CALIFORNIA WATER SERVICE GROUPCWT
CALIFORNIA WATER SERVICE GROUP Income Taxes Disclosure
INCOME TAXES
The income taxes paid, net of refunds received, by the Company in 2024 was $27.0 million. The income tax refunds received, net of income taxes paid, in 2023 was $3.5 million
Income tax expense (benefit) consisted of the following:
| Federal | State | Total | |||||||||||||||
| 2025 | |||||||||||||||||
| Current | $ | 275 | $ | 1,063 | $ | 1,338 | |||||||||||
| Deferred | 19,744 | (1,976) | 17,768 | ||||||||||||||
| Total income tax | $ | 20,019 | $ | (913) | $ | 19,106 | |||||||||||
| 2024 | |||||||||||||||||
| Current | $ | 4,179 | $ | 8,630 | $ | 12,809 | |||||||||||
| Deferred | 31,095 | (1,415) | 29,680 | ||||||||||||||
| Total income tax | $ | 35,274 | $ | 7,215 | $ | 42,489 | |||||||||||
| 2023 | |||||||||||||||||
| Current | $ | — | $ | 3 | $ | 3 | |||||||||||
| Deferred | 508 | (7,292) | (6,784) | ||||||||||||||
| Total income tax | $ | 508 | $ | (7,289) | $ | (6,781) | |||||||||||
The Company’s December 31, 2025, 2024, and 2023 qualified tax repairs and maintenance deductions totaled $181.0 million, $193.5 million, and $169.7 million, respectively.
At December 31, 2025, the Company had U.S. federal and U.S. state tax net operating loss carry-forwards of approximately $27.1 million and $184.4 million respectively. The U.S. federal and U.S. state net operating loss carry-forwards will both expire at various dates beginning in tax year 2028.
On June 27, 2024, California Senate Bill 167 (SB 167) was enacted into law. SB 167 provides for a three-year suspension of net operating losses under the California Corporation tax. Among other things, this new law temporarily disallows the use of state net operating losses for years beginning in 2024 through 2026.
The Company adopted ASU 2023-09 on a prospective basis beginning with the year ended December 31, 2025. The following table represents required disclosure pursuant to ASU 2023-09 and reconciles the U.S. federal statutory tax amount and rate to our actual effective amount and rate for the year ended December 31, 2025:
| December 31, 2025 | |||||||||||
Amount | Percent | ||||||||||
| U.S. federal statutory tax rate | $ | 30,860 | 21.0 | % | |||||||
| State and local income tax, net of federal (national) income tax effect* | 10,257 | 7.0 | % | ||||||||
| Effect of ratemaking: | |||||||||||
| TCJA refund | (11,638) | (7.9) | % | ||||||||
| Effect of regulatory treatment of fixed asset differences | (9,539) | (6.5) | % | ||||||||
| AFUDC equity | (2,363) | (1.6) | % | ||||||||
| Tax credits: | |||||||||||
| Investment tax credits | (71) | (0.1) | % | ||||||||
| Change in valuation allowances | — | 0.0 | % | ||||||||
| Nontaxable or nondeductible items: | |||||||||||
| Stock-based compensation | 991 | 0.7 | % | ||||||||
| Change in unrecognized tax benefits | 331 | 0.2 | % | ||||||||
| Other adjustments | 278 | 0.2 | % | ||||||||
| Effective tax rate | $ | 19,106 | 13.0 | % | |||||||
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* The state and local jurisdiction that contributes to the majority (greater than 50 percent) of the tax effect in this category is California.
A reconciliation of the provision for income taxes to the amount computed by applying the 21% statutory U.S. federal income taxes for years prior to the adoption of ASU 2023-09 is as follows:
| 2024 | 2023 | ||||||||||
| Statutory income tax | $ | 48,840 | $ | 9,365 | |||||||
| Increase (reduction) in taxes due to: | |||||||||||
| State income taxes net of federal tax benefit | 16,234 | 3,718 | |||||||||
| Effect of regulatory treatment of fixed asset differences | (11,053) | (9,478) | |||||||||
| Investment tax credits | (71) | (74) | |||||||||
| AFUDC equity | (1,931) | (1,553) | |||||||||
| Stock based stock compensation | 962 | 677 | |||||||||
| TCJA refund | (11,508) | (11,618) | |||||||||
| Other | 1,016 | 2,182 | |||||||||
| Total income tax | $ | 42,489 | $ | (6,781) | |||||||
The effect of regulatory treatment of fixed asset differences includes estimated repair and maintenance deductions and asset related flow through items.
