INCOME TAXES

12 Months Ended

Dec. 31, 2011

INCOME TAXES [Abstract]

INCOME TAXES

NOTE 3

INCOME TAXES

Deferred income taxes reflect temporary differences between the valuation of assets and liabilities for financial and tax reporting.

As of December 31, 2011, Artesian Resources has federal net operating loss carry-forwards aggregating approximately $6.6 million, which will expire if unused by 2031.  As of December 31, 2011, Artesian Resources has separate company state net operating loss carry-forwards aggregating approximately $15.9 million.  These net operating loss carry-forwards will expire if unused between 2024 and 2031.  Artesian Resources has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized due to the expiration of the state net operating loss carry-forwards.  Management believes that it is more likely than not that the Company will realize the benefits of these net deferred tax assets.  The valuation allowance increased from approximately $45,000 in 2010 to approximately $53,000 in 2011.

At December 31, 2011, for federal income tax purposes, there were alternative minimum tax credit carry-forwards aggregating $3.7 million resulting from the payment of alternative minimum tax in current and prior years.  These alternative minimum tax credit carry-forwards may be carried forward indefinitely to offset future regular federal income taxes.

Under FASB ASC Topic 740, an uncertain tax position represents our expected treatment of a tax position taken, or planned to be taken in the future, that has not been reflected in measuring income tax expense for financial reporting purposes.  As a result of our review of our tax positions, we determined that we had no material uncertain tax positions.  The Company would recognize, if applicable, interest accrued and penalties related to unrecognized tax benefits in interest expense and in accordance with the regulations of the jurisdictions involved.  There were no such interest and penalty charges for the years ended December 31, 2011 or December 31, 2010.  The Company remains subject to examination by state authorities for tax years 2008 through 2011 and by federal authorities for the tax years 2009 through 2011.  During the second quarter of 2010, the Internal Revenue Service, or IRS, conducted an examination of the Company’s Federal income tax returns for 2007 and 2008.  The IRS has proposed no changes to the 2007 consolidated corporate income tax return.  The IRS made changes to the tax depreciation expense, which is related to the bonus depreciation calculation, on the 2008 consolidated corporate income tax return in the amount of approximately $1.9 million.  This change does not constitute a disallowance of a deduction, but only a deferral of such deduction.  The depreciation expense will be taken in subsequent years over the remaining tax lives of the applicable assets.  This adjustment reduces the Net Operating Loss generated in 2008 by the same amount.  The Company agrees with this change.

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Components of Income Tax Expense
In thousands	For the Year Ended December 31,
State income taxes		2011		2010		2009
Current		$	106	$	127	$	64
Deferred			994		984		996
Total state income tax expense		$	1,100	$	1,111	$	1,060
	For the Year Ended December 31,
Federal income taxes			2011		2010		2009
Current		$	---	$	823	$	52
Deferred			3,554		3,148		3,748
Total federal income tax expense		$	3,554	$	3,971	$	3,800

Reconciliation of effective tax rate:
	For the Year Ended December 31,
In thousands	2011			2011		2010			2010		2009			2009
	Amount			Percent		Amount			Percent		Amount			Percent
Reconciliation of effective tax rate
Income before federal and state income taxes	$	11,401	%		100.0	$	12,702	%		100.0	$	12,153	%		100.0
Amount computed at statutory  rate		3,876			34.0		4,319			34.0		4,132			34.0
Reconciling items
State income tax-net of federal tax benefit		711			6.2		726			5.7		683			5.6
Other		67			0.6		37			0.3		45			0.4
Total income tax expense and effective rate	$	4,654	%		40.8	$	5,082	%		40.0	$	4,860	%		40.0

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Deferred income taxes at December 31, 2011, 2010, and 2009 were comprised of the following:

	For the Year Ended December 31,
In thousands	2011			2010			2009
Deferred tax assets related to:
Federal alternative minimum tax credit carry-forwards	$	3,688		$	3,775		$	2,547
Federal and state operating loss carry-forwards		3,077			2,521			4,899
Bad debt allowance		127			132			97
Valuation allowance		(53	)		(45	)		(37	)
Stock options		251			---			---
Other		344			196			214
Total deferred tax assets	$	7,434		$	6,579		$	7,720
Deferred tax liabilities related to:
Property plant and equipment basis differences	$	(48,681	)	$	(43,767	)	$	(41,410	)
Expenses of rate proceedings		(144	)		(18	)		(91	)
Property taxes		(494	)		(470	)		(486	)
Other		(619	)		(341	)		(249	)
Total deferred tax liabilities	$	(49,938	)	$	(44,596	)	$	(42,236	)
Net deferred tax liability	$	(42,504	)	$	(38,017	)	$	(34,516	)
Deferred taxes, which are classified into a net current and non-current balance, are presented in the balance sheet as follows:
Current deferred tax liability	$	(772	)	$	(459	)	$	(439	)
Non-current deferred tax liability		(41,732	)		(37,558	)		(34,077	)
Net deferred tax liability	$	(42,504	)	$	(38,017	)	$	(34,516	)

Schedule of Valuation Allowance
			Additions
	Balance at Beginning Of Period		Charged to Costs and Expenses		Deductions		Balance at End of Period
In thousands
Classification
For the Year Ended December 31, 2011      Valuation allowance for deferred tax assets	$	45	$	8		---	$	53
For the Year Ended December 31, 2010      Valuation allowance for deferred tax assets	$	37	$	8		---	$	45
For the Year Ended December 31, 2009      Valuation allowance for deferred tax assets	$	71		---	$	34	$	37

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