Accounting Gross Receipt Tax 
ASC 740-20 defines “income taxes” as “domestic and foreign federal (national), state, and local (including franchise) taxes based on income”. Further in the Glossary, “taxable income” is defined as “the excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing authority”. Therefore, the principles and the scope of ASC 740 are only applicable to “taxes based on income.”
However, ASC 740 provides no further guidance on this matter and there is no authoritative literature under U.S. GAAP to clearly define the term “tax based on income”.
Although there is no legal definition to differentiate the taxes based on income from taxes that are not, we believe that a tax based on income implies a tax system in which the tax payable is calculated on a concept of revenue less allowable expenses incurred.
Gross receipts tax IRS defines Gross receipts as “the total amounts the organization received from all sources during its annual accounting period, without subtracting any costs or expenses”.
Many jurisdictions, such as New Mexico do not take into consideration of costs or expenses incurred. Thus the concept of Gross Receipts tax deviates from that of taxes based on income, which are determined after revenues are reduced by expenses and losses. Therefore, Gross Receipts Tax, which taxes solely based on revenue, would not be subject to ASC 740.
Further, these non-income based taxes should be accounted for under other authoritative literature such as the contingencies guidance in ASC 450, therefore, no deferred income taxes are recognized.
Modified Gross Receipts Tax
However, in the other jurisdictions such as Michigan where companies are subject to “modified gross receipts tax”, we believe that this kind of tax should be accounted as a “tax based on income” in accordance with ASC 740.
According to Michigan Economic Development Corporation, the Modified Gross Receipts Tax is based on “a company’s gross
However, ASC 740 provides no further guidance on this matter and there is no authoritative literature under U.S. GAAP to clearly define the term “tax based on income”.
Although there is no legal definition to differentiate the taxes based on income from taxes that are not, we believe that a tax based on income implies a tax system in which the tax payable is calculated on a concept of revenue less allowable expenses incurred.
Gross receipts tax IRS defines Gross receipts as “the total amounts the organization received from all sources during its annual accounting period, without subtracting any costs or expenses”.
Many jurisdictions, such as New Mexico do not take into consideration of costs or expenses incurred. Thus the concept of Gross Receipts tax deviates from that of taxes based on income, which are determined after revenues are reduced by expenses and losses. Therefore, Gross Receipts Tax, which taxes solely based on revenue, would not be subject to ASC 740.
Further, these non-income based taxes should be accounted for under other authoritative literature such as the contingencies guidance in ASC 450, therefore, no deferred income taxes are recognized.
Modified Gross Receipts Tax
However, in the other jurisdictions such as Michigan where companies are subject to “modified gross receipts tax”, we believe that this kind of tax should be accounted as a “tax based on income” in accordance with ASC 740.
According to Michigan Economic Development Corporation, the Modified Gross Receipts Tax is based on “a company’s gross