2.3 Taxes Assessed in Lieu of Income Tax
In certain jurisdictions and for certain entities, an entity may be subject to
certain taxes in lieu of an income tax, such as an excise or other type of tax. For
example, not-for-profit foundations that make certain minimum distributions are
generally exempt from U.S. federal income taxes but may be subject to an excise tax
on their net investment income. Such an excise tax meets the definition of a tax
based on income and therefore is within the scope of ASC 740. Alternatively, in some
jurisdictions, qualifying entities may be subject to an excise tax (e.g., based on a
percentage of assets or sales) in lieu of an income tax. Although this tax is levied
in lieu of an income tax, it is not based on a measure of income and therefore is
not within the scope of ASC 740. Entities should carefully consider how each type of
tax is assessed to determine whether the tax should be included within the scope of
ASC 740.
Further, the questions of whether an entity is subject to a tax based on income or a
non-income-based tax in a particular jurisdiction are not always mutually exclusive.
See Section 2.5 for information on hybrid tax
regimes, in which an entity may be subject to both income and non-income-based taxes
or be subject to tax based on the higher of an income tax or a non-income-based
tax.