of New York. In New York, all periods subsequent to September 30, 2005, are statutorily open to examination.

NJRES amended its New Jersey State Income Tax returns for the periods ended September 30, 2004, 2005, 2006 and 2007, and requested refunds related to a dispute over certain rules surrounding a company's ability to apportion income away from the state. Discussions between NJR and the State of New Jersey on the interpretation of the apportionment rules and relevant case law were completed during fiscal 2011, resulting in a refund of approximately $4.3 million. Accordingly, in fiscal 2011, NJRES recognized a $4.3 million state tax benefit. After fees and federal income taxes, the net impact was $2.4 million, or $0.06 per share.

NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with unrecognized tax benefits. As of September 30, 2011 and 2010, based on its analysis, the Company determined that there was no need to recognize any liabilities associated with uncertain tax positions.