INCOME TAXES

12 Months Ended

Sep. 30, 2023

Income Tax Disclosure [Abstract]

INCOME TAXES

12. INCOME TAXES

The income tax provision from operations for the fiscal years ended September 30, consists of the following:

(Thousands)	2023		2022		2021
Current:
Federal	$	13,393	$	4,238	$	651
State	7,716		2,104		1,703
Deferred:
Federal	36,825		55,968		25,030
State	(8,381)		14,185		6,224
Investment/production tax credits	(278)		(300)		(322)
Income tax provision	$	49,275	$	76,195	$	33,286

As of September 30, the temporary differences, which give rise to deferred tax assets (liabilities), consist of the following:

(Thousands)	2023		2022
Deferred tax assets
Investment tax credits (1)	$	191,948	$	212,506
State net operating losses	39,612		36,950
Deferred revenue	8,205		—
Fair value of derivatives	5,386		6,506
Impairment of equity method investment	14,004		14,124
Postemployment benefits	6,502		2,751
Incentive compensation	8,949		7,297
Amortization of intangibles	6,308		6,474
Overrecovered natural gas costs	8,564		4,977
Allowance for doubtful accounts	4,485		5,761
Other	7,636		5,748
Total deferred tax assets	301,599		303,094
Less: Valuation allowance	(5,747)		(22,241)
Total deferred tax assets net of valuation allowance	$	295,852	$	280,853
Deferred tax liabilities
Property-related items	$	(487,294)	$	(468,115)
Remediation costs	(18,532)		(18,490)
Investments in equity investees	(28,325)		(19,176)
Conservation incentive program	(14,075)		(6,457)
Other	(4,670)		(4,615)
Total deferred tax liabilities	$	(552,896)	$	(516,853)
Total net deferred tax liabilities	$	(257,044)	$	(236,000)

(1)Includes approximately $0.7M for NJNG for both fiscal 2023 and 2022, which is being amortized over the life of the related assets.

A reconciliation of the U.S. federal statutory rate to the effective rate from operations for the fiscal years ended September 30, is as follows:

(Thousands)	2023			2022			2021
Statutory income tax expense	$	65,940		$	73,735		$	31,747
Change resulting from:
Investment/production tax credits	(278)			(300)			(322)
Cost of removal of assets placed in service prior to 1981	(4,758)			(3,533)			(5,366)
AFUDC equity	(1,499)			(2,361)			(786)
State income taxes, net of federal benefit	13,293			13,072			6,124
Valuation allowance	(16,494)			(1,372)			5,974
Tax Act - utility excess deferred income taxes amortized	(3,573)			(3,573)			(3,573)
Other	(3,356)			527			(512)
Income tax provision	$	49,275		$	76,195		$	33,286
Effective income tax rate	15.7		%	21.7		%	22.0		%

The Company and one or more of its subsidiaries files or expects to file income and/or franchise tax returns in the U.S. federal jurisdiction and in the states of Colorado, Connecticut, Delaware, Florida, Indiana, Louisiana, Maryland, Michigan, Mississippi, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, Texas and Virginia. The Company neither files in, nor believes it has a filing requirement in, any foreign jurisdictions other than Canada. Due to certain available tax treaty benefits, the Company incurs no tax liability in Canada.

The Company’s U.S. federal income tax returns through fiscal 2019 have either been reviewed by the IRS, or the related statute of limitations has expired and all matters have been settled. U.S. federal income tax returns for periods subsequent to fiscal 2019 are open to examination by the IRS. For all periods subsequent to those ended September 30, 2019, the Company’s state income tax returns are statutorily open to examination in all applicable states with the exception of Colorado, New Jersey and Texas. In Colorado, New Jersey and Texas, all periods subsequent to September 30, 2018, are statutorily open to examination.

NJR evaluates its tax positions to determine the appropriate accounting and recognition of potential future obligations associated with uncertain tax positions. A tax benefit claimed, or expected to be claimed, on a tax return may be recognized only if it is more likely than not that the tax position will be upheld upon examination by the applicable taxing authority and is measured based on the largest tax benefit that is more than 50% likely to be realized. Interest and penalties related to unrecognized tax benefits, if any, are recognized within income tax expense, and accrued interest and penalties are recognized within other noncurrent liabilities on the Consolidated Balance Sheets.

CARES Act

On March 27, 2020, the President of the U.S. signed the CARES Act, which is aimed at providing emergency assistance and health care for individuals, families, and businesses affected by the COVID-19 pandemic and generally supporting the U.S. economy. The CARES Act provided for the delay in the required deposit of the employer portion of the OASDI payroll tax from the date of enactment through the end of 2020. Of the taxes that the Company can defer, 50% of the deferred taxes were required to be deposited by the end of 2021 and the remaining 50% were required to be deposited by the end of 2022.

