After closing its Florida locations, did the out-of-state software seller owe three Florida taxes?

Subject

Computer Software

Plain-English summary

Under the facts and law applied in 2000, the out-of-state canned-software seller had no compelled Florida sales-tax collection duty, corporate income tax, or annual intangible tax after ending its Florida presence. It had closed its stores and offices, held no Florida property or inventory, had no in-state employees or agents, accepted orders outside Florida, and shipped by common carrier.

For sales tax, the Department applied the then-current physical-presence standard. For corporate income tax, it treated the remaining solicitation and out-of-state fulfillment as protected by Public Law 86-272. For intangible tax, it found no Florida business situs after the seller stopped transacting business from a Florida location or through in-state representatives.

What this means for you

This is a historical nexus ruling, not a current remote-seller safe harbor. It also separated the seller's collection duty from the buyer's use-tax duty: Florida customers still had to report and pay use tax on taxable purchases.

Common questions

Q: Did catalog, phone, and website sales alone create collection nexus under this ruling? No, under the 2000 physical-presence analysis and the stated facts.

Q: Did the Department assert corporate income tax after the seller left Florida? No. It found the remaining activities normally protected by Public Law 86-272.

Q: Did customers escape Florida tax? No. The ruling said customers still owed use tax on taxable purchases.

Citations and references

• Fla. Stat. § 212.05(1) — sales tax
• Fla. Stat. § 212.07(8) — purchaser use-tax duty
• Quill Corp. v. North Dakota, 504 U.S. 298 (1992) — physical-presence standard applied by the ruling
• Fla. Stat. § 220.02 — corporate income tax
• 15 U.S.C. §§ 381-384 — Public Law 86-272
• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.175(2) — Florida business situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 00A-020

Original ruling text

SUMMARY

QUESTION 1: Does Taxpayer have "substantial nexus" with the
State of Florida, thereby requiring it to register, collect
and remit sales tax on its Florida sales?

ANSWER - Based on Facts Below: The answer depends upon the
type and amount of physical presence in the taxing state by
the out-of-state seller. There are many actions that
provide sufficient "physical presence" in Florida to
constitute substantial nexus with this State. In this
case, Taxpayer operates a mail-order business. These mail
order sales are solicited only through catalogs, or similar
promotional mailings; via Taxpayer's web page; or via the
telephone. All of the mail order sales are delivered via
common carrier. These activities alone, however are not of
the character to create a substantial nexus with Florida.
Thus, Taxpayer cannot be compelled to register, collect,
and remit sales tax on its Florida sales.

QUESTION 2: Is Taxpayer subject to corporate income tax?

ANSWER - Based on Facts Below: No. Section 220.02, F.S.,
imposes a tax measured by net income of all corporations
for the privilege of conducting business, deriving income,
or existing within Florida. However, non-Florida
domiciliary corporations engaged in the selling of tangible
personal property are immune from taxation under Public Law
86-272, 15 U.S.C. ss. 381-384, if certain business activity
tests are met. Based on the fact pattern presented, the
Department would not currently assert that Taxpayer would
be subject to the corporate income tax.

QUESTION 3: Is Taxpayer subject to intangible tax?

ANSWER - Based on Facts Below: No. Section 199.032, F.S.,
imposes a tax on the just valuation of all non-exempt
intangible personal property that has a taxable situs in
this state. For the purposes of this provision of law,
Section 199.175, F.S., provides that intangible personal
property which is owned, managed, or controlled by a non-

domiciliary corporation shall be subject to tax if the
property is deemed to have a business situs in this state.
Under section 199.175(2), F.S., intangible personal
property shall be generally deemed to have a Florida
business situs when it is owned, managed, or controlled by
a person transacting business in this state, and is derived
from, arises out of, or is issued in connection with the
business transacted in this state. For purposes of this
provision of law, business transacted in this state is
defined as the regular conduct of business with customers
in this state from a business location or through agents,
employees, or representatives of any kind within this
state. Based on the facts presented, the Taxpayer would
not be subject to the tax since it is not transacting
business in this state for purposes of section 199.175(2),
F.S.

