Does a Florida resident's ownership of out-of-state entities give their intangible property taxable situs in Florida?

Plain-English summary

An individual became a Florida resident in 2004. He was the sole shareholder, chairman, and CEO of a Delaware S corporation headquartered outside Florida that acts as a management company for a group of out-of-state investment partnerships. In 2004 the corporation opened a Florida satellite office and registered to do business here, but its executive, management, and operational functions still ran from its out-of-state offices; apart from the resident and a personal assistant, all employees were out of state. He asked whether the intangible personal property of the corporation and several related investment entities (Entities I–VI) would have a taxable situs in Florida.

Under the intangible-tax law applied in the 2005 advisement, section 199.052 required an annual return from every corporation authorized to do business here and from anyone who owns, manages, or controls intangible property with a Florida taxable situs. Section 199.175 gave intangibles a Florida situs when they were owned, managed, or controlled by a person domiciled in Florida on January 1, or when they had a Florida business situs and were owned, managed, or controlled by a person transacting business here.

The key was the Department's rule on "management and control" (rule 12C-2.0062). Ministerial or processing tasks are not management or control, and—critically here—a person acting solely as a shareholder or limited partner of a corporation or limited partnership that owns the property is not managing or controlling that property. When an employee exercises control in the course of employment, those acts are attributed to the employer.

Applying that, the Department concluded:

• Entities I, V, and VI are deemed owned by the Florida resident.
• The non-Florida businesses had no intangible property with a Florida business situs, so no situs here on that basis.
• Under section 199.175(1) and (2), no other entity in the structure had a Florida taxable situs.
• This assumed no business decisions or other activity occurs that would create a taxable situs in Florida.
• None of the entities presented would have Florida tax liability, and none of the entities within Entity VI would be subject to tax.

The bottom line: a Florida resident's ownership of out-of-state entities—held in his capacity as shareholder or partner, with the corporation's management run from out of state—did not by itself pull those entities' intangible property into Florida's intangible tax.

What this means for you

Florida residents who own out-of-state businesses

Simply becoming a Florida resident and owning out-of-state corporations or partnerships did not, by itself, give those entities' intangible property a Florida taxable situs under the intangible tax. What mattered was where management and control actually happened and whether the entities had Florida business activity—not where the owner lived. The Department expressly conditioned its answer on no situs-creating business decisions occurring in Florida.

Managers and family-office structures

Acting solely as a shareholder or limited partner is not "management or control" of the underlying entity's property. But active management decisions made from a Florida office could change the result. Keep executive and operational decision-making, and its documentation, consistent with where you intend situs to lie.

Note on current law

Florida assessed this annual intangible personal property tax when the advisement was issued in 2005. The analysis reflects the intangible tax law in effect at that time; confirm the current state of Florida law before relying on any intangible-tax conclusion.

Common questions

Q: Did the owner's Florida residency make his out-of-state entities' property taxable in Florida?
A: No. The Department found no Florida business situs for the non-Florida businesses, while the corporation's ordinary executive, management, and operational functions remained outside Florida despite its satellite office.

Q: Isn't owning the entities enough to "control" their property?
A: Not under the Department's rule. Acting solely as a shareholder or limited partner of the entity that owns the property is not management or control of that property.

Q: What could have changed the answer?
A: The ruling assumed no business decisions or other activity creating a Florida situs would occur. Active management from the Florida office could create situs.

Q: Can other taxpayers rely on this advisement?
A: No. A TAA binds the Department only for the taxpayer and facts it was issued to; it is illustrative, not precedent.

Citations and references

• Fla. Stat. § 199.052 (annual intangible tax return)
• Fla. Stat. § 199.175 (taxable situs of intangible personal property; domicile and business situs)
• Fla. Admin. Code r. 12C-2.0062 (management and control)
• Fla. Stat. § 213.22 (Technical Assistance Advisements)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 05C2-006

Original ruling text

SUMMARY

QUESTION: Whether intangible personal property of various related entities will have a taxable situs in Florida

ANSWER - Based on Facts Below: None of the entities presented will have a tax liability in Florida

August 22, 2005

Re: Technical Assistance Advisement No. 05C2-006
Intangible Tax-Out of State Entity owned, managed or controlled by Florida resident
Section 199.052, F.S.

Rule 12C-2.0062, F.A.C.

XXX (hereinafter Florida resident)

XXX (hereinafter Corporation)

XXX (hereinafter Partners)

XXX (hereinafter Entity 1)

XXX (hereinafter Entity Il)

XXX (hereinafter Entity Ill)

XXX (hereinafter Entity IV)

XXX (hereinafter Entity V)

XXX (hereinafter Entity V1)