Common use of AMORTIZATION OF INCOME TAXES PAID ON CIAC SERVICES Clause in Contracts

AMORTIZATION OF INCOME TAXES PAID ON CIAC SERVICES. ISSUE: IRS regulations require water utilities to treat advances and contributions received from developers and customers for service connections (“CIAC”) as taxable income in the year received. The Commission requires water utilities to gross-up the contributed cost of service connections using Method 5, adopted in D.00-00-000. Method 5 takes into account that depreciation of the facilities over the life of the asset will result in a tax saving in the future and passes these benefits on to the developer, resulting in a lower gross-up. The required accounting method does not allow the utility to recover 100% of the tax it pays in the year received from the developer but instead credits a portion of taxes paid to a deferred income account that is then amortized to income over the life of the asset. The amount recorded to income is included in the revenue requirement revenue. DRA recommended treating the deferred income tax as a tax deduction and recommended allowing only 35% of the amortized amount in rates. RESOLUTION: San Gabriel and DRA agree to allow in the adjustment to income taxes, included in the revenue requirement, 50% of the amount San Xxxxxxx initially proposed. Issue SGV Direct SGV Rebuttal DRA Report Difference Settlement Amortization of Income Taxes Paid on CIAC Services Federal State $50,300 $13,900 $50,300 $13,900 $17,600 $1,200 $32,700 $12,700 $25,150 $6,950 REFERENCES: Exhibit SG-1, Chapter 7, Tables 7C-1 and 7C-2; Exhibit DRA-1 (Bumgardener), p. 6-5; Exhibit SG-16 (Batt), pp. 8-9.

AMORTIZATION OF INCOME TAXES PAID ON CIAC SERVICES. ISSUE: IRS regulations require water utilities to treat advances and contributions received from developers and customers for service connections (“CIAC”) as taxable income in the year received. The Commission requires water utilities to gross-up the contributed cost of service connections using Method 5, adopted in D.00-00-000. Method 5 takes into account that depreciation of the facilities over the life of the asset will result in a tax saving in the future and passes these benefits on to the developer, resulting in a lower gross-up. The required accounting method does not allow the utility to recover 100% of the tax it pays in the year received from the developer but instead credits a portion of taxes paid to a deferred income account that is then amortized to income over the life of the asset. The amount recorded to income is included in the revenue requirement revenue. DRA recommended treating the deferred income tax as a tax deduction and recommended allowing only 35% of the amortized amount in rates. RESOLUTION: San Gabriel Xxx Xxxxxxx and DRA agree to allow in the adjustment to income taxes, included in the revenue requirement, 50% of the amount San Xxxxxxx initially proposed. Issue SGV Direct SGV Rebuttal DRA Report Difference Settlement Amortization of Income Taxes Paid on CIAC Services Federal State $50,300 $13,900 $50,300 $13,900 $17,600 $1,200 $32,700 $12,700 $25,150 $6,950 REFERENCES: Exhibit SG-1, Chapter 7, Tables 7C-1 and 7C-2; Exhibit DRA-1 (Bumgardener), p. 6-5; Exhibit SG-16 (Batt), pp. 8-9.