Income Taxes

6 Months Ended

Mar. 31, 2019

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes

The effective tax rates for the quarters ended March 31, 2019 and March 31, 2018 were 24.7% and 29.4%, respectively. The decrease in the effective tax rates was primarily the result of the reduction in the federal income tax rate and the impact of the sequestration of refundable alternative minimum tax (AMT) credit carryovers recorded during the quarter ended March 31, 2018, both of which are discussed below. The effective tax rates for the six months ended March 31, 2019 and March 31, 2018 were 21.4% and negative 17.4%, respectively. The difference is a result of the impact of the one-time remeasurement of the deferred income tax liability under the 2017 Tax Reform Act.

On December 22, 2017, the 2017 Tax Reform Act was enacted. The 2017 Tax Reform Act included a reduction in the corporate federal income tax rate from 35% to a blended 24.5% for fiscal 2018 and 21% for fiscal 2019 and beyond. The Company’s accumulated deferred income taxes were remeasured based upon the new tax rates. For the non-rate regulated activities through the year ended September 30, 2018, the change in beginning of the year deferred income taxes of $103.5 million was recorded as a reduction to income tax expense. For the Company's rate regulated activities, the reduction in deferred income taxes of $336.7 million was recorded as a decrease to Recoverable Future Taxes of $65.7 million and an increase to Taxes Refundable to Customers of $271.0 million. The 2017 Tax Reform Act includes provisions that stipulate how these excess deferred taxes are to be passed back to customers for certain accelerated tax depreciation benefits. Potential refunds of other deferred income taxes will be determined by the federal and state regulatory agencies. For further discussion, refer to Note 10 - Regulatory Matters.

The 2017 Tax Reform Act also provides that the Company’s existing AMT credit carryovers are refundable, if not utilized to reduce tax, beginning in fiscal 2019. During fiscal 2018, the Department of Treasury indicated that a portion of the refundable AMT credit carryovers would be subject to sequestration. Accordingly, the Company recorded a $5.0 million valuation allowance related to this sequestration. During the quarter ended December 31, 2018, the Office of Management and Budget determined that these AMT refunds would not be subject to sequestration. As such, the Company has removed the valuation allowance. In addition, the Company reclassified the estimated fiscal 2019 refund, approximately $42.1 million, from Deferred Income Taxes to Other Assets.