Income taxes

9 Months Ended

Sep. 30, 2024

Income Tax Disclosure [Abstract]

Income taxes

Income taxes

The Company’s and the Utilities’ effective tax rates (combined federal and state income tax rates) for the nine months ended September 30, 2024 were 26% tax benefit. These rates differed from the combined statutory rates, primarily due to the substantial pretax loss, Utilities’ amortization of excess deferred income taxes related to the provision in the 2017 Tax Cuts and Jobs Act that lowered the federal income tax rate from 35% to 21%, the tax benefits derived from the low income housing tax credit investments and the non-taxability of the bank-owned life insurance income.

In August 2020, the Internal Revenue Service notified the Company that its 2017 and 2018 income tax returns would be examined. The Company was previously audited every year through 2011, at which time the IRS changed their internal policies regarding audit frequency. In May 2024, the IRS proposed a disallowance of $8.5 million from the $12.9 million of additional R&D tax credits claimed for the 2016 to 2018 tax years. The Company accepted the proposed adjustment in September 2024 which resulted in an additional $1 million of 2016-2018 R&D tax credits and release of the related previously recorded uncertain tax position reserve. Total additional tax benefit recognized in September 2024 was $1.6 million.

The Inflation Reduction Act of 2022 (IRA) was signed by President Biden on August 16, 2022. Key provisions under the IRA include a 15% corporate alternative minimum tax (CAMT) imposed on certain large corporations and a 1% excise tax on stock repurchases after December 31, 2022. Based on current interpretation of the law and current guidance available, the Company does not believe HEI will be impacted by the CAMT or stock repurchase excise tax provisions.

The IRA also creates new tax credits and enhances others to stimulate investment in renewable energy sources. Certain provisions of the IRA became effective in tax year 2023. The Company is exploring clean energy tax incentives included in the IRA.