As of September 30, 2021, the Company deferred approximately $5.1M related to the employer portion of the OASDI tax. During fiscal 2022, the Company made the first of two installment payments, which reduced the balance to approximately $2.7M. The second installment payment was made during the first quarter of fiscal 2023, which reduced the balance to zero as of September 30, 2023.

Inflation Reduction Act

In August 2022, the President of the U.S. signed the Inflation Reduction Act, which contains provisions addressing inflation, clean energy, healthcare and taxes beginning in 2023. The Inflation Reduction Act imposes a 15% minimum tax rate on corporations with higher than $1B of annual income, along with a 1% excise tax on corporate stock repurchases. The Inflation Reduction Act raised the ITC from 26% to 30% through the end of 2032, dropping to 26% for property under construction before the end of 2033 and to 22% for property under construction before the end of 2034. The ITC expires

starting in 2035 unless it is renewed. There are additional opportunities to increase the credit amount for certain facilities that are placed in service after December 31, 2022. The credit amount can be increased by 10% if certain domestic content requirements are satisfied or if the facility is located in an energy community, such as a brownfield site. ITCs are also expanded to include stand-alone energy storage projects without being integrated into a solar facility, allowing solar to claim production tax credits that are a production-based credit extending for 10 years following the placed-in-service date of the facility, and introducing the concept of transferability of tax credits, providing an additional option to monetize such credits.

The Company evaluated the impacts of the Inflation Reduction Act on its financial position, results of operations and cash flows, noting the corporate alternative minimum tax does not impact the Company as the applicable income thresholds have not been met. Upon the repurchase of common stock through the Company’s share repurchase program, the Company would be subject to the 1% excise tax.

Other Tax Items

As of September 30, 2023 and 2022, the Company has tax credit carryforwards of approximately $191.2M and $211.8M, respectively, which each have a life of 20 years. The Company expects to utilize this entire carryforward prior to expiration, which would begin in fiscal 2036.

The impairment of the equity method investment in PennEast created net capital loss attributes totaling approximately $56.6M, which could only be utilized to offset capital gains income and carried back three years and forward five years prior to expiration. During the fourth quarter of fiscal 2023, the Company determined that the tax losses created by the impairment may qualify as an ordinary loss, rather than a capital loss. As of September 30, 2023 and 2022, the Company had a valuation allowance of approximately $5.0M and $5.1M, respectively.

As of September 30, 2023, the Company evaluated certain tax benefits recorded in the Consolidated Financial Statements and concluded that a portion of the tax benefits are uncertain at this time. As a result, the Company recorded a reserve for uncertain tax benefits. The reserve for uncertain tax benefits is as follows:

(Thousands)	2023		2022
Balance at October 1,	$	—	$	—
Additions based on tax positions related to the current fiscal period	4,978		—
Balance at September 30,	$	4,978	$	—

As of September 30, 2023, there are $5.0M of unrecognized tax benefits that if recognized would affect the annual effective tax rate. The tax benefits relate to fiscal tax years open to examination by the IRS and the state of Pennsylvania and may be subject to subsequent adjustment.

As of September 30, 2023 and 2022, the Company has state income tax net operating losses of approximately $631.2M and $544.4M, respectively. These state net operating losses have varying carry-forward periods dictated by the state in which they were incurred; these state carry-forward periods range from seven to 20 years, with the majority expiring after 2037. The Company expects to utilize this entire carryforward, other than as described below.

As of September 30, 2022, the Company had a valuation allowance of approximately $17.2M related to the recognition of state net operating loss carryforwards. As of September 30, 2023, it was determined that the realization of certain deferred tax assets was more likely than not, and thus the associated valuation allowance of approximately $15.8M was no longer required. Reversal of the valuation allowance resulted in a corresponding income tax benefit on the Consolidated Statement of Operations. As of September 30, 2023, the remaining valuation allowance of approximately $0.7M related primarily to other state income tax attributes which the Company could not conclude were realizable on a more-likely-than-not basis.

The Consolidated Appropriations Act extended the 30% ITC for solar property that is under construction on or before December 31, 2019. Projects placed in service after December 31, 2019, may also qualify for a 30% federal ITC if 5% or more of the total costs of a solar property are incurred before the end of the applicable year and there are continuous efforts to advance toward completion of the project, based on the IRS guidance around ITC safe harbor determination. The credit declined to 26% for property under construction before the end of 2020. The Consolidated Appropriations Act of 2021 extended the 26% tax credit for property under construction during 2021 and 2022. The Inflation Reduction Act raised the ITC from 26% to 30% through the end of 2032, as previously stated.