2.5 Hybrid Taxes

ASC 740-10-15-4(a) notes that amounts based on taxable income should be included in the tax provision, with any incremental amount recorded as a non-income-based tax. For example, assume that (1) a local jurisdiction assesses an entity’s tax as the greater of 25 percent of taxable income or 1 percent of equity and (2) the entity has $100 of taxable income in the current year and book equity of $10,000. Tax expense of $25 is therefore included in the tax provision and accounted for within the scope ASC 740. The excess tax generated by the non-income-based measure of $75 ($10,000 × 1% – $25) is recorded as an expense charged to income.