FORM 10-K

93

MDU RESOURCES G ROUP, INC.

Income tax expense for the years ended December 31 was as follows:

2007

2006

2005

(In thousands)

Current:

Federal

$106,399

$108,843

$102,736

State

15,135

18,487

20,449

Foreign

235

136

(93)

121,769

127,466

123,092

Deferred:

Income taxes --

Federal

58,030

34,693

19,278

State

9,656

4,357

4,379

Investment tax credit

(414)

(405)

(500)

67,272

38,645

23,157

Change in uncertain tax benefits

869

--

--

Change in accrued interest

114

--

--

Total income tax expense

$190,024

$166,111

$146,249

Components of deferred tax assets and deferred tax liabilities recognized at December 31 were as follows:

2007

2006

(In thousands)

Deferred tax assets:

Accrued pension costs

$ 44,002

$ 43,433

Regulatory matters

43,866

35,978

Asset retirement obligations

15,163

14,789

Deferred compensation

13,677

13,286

Other

45,335

43,818

Total deferred tax assets

162,043

151,304

Deferred tax liabilities:

Depreciation and basis differences on property, plant and equipment

498,933

445,315

Basis differences on natural gas and oil producing properties

260,417

204,288

Regulatory matters

17,630

18,019

Natural gas and oil price swap and collar agreements

3,989

12,359

Other

42,044

23,894

Total deferred tax liabilities

823,013

703,875

Net deferred income tax liability

$(660,970)

$(552,571)

As of December 31, 2007 and 2006, no valuation allowance has been recorded associated with the above deferred tax assets.

The following table reconciles the change in the net deferred income tax liability from December 31, 2006, to December 31, 2007, to

deferred income tax expense:

2007

(In thousands)

Change in net deferred income tax liability from the preceding table

$108,399

Deferred taxes associated with other comprehensive loss

2,804

Deferred taxes associated with acquisitions

(46,229)

Other

2,298

Deferred income tax expense for the period

$ 67,272