On December 22, 2017, the U.S. government enacted expansive tax legislation commonly referred to as the TCJA. Among other provisions, the TCJA reduces the federal income tax rate from 35 percent to 21 percent beginning on January 1, 2018 and eliminated bonus depreciation for utilities. The TCJA required the Company to re-measure all existing deferred income tax assets and liabilities to reflect the reduction in the federal tax rate.
As of December 31, 2025, the TCJA tax liability was $60.6 million. The Company continues working with state regulators to finalize the TCJA tax liability to confirm compliance with the federal normalization rules.
The deferred tax assets and deferred tax liabilities as of December 31, 2025 and 2024, are presented in the following table:
| 2025 | 2024 | ||||||||||
| Deferred tax assets: | |||||||||||
| Developer deposits for contributions in aid of construction | $ | 36,315 | $ | 34,353 | |||||||
| Net operating loss carry-forward and tax credits | 15,471 | 14,183 | |||||||||
| Pension liability | 22,393 | 18,993 | |||||||||
| Income tax regulatory liability | 9,459 | 13,893 | |||||||||
| Operating leases liabilities | 3,488 | 3,778 | |||||||||
| Other | 1,886 | 2,019 | |||||||||
| Total deferred tax assets | 89,012 | 87,219 | |||||||||
| Deferred tax liabilities: | |||||||||||
| Property related basis and depreciation differences | 520,012 | 482,124 | |||||||||
| Operating lease-right to use asset | 3,420 | 3,722 | |||||||||
| Other | 16,526 | 12,456 | |||||||||
| Total deferred tax liabilities | 539,958 | 498,302 | |||||||||
| Net deferred tax liabilities | $ | 450,946 | $ | 411,083 | |||||||
Based on historical taxable income and future taxable income projections over the period in which the deferred assets are deductible, management believes it is more likely than not that the Company will realize the benefits of the deductible differences.
The following table reconciles the changes in unrecognized tax benefits for the periods ended December 31, 2025, 2024, and 2023:
| 2025 | 2024 | 2023 | |||||||||||||||
| Balance at beginning of year | $ | 19,310 | $ | 16,291 | $ | 13,606 | |||||||||||
| Additions for tax positions taken during current year | 2,499 | 3,019 | 2,685 | ||||||||||||||
Reductions for tax positions taken | (1,811) | — | — | ||||||||||||||
| Balance at end of year | $ | 19,998 | $ | 19,310 | $ | 16,291 | |||||||||||
The Company does not expect a material change in its unrecognized tax benefits within the next 12 months. The component of unrecognized tax benefits that, if recognized, would affect the effective tax rate as of December 31, 2025, was $5.8 million, with the remaining balance representing the potential deferral of taxes to later years.
The Company’s federal income tax years subject to an examination are from 2017 to 2025 and the state income tax years subject to an examination are from 2013 to 2025.
The income taxes paid, net of refunds received, by the Company were as follows:
| 2025 | |||||
| Federal | $ | 8,200 | |||
| State and local: | |||||
| California | 4,206 | ||||
| Other states | 96 | ||||
| Income taxes, net of amounts refunded | $ | 12,502 | |||
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Feb 27, 2025 | |
| 2023 | Feb 29, 2024 | |
| 2022 | Mar 1, 2023 | |
| 2021 | Feb 24, 2022 | |
| 2020 | Feb 25, 2021 | |
| 2019 | Feb 27, 2020 | |
| 2018 | Feb 28, 2019 | |
| 2017 | Mar 1, 2018 | |
| 2016 | Feb 23, 2017 | |
| 2015 | Feb 25, 2016 | |
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.