Apr 25, 2000

Re: Technical Assistance Advisement 00A-020
Nexus - Computer Software
XXX, (herein "Taxpayer")
FEIN XX
Section 199.032, F.S.
Section 199.175(2), F.S.
Section 212.05(1), F.S.

Dear:

This is a response, styled a Technical Assistance Advisement, to
your letter dated March 3, 1997, wherein you asked whether
Taxpayer has retained, after the cessation of certain business
activities in Florida, sufficient contacts with the state to
sustain the obligation to collect Florida sales and use tax on
certain transactions which involve the sale of tangible personal
property to residents of Florida. You also asked the extent of
the Taxpayer's obligation under Chapter 220 and Chapter 199,
F.S., which impose, respectively, a tax on corporate income, and

a tax on intangible personal property.

You described the changed business presence in Florida by
stating that formerly Taxpayer operated retail stores and sales
offices in this state, employed sales people in such facilities,
and employed sales people who made solicitations to businesses
in this state. However, Taxpayer sold its direct sales division
effective May 13, 1996, and has closed its retail stores in
February 1997. All leases of real property on the locations of
the stores have expired as of June 30, 1997, or earlier.

You state, on page 2 of your letter, as to the present contacts
with Florida, that Taxpayer:

... [W]ill continue to operate its mail order business and
anticipates that sales in Florida may exceed $100,000 on an
annual basis. However, these mail orders sales will be
solicited only through catalogs, or similar promotional
mailings; via [Taxpayer's] web page; or via the telephone.
All mail order sales will be delivered via common carrier.

You also state, on page 1, that:

... [a]ll orders are accepted and approved at [Taxpayer's]
corporate headquarters, located [outside Florida], and are
delivered from inventory stored in a warehouse [outside
Florida]. [Taxpayer] is currently registered with the
Florida Department of Revenue for both corporate
income/franchise and sales/use tax purposes and files the
intangible personal property tax return.

Since the Taxpayer has changed its contacts with Florida as
described above, you assert that, with respect to sales tax,
Taxpayer has not the sufficiency of physical presence to sustain
the obligation to maintain registration as a Florida dealer, nor
to collect and remit Florida sales or use tax.

As to Florida corporate income tax, you state that Taxpayer will
file its final return for the fiscal year ending in March, 1997,
and will "... file a formal withdrawal application with Florida
prior to March 29, 1997 (its fiscal year end date)."

As to intangible tax, you state that, since Taxpayer "... will
no longer be transacting business in Florida, the last levy of
intangible personal property taxes will be on January 1, 1997."
In sum, you describe, on page 2, the present contacts of
Taxpayer with Florida in the following manner:

With the closure of its retail stores, [Taxpayer] does not
have a physical presence in the state in the form of instate tangible personal property, inventory, employees,
independent contractors, real property, business offices,
or subsidiaries. XXX will continue to solicit sales in
Florida via catalogs and telephone solicitation. Customers
may also order products by accessing XX web page.

Department Response

Each of the three taxes and their applicability to the fact
pattern you present will be discussed separately.

Sales Tax

Section 212.05(1), F.S., imposes Florida sales tax on the sale
in this state of tangible personal property.

The Department learned during a telephone conversation on March
3, 1999, that the Taxpayer only sells what is commonly known as
"canned software," which is not developed, modified, or
otherwise produced by the Taxpayer. Taxpayer purchases the
software from the manufacturer, or another seller, and then
resells the software to its customers in Florida. You further
represent that such sales, as described above, occur solely
through the Taxpayer's out-of-state activities, (e.g., by
telephone, catalog, through promotional material, or through a
web-page display). Thus, the Taxpayer no longer has a physical
presence in Florida.

Consequently, based on your representations and current legal
precedent, it is determined that Taxpayer's sales made solely
through the out-of-state activities described in your letter are
not of the character to create a substantial nexus with this

state. That is, the Taxpayer no longer has a physical presence
in Florida. See Quill Corporation v. North Dakota, 504 U.S. 298
(1992). Thus, under the facts provided to the Department, the
Taxpayer will no longer be required to collect tax on such
sales. Taxpayer's customers, however, will be required to
report and pay tax due on these purchases, pursuant to Section
212.07(8), F.S., and Rule 12A-1.091, F.A.C.

Moreover, when, as here, a business does not have nexus with
Florida, the Department nevertheless encourages a business such
as yours to register with the Department as a dealer for sales
tax purposes. As a convenience to your customers, the State of
Florida encourages the voluntary collection and remittance of
tax due on retail sales.

The Department has executed many such voluntary collection
agreements that provide for voluntary compliance without
admission of tax nexus with Florida. Please note that the
collections allowance is expanded so that the statutory limit of
$30.00 is set aside, and the Department offers an enhanced
statutory allowance, without limitation. Finally, pursuant to
section 212.0596(6), F.S., a mail order seller is exempt from
collecting and remitting the local option surtaxes. The sales
tax to collect and remit would simply be the statewide rate,
which currently is 6 percent.

I am enclosing, for your consideration, a copy of the law, the
rule and a draft version of an agreement that the Department has
entered into with other companies such as yours. The agreement
is completely voluntary, unless and until the law as applied to
mail order businesses is changed. Please review the draft
agreement and call Leigh Ceci at (850) 922-4784, to discuss the
details and any questions that you might have.

Corporate Income Tax

Section 220.02, F.S., imposes a tax measured by net income on
all corporations for the privilege of conducting business,
deriving income, or existing within Florida. However, nonFlorida domiciliary corporations engaged in the selling of
tangible personal property are immune from taxation under Public

Law 86-272, 15 U.S.C. Sections 381-384, if certain business
activity tests are met. This federal provision of law, in
pertinent part, provides:

(a) No State, or political subdivision thereof, shall have
the power to impose, for any taxable year..., a net
income tax on the income derived within such State by
any person from interstate commerce if the only
business activities within such State by or on behalf
of such person... are either, or both, of the
following:

(1) The solicitation of orders by such person, or his
representative, in such State for sales of tangible
personal property, which orders are sent outside the
State for approval or rejection and, if approved, are
filled by shipment or delivery from a point outside
the State; and

(2) The solicitation of orders by such person, or his
representative, in such State in the name of or for
the benefit of a prospective customer of such person,
if orders by such customer to such person to enable
such customer to fill orders resulting from such
solicitation are orders described in paragraph (1).(b)
The provisions of subsection (a) shall not apply to
the imposition of a net income tax by any State, or
political subdivision thereof, with respect to (1) any
corporation which is incorporated under the laws of
such State...

Therefore, based on the fact pattern that you have presented,
the Department would not currently assert that Taxpayer would be
subject to the corporate income tax after TYE 03/31/97 since its
in-state activities fall within those that are normally
protected by Public Law 86-272.

Intangible Tax

Section 199.032, F.S., imposes a tax on the just valuation of
all non-exempt intangible personal property that has a taxable

situs in this state. For the purposes of this provision of law,
Section 199.175, F.S., provides that intangible personal
property which is owned, managed, or controlled by a nondomiciliary corporation shall be subject to tax if the property
is deemed to have a business situs in this state. Under section
199.175(2), F.S., intangible personal property shall be
generally deemed to have a Florida business situs when it is
owned, managed, or controlled by a person transacting business
in this state, and is derived from, arises out of, or is issued
in connection with the business transacted in this state. For
purposes of this provision of law, business transacted in this
state is defined as the regular conduct of business with
customers in this state from a business location or through
agents, employees, or representatives of any kind within this
state.

Therefore, based on the fact pattern you have presented, the
Taxpayer would not be subject to the tax after the 1997 tax
period since it no longer would be transacting business in this
state for purposes of section 199.175(2), F.S.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the department only
under the facts and circumstances described in the request for
this advice as specified in s. 213.22, F.S. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment than
expressed in this response.

You are further advised that this response, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the

taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Lisa Gardler
Technical Assistance and Dispute Resolution
(850) 922-4710

Ctrl. Nos. 28411, 31068, 40939