Name: ARTESIAN RESOURCES CORP Income Taxes Disclosure
Creator: ARTESIAN RESOURCES CORP
License: https://creativecommons.org/publicdomain/mark/1.0/

NOTE 5 – INCOME TAXES

Deferred income taxes are provided in accordance with FASB ASC Topic 740 on all differences between the tax basis of assets and liabilities and the amounts at which they are carried in the consolidated financial statements based on the enacted tax rates expected to be in effect when such temporary differences are expected to reverse. The Company’s rate regulated subsidiaries recognize regulatory liabilities, to the extent considered in ratemaking, for deferred taxes provided in excess of the current statutory tax rate and regulatory assets for deferred taxes provided at rates less than the current statutory rate. Such tax-related regulatory assets and liabilities are reported at the revenue requirement level and amortized to income as the related temporary differences reverse, generally over the lives of the related properties.

As of December 31, 2024, the Company has separate company state net operating loss carry-forwards aggregating approximately $16.5 million. Most of these net operating loss carry-forwards will not expire, with a negligible amount expiring in 2025. The Company has recorded a valuation allowance to reflect the estimated amount of deferred tax assets that may not be realized in the future. The valuation allowance increased to approximately $1,084,000 in 2024 from approximately $906,000 in 2023. Management believes that it is more likely than not that the Company will realize the benefit of these deferred tax assets, net of the valuation allowance.

Components of Income Tax Expense
In thousands	For the Year Ended December 31,
Federal income taxes	2024			2023		2022
Current	$	4,733		$	1,946	$	2,912
Deferred		(104	)		1,968		930
Total federal income tax expense	$	4,629		$	3,914	$	3,842

	For the Year Ended December 31,
State income taxes	2024		2023		2022
Current	$	2,004	$	1,016	$	1,373
Deferred		682		1,418		663
Total state income tax expense	$	2,686	$	2,434	$	2,036

Reconciliation of effective tax rate:
	For the Year Ended December 31,
In thousands	2024			2024			2023			2023			2022			2022
	Amount			Percent			Amount			Percent			Amount			Percent
Reconciliation of effective tax rate
Income before federal and state income taxes	$	27,709			100.0	%	$	23,047			100.0	%	$	23,876			100.0	%

Amount computed at statutory rate		5,819			21.0	%		4,840			21.0	%		5,014			21.0	%
Reconciling items
State income tax-net of federal tax benefit		2,094			7.6	%		1,918			8.3	%		1,696			7.1	%
Regulatory liability adjustment		(719	)		(2.6	)%		(449	)		(1.9	)%		(450	)		(1.9	)%
Other		121			0.4	%		39			0.2	%		(382	)		(1.6	)%
Total income tax expense and effective rate	$	7,315			26.4	%	$	6,348			27.6	%	$	5,878			24.6	%

Deferred income taxes at December 31, 2024 and 2023 were comprised of the following:

	For the Year Ended December 31,
In thousands	2024			2023

Deferred tax assets related to:
State operating loss carry-forwards	$	1,086		$	1,037
Bad debt allowance		96			92
Stock options		31			47
Tax effect of regulatory liabilities		7,408			—
Other		183			48
Total deferred tax assets	$	8,804		$	1,224
Less: valuation allowance		(1,084	)		(906	)
Total deferred tax assets net of valuation allowance		7,720			318

Deferred tax liabilities related to:
Property plant and equipment basis differences	$	(57,296	)	$	(56,012	)
Bond retirement costs		(907	)		(982	)
Property taxes		(610	)		(624	)
Other		(1,172	)		(1,081	)
Total deferred tax liabilities	$	(59,985	)	$	(58,699	)

Net deferred tax liability	$	(52,265	)	$	(58,381	)

Schedule of Valuation Allowance
	Balance at Beginning of Period			Additions Charged to Costs and Expenses			Deductions			Balance at End of Period
In thousands

Classification
For the Year Ended December 31, 2024 Valuation allowance for deferred tax assets		$	906		$	190		$	12		$	1,084
For the Year Ended December 31, 2023 Valuation allowance for deferred tax assets		$	600		$	312		$	6		$	906
For the Year Ended December 31, 2022 Valuation allowance for deferred tax assets		$	546		$	54		$	—		$	600

Under FASB ASC Topic 740, the Company establishes reserves for uncertain tax positions based upon management’s judgment as to the sustainability of these positions. The Company reserved a liability related to the difference in the tax depreciation utilizing the half-year convention rather than the mid-quarter convention for 2022 and 2024.

The following table provides the changes in the Company’s uncertain tax position:

	For the years ended December 31,
In thousands	2024		2023
Balance at beginning of year	$	158	$	146
Additions based on tax positions related to the current year		46		—
Additions based on tax positions related to prior years		17		12
Reductions for tax positions of prior years		—		—
Lapses in statutes of limitations		—		—
Balance at end of year	$	221	$	158

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About Income Taxes Disclosures

The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.

Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.

ARTESIAN RESOURCES CORP Income Taxes Disclosure

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