

	2019			2018		2017
“Expected” federal income tax	$	6,737		10,255		33,773
Increase (decrease) in taxes attributable to:
State taxes, net of federal income tax benefit	2,251			3,420		4,986
Uncertain tax positions	323			24		12
Property flow-through	(2,054		)	(839	)	(1,027	)
Capitalized merger costs	5,350			—		—
Tax reform - rate change impact on deferred taxes	77			—		(2,357	)
Reversal of excess deferred taxes recognized in regulatory liability	(2,355		)	(1,383	)	—
Pension flow-through	(1,244		)	—		—
Stock-based compensation	(223		)	(1,602	)	(552	)
Other items, net	(408		)	190		558
	$	8,454		10,065		35,393



	2019			2018
Deferred tax assets:
Advances and contributions	$	19,547		14,592
Unamortized investment tax credit	649			418
Pensions and postretirement benefits	32,450			20,439
Debt premium, net	7,002			—
California franchise tax	456			981
Net operating loss	1,046			—
Merger related expenses	—			4,527
Tax related net regulatory liability	—			16,212
Other	7,211			3,336
Gross deferred tax assets	68,361			60,505
Valuation allowance	(1,924		)	—
Total deferred tax assets	66,437			60,505
Deferred tax liabilities:
Utility plant	211,079			114,731
Pension and postretirement benefits	22,263			18,534
Deferred gain and other-property related	5,872			5,753
Regulatory asset - business combinations debt premium, net	7,002			—
Intangibles	3,693			—
Deferred revenue	1,962			—
Regulatory asset - income tax temporary differences, net	295			—
Section 481(a) adjustments	5,721			—
Other	4,148			1,138
Total deferred tax liabilities	262,035			140,156
Net deferred tax liabilities	$	195,598		79,651

Management evaluates the realizability of deferred tax assets based on all available evidence, both positive and negative. The realization of deferred tax assets is dependent on our ability to generate sufficient future taxable income during periods in which the deferred tax assets are expected to reverse. Based on all available evidence, management believes it is more likely than not

that SJW Group will realize the benefits of these deferred tax assets. The valuation allowance as of December 31, 2019 relates to state net operating losses assumed from CTWS. Net operating loss carryforwards assumed from the CTWS merger expire beginning in 2029 and ending in 2038. Federal net operating loss carryforward generated after December 31, 2017 have no expiration. As of December 31, 2019, the estimated amount of CTWS net operating loss carryforwards available to offset future taxable income for Federal, Connecticut and Maine purposes are $9,213, $32,604 and $9,506, respectively. SJW Group also assumed from the CTWS merger estimated state tax credit carryforwards of $1,000 which will expire beginning in 2020 and ending in 2040. The valuation allowance, the net operating losses, and the state tax credit carryforwards are expected to be adjusted during the acquisition measurement period.

The change in the net deferred tax liabilities of $115,947 in 2019 included $109,435 from recording the acquisition of CTWS and other non-cash items primarily consisting of regulatory assets and liabilities relating to income tax temporary differences.

The total amount of unrecognized tax benefits, before the impact of deductions for state taxes, excluding interest and penalties was $4,037 and $1,411 as of December 31, 2019 and 2018, respectively. The amount of tax benefits, net of any federal benefits for state taxes and inclusive of interest that would impact the effective rate, if recognized, is approximately $27 and $70 as of December 31, 2019 and 2018, respectively.



	2019			2018	2017
Balance at beginning of year	$	1,382		1,307	1,132
Increase related to tax positions taken during the current year, including interest	351			—	—
Increase related to tax positions taken during a prior year, including interest	3,483			75	185
Reductions related to tax positions taken in a prior year, including interest	(1,382		)	—	(10	)
Balance at end of year	$	3,834		1,382	1,307

SJW Group’s policy is to classify interest and penalties associated with unrecognized tax benefits, if any, in tax expense. Accrued interest expense, net of the benefit of tax deductions which would be available on the payment of such interest, is approximately $27 as of December 31, 2019. SJW Group has not accrued any penalties for unrecognized tax benefits. The amount of interest recognized in 2019 was a decrease to expense of $43.

On December 22, 2017 the Tax Act was signed into law. The Tax Act includes a number of changes in existing tax law impacting businesses including, among other things, a reduction in the corporate income tax rate from 35% to 21%. The rate reduction was effective on January 1, 2018.

In accordance with generally accepted accounting principles, SJW Group recorded the revaluation of deferred taxes and related impacts using the new corporate tax rate in its December 31, 2017 consolidated financial statements. The amounts recorded were based on information known and reasonable estimates used as of December 31, 2017. As such, SJW Group recorded this estimate as a provisional amount. SJW Group recorded a tax benefit of $2,357 related to the deferred taxes revaluation impacting non-regulated operations due to the tax rate reduction. However, for regulated operations governed by state public utility commissions, the lower tax rate benefits are expected to flow back to customers under current normalization rules and agreed-upon methods with the commissions. The revaluation of deferred tax assets and liabilities of the regulated operations resulted in a decrease in net deferred tax liabilities of $83,666 which was recorded as a regulatory liability in 2017.

The CPUC has directed SJWC to establish a memorandum account to capture all of the impacts of the Tax Act including the benefit of the reduction in the federal statutory income tax rate from 35% to 21% on its regulated revenue requirement. The PUCT has directed water utilities to record as a regulatory liability the difference between the revenues collected under existing rates and the revenue that would have been collected had the existing rates been set using the new federal statutory income tax rate. The benefits associated with regulatory activities is expected to flow back to customers as directed by the CPUC and PUCT, with no impact to net income. As per Advice Letter No. 522A filed with CPUC, the benefit of the reduction in the federal statutory income tax rate from 35% to 21% were reflected in the customer bills effective July 1, 2018. The tax

memorandum account only includes the benefit of the reduction in the federal statutory income tax rate through June 30, 2018. The other impacts of the Tax Act were recorded in the tax memorandum account for the entire year. Accordingly, SJWC recorded $6,504 liability in the tax memorandum account for the year ended December 31, 2018. For discussion on approved refunds, please see “Regulatory Rate Filings” in Note 1. CLWSC refunded the accrued amounts for the period January 25, 2018, through April 30, 2018, in the second quarter of 2018. The FTCC will continue to be reflected on customer bills every month starting from May 1, 2018 until the implementation of new rates resulting from the next rate case.

SJW Group expects the Internal Revenue Service to issue guidance in future periods that will determine the final disposition of the excess deferred taxes and other impacts of the Tax Act. At this time, the Company has applied a reasonable interpretation of the Tax Act. Future clarification of the Tax Act may change the amounts estimated.

SJW Group files U.S. federal income tax returns and income tax returns in various states. SJW Group is no longer subject to tax examination for fiscal years prior to 2016 for federal purposes and 2015 for state purposes. The open tax years for the jurisdictions in which SJW Group files are as follows: