Alternative Tax Bases
Many jurisdictions incorporate some sort of alternative tax computation. These computations may be based on assets, capital, wages, or some alternative measure of taxable income. Often the alternative tax functions as a minimum tax.
United States federal income tax incorporates an alternative minimum tax. This tax is computed at a lower tax rate (20% for corporations), and imposed based on a modified version of taxable income. Modifications include longer depreciation lives assets under MACRS, adjustments related to costs of developing natural resources, and an addback of certain tax exempt interest. The U. S. state of Michigan previously taxed businesses on an alternative base that did not allow compensation of employees as a tax deduction and allowed full deduction of the cost of production assets upon acquisition.
Some jurisdictions, such as Swiss cantons and certain states within the United States, impose taxes based on capital. These may be based on total equity per audited financial statements, a computed amount of assets less liabilities or quantity of shares outstanding. In some jurisdictions, capital based taxes are imposed in addition to the income tax. In other jurisdictions, the capital taxes function as alternative taxes.
Mexico imposes an alternative tax on corporations, the IETU. The tax rate is lower than the regular rate, and there are adjustments for salaries and wages, interest and royalties, and depreciable assets.
Read more about this topic: Corporation Tax
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