Facts: Julie's company operates in New Mexico, where businesses are subject to a state "gross-receipts tax." This tax can range in amount from 5.125% to 8.6875%, depending on the business's locale. The tax is imposed on a business's gross receipts, or " the total amount of money or value of other consideration" received from conducting its activities. Julie needs your help determining whether this gross-receipts tax is within the scope of ASC 740.

ASC 740-10 includes the following scope guidance:

15-3 The guidance in the income taxes topic applies to:

a. Domestic federal (national) income taxes (I.S. federal income taxes for US. entities) and foreign, state, and local (including franchise) taxes based on income

b. An entity's domestic and foreign operation that are consolidated, combined, or accounted for by the equity method.

The Glossary of Topic 740-10 defines income taxes and taxable income as follows:

Income Taxes

Domestic and foreign federal (national), state, and local (including franchise) taxes based on income.

Taxable Income

The excess of taxable revenues over tax deductible expenses and exemptions for the year as defined by the governmental taxing authority.

Net Income

A measure of financial performance resulting from the aggregation of revenues, expenses, gains, and losses that are notitems of other comprehensive income. A variety of other terms such as net earnings or earnings may be used to describe net income.

Finally, PwC;s Guide to Accounting for Income Taxes states the following with respect to the evaluation of gross- receipts taxes under the scope of topic 740.

A gross-receipts tax is generally based upon a jurisdiction's definition of " taxable gross-receipts". In devising this tax, many jurisdictions do not take into consideration any expenses or costs incurred to generate such receipts, except for certain stated cash discounts, bad debts, and returns and allowances. Because the starting point of the computation of a gross- receipts tax is not " net" of expenses, we believe that a gross-receipts tax is not a tax based on income for purposes of determining whether ASC 740 applies.

1) Contrast the definitions of net income and taxable income, against the method used to calculate New Mexico's gross-receipts tax.

2) Next, consider the interpretive guidance provided by PwC. How does this impact your evaluation?

3) Explain your conclusion: Is this gross-receipts tax considered a tax based on income, and thus within the scope of Topic 740 (Income Taxes)?