AMERICAN STATES WATER COAWR
AMERICAN STATES WATER CO Income Taxes Disclosure
Taxes on Income
Registrant records deferred income taxes for temporary differences pursuant to the accounting guidance that addresses items recognized for income tax purposes in different periods than when they are reported in the financial statements. These items include differences in net asset basis (primarily related to differences in depreciation lives and methods, and differences in capitalization methods) and the treatment of certain regulatory balancing accounts, and construction contributions and advances. The accounting guidance for income taxes requires that rate-regulated enterprises record deferred income taxes and offsetting regulatory liabilities and assets for temporary differences where the rate regulator has prescribed flow-through treatment for rate-making purposes (Note 3). Deferred investment tax credits (“ITC”) are amortized ratably to deferred tax expense over the remaining lives of the property that gave rise to the credits.
GSWC is included in both AWR’s consolidated federal income tax and its combined California state franchise tax returns. The impact of California’s unitary apportionment on the amount of AWR’s California income tax liability is a function of both the profitability of AWR’s non-California activities and the proportion of AWR’s California sales to its total sales. GSWC’s income tax expense is computed as if GSWC is autonomous and separately files its income tax returns, which is consistent with the method adopted by the CPUC in setting GSWC’s customer rates.
On July 4, 2025, the One Big Beautiful Bill Act (the “Act”) was signed into federal law. Among other things, the Act extends or makes permanent several of the tax law changes enacted as part of the Tax Cuts and Jobs Act of 2017, and impacts the future of renewable energy tax credits enacted by the Inflation Reduction Act of 2022. The Act leaves the U.S. corporate tax rate unchanged at 21%. Registrant continues to evaluate the provisions of the new tax law and the potential impact, if any, on its consolidated financial statements as the U.S. Treasury and the IRS issue further guidance. Registrant does not expect the Act to have a material impact on its financial position, results of operations and/or cash flows.
The significant components of the deferred tax assets and liabilities as reflected in the balance sheets at December 31, 2025 and 2024 are:
| AWR | GSWC | |||||||||||||||||||||||||
| December 31, | December 31, | |||||||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||||
| Deferred tax assets: | ||||||||||||||||||||||||||
Regulatory-liability-related (1) | $ | 28,871 | $ | 28,851 | $ | 27,247 | $ | 27,171 | ||||||||||||||||||
| Contributions and advances | 7,389 | 6,768 | 7,546 | 7,103 | ||||||||||||||||||||||
| Other | 8,077 | 5,801 | 7,550 | 5,632 | ||||||||||||||||||||||
| Total deferred tax assets | $ | 44,337 | $ | 41,420 | $ | 42,343 | $ | 39,906 | ||||||||||||||||||
| Deferred tax liabilities: | ||||||||||||||||||||||||||
| Fixed assets | $ | (176,142) | $ | (169,666) | $ | (166,841) | $ | (162,366) | ||||||||||||||||||
| Regulatory-asset-related: depreciation and other | (52,909) | (43,149) | (48,136) | (39,635) | ||||||||||||||||||||||
Balancing and memorandum accounts (non-flowed-through) | (9,407) | (8,778) | (4,657) | (4,315) | ||||||||||||||||||||||
| Total deferred tax liabilities | (238,458) | (221,593) | (219,634) | (206,316) | ||||||||||||||||||||||
| Accumulated deferred income taxes, net | $ | (194,121) | $ | (180,173) | $ | (177,291) | $ | (166,410) | ||||||||||||||||||
(1) Primarily represents the gross-up portion of the deferred income tax (on the excess-deferred-tax regulatory liability) brought about by the Tax Cuts and Jobs Act’s reduction of the federal income tax rate.
The current and deferred components of income tax expense are as follows:
| AWR | ||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current | ||||||||||||||||||||
| Federal | $ | 25,177 | $ | 19,680 | $ | 26,327 | ||||||||||||||
| State | 10,579 | 8,451 | 10,489 | |||||||||||||||||
| Total current tax expense | $ | 35,756 | $ | 28,131 | $ | 36,816 | ||||||||||||||
| Deferred | ||||||||||||||||||||
| Federal | $ | 4,696 | $ | 1,656 | $ | 4,157 | ||||||||||||||
| State | (1,096) | 386 | 626 | |||||||||||||||||
| Total deferred tax (benefit) expense | 3,600 | 2,042 | 4,783 | |||||||||||||||||
| Total income tax expense | $ | 39,356 | $ | 30,173 | $ | 41,599 | ||||||||||||||
| GSWC | ||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
| Current | ||||||||||||||||||||
| Federal | $ | 20,287 | $ | 13,570 | $ | 22,564 | ||||||||||||||
| State | 9,334 | 6,551 | 10,176 | |||||||||||||||||
| Total current tax expense | $ | 29,621 | $ | 20,121 | $ | 32,740 | ||||||||||||||
| Deferred | ||||||||||||||||||||
| Federal | $ | 2,442 | $ | 1,362 | $ | 2,867 | ||||||||||||||
| State | (513) | 1,386 | 82 | |||||||||||||||||
| Total deferred tax (benefit) expense | 1,929 | 2,748 | 2,949 | |||||||||||||||||
| Total income tax expense | $ | 31,550 | $ | 22,869 | $ | 35,689 | ||||||||||||||
Registrant adopted ASU 2023-09, Improvements to Income Tax Disclosures, as described in Note 1. The following are reconciliations of Registrant’s tax at the federal statutory rate to the effective income tax rates for the years ended December 31, 2025, 2024, 2023 (in thousands, except percentages):
| AWR | ||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||
| Tax at U.S. federal statutory tax rate | $35,658 | 21.0% | $31,383 | 21.0% | $34,969 | 21.0% | ||||||||||||||||||||||||||||||||
| Increase (decrease) in taxes resulting from: | ||||||||||||||||||||||||||||||||||||||
| State income tax, net of federal benefit* | 7,664 | 4.5% | 6,508 | 4.4% | 9,785 | 5.9% | ||||||||||||||||||||||||||||||||
| Tax credits | (68) | —% | (69) | —% | (71) | —% | ||||||||||||||||||||||||||||||||
| Nontaxable or nondeductible items | 545 | 0.3% | 508 | 0.3% | 548 | 0.3% | ||||||||||||||||||||||||||||||||
| Other adjustments: | ||||||||||||||||||||||||||||||||||||||
| Excess deferred tax amortization | (608) | (0.4)% | (1,467) | (1.0)% | (1,648) | (1.0)% | ||||||||||||||||||||||||||||||||
| Flow-through on removal costs | (3,721) | (2.2)% | (3,096) | (2.1)% | (2,255) | (1.4)% | ||||||||||||||||||||||||||||||||
| Excess deferred tax adjustment - change in estimate | — | —% | (5,015) | (3.4)% | — | —% | ||||||||||||||||||||||||||||||||
| Other – net | (114) | —% | 1,421 | 1.0% | 271 | 0.2% | ||||||||||||||||||||||||||||||||
| Effective income tax rate | $39,356 | 23.2% | $30,173 | 20.2% | $41,599 | 25.0% | ||||||||||||||||||||||||||||||||
* California income tax is greater than 50% of all state taxes in this rate reconciliation. | ||||||||||||||||||||||||||||||||||||||
| GSWC | ||||||||||||||||||||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||
| 2025 | 2024 | 2023 | ||||||||||||||||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||||||||||||||||
| Tax at U.S. federal statutory tax rate | $27,824 | 21.0% | $24,640 | 21.0% | $29,063 | 21.0% | ||||||||||||||||||||||||||||||||
| Increase (decrease) in taxes resulting from: | ||||||||||||||||||||||||||||||||||||||
| State income tax, net of federal benefit** | 7,159 | 5.4% | 5,772 | 4.9% | 9,169 | 6.6% | ||||||||||||||||||||||||||||||||
| Tax credits | (68) | (0.1)% | (69) | (0.1)% | (71) | (0.1)% | ||||||||||||||||||||||||||||||||
| Nontaxable or nondeductible items | 638 | 0.5% | 582 | 0.5% | 597 | 0.4% | ||||||||||||||||||||||||||||||||
| Other adjustments: | ||||||||||||||||||||||||||||||||||||||
| Excess deferred tax amortization | (527) | (0.4)% | (1,491) | (1.3)% | (1,681) | (1.2)% | ||||||||||||||||||||||||||||||||
| Flow-through on removal costs | (3,393) | (2.5)% | (3,029) | (2.6)% | (2,225) | (1.6)% | ||||||||||||||||||||||||||||||||
| Excess deferred tax adjustment - change in estimate | — | —% | (5,015) | (4.3)% | — | —% | ||||||||||||||||||||||||||||||||
| Other – net | (83) | (0.1)% | 1,479 | 1.4% | 837 | 0.7% | ||||||||||||||||||||||||||||||||
| Effective income tax rate | $31,550 | 23.8% | $22,869 | 19.5% | $35,689 | 25.8% | ||||||||||||||||||||||||||||||||
** California income tax is 100% of the state tax effect in this rate reconciliation.
AWR and GSWC ETRs differ from the federal corporate statutory tax rate of 21% primarily due to (i) state taxes; (ii) permanent differences, including certain tax effects from stock compensation; (iii) the ongoing amortization of the excess deferred income tax liability; and (iv) differences between book and taxable income that are treated as flowed-through adjustments in accordance with regulatory requirements (principally from plant, rate-case, and compensation-related items). As regulated utilities, GSWC and BVES treat certain temporary differences as being flowed through to customers in computing their income tax expense consistent with the income tax method used in their CPUC-jurisdiction rate making. Flowed-through items either increase or decrease tax expense and thus impact the ETR.
Furthermore, in connection with the 2017 Tax Cuts and Jobs Act, GSWC was required to remeasure its cumulative deferred income tax balances in 2017 to reflect the impact of the reduction in the corporate income tax rate from 35% to 21%, which resulted in excess deferred income taxes that were recorded as regulatory liabilities representing estimated amounts to be refunded to customers (Note 3). On January 30, 2025, the CPUC issued a final decision in connection with GSWC’s latest general rate case that, among other things, adopted a settlement agreement between GSWC and Cal Advocates, which excluded from customer rates certain excess deferred income tax balances generated by activities outside of ratemaking that were previously recorded as regulatory liabilities. Because of the final CPUC decision, GSWC recorded an income tax benefit of $5 million in 2024 to reflect a change in estimate that decreased its regulatory liabilities (Note 3) associated with excess deferred income tax balances as of December 31, 2024.
The following table sets forth income taxes paid, net of refunds, during the years ended December 31, 2025, 2024, and 2023 are as follows:
| AWR | ||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
Federal | $24,660 | $19,382 | $22,830 | |||||||||||||||||
California | 9,220 | 7,418 | 10,768 | |||||||||||||||||
Other States | 1,125 | 1,050 | 1,084 | |||||||||||||||||
Total | $35,005 | $27,850 | $34,682 | |||||||||||||||||
GSWC | ||||||||||||||||||||
| Year Ended December 31, | ||||||||||||||||||||
| (dollars in thousands) | 2025 | 2024 | 2023 | |||||||||||||||||
Federal | $19,798 | $15,567 | $19,543 | |||||||||||||||||
California | 9,126 | 7,273 | 12,082 | |||||||||||||||||
Total | $28,924 | $22,840 | $31,625 | |||||||||||||||||
AWR and GSWC had no unrecognized tax benefits at December 31, 2025, 2024 and 2023.
Registrant’s policy is to classify interest on income tax over/underpayments in interest income/expense and penalties in “other” expenses. Registrant did not have any material interest receivables/payables from/to taxing authorities as of December 31, 2025 and 2024, nor did it recognize any material interest income/expense or accrue any material tax-related penalties during the years ended December 31, 2025, 2024 and 2023.
Registrant files federal, California and various other state income tax returns. AWR’s 2021-2023 tax years remain subject to examination/assessment by the Internal Revenue Service. AWR filed refund claims with the California Franchise Tax Board (“FTB”) for the 2005 through 2020 tax years in connection with prior federal refund claims, other state issues, or both, and the FTB continues to review the claims. While the statute of limitations to assess tax has closed through the tax year 2019, the 2020–2023 tax years remain subject to examination/assessment by the FTB.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 18, 2026 | Showing above |
| 2024 | Feb 19, 2025 | |
| 2023 | Feb 21, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Feb 22, 2022 | |
| 2020 | Feb 22, 2021 | |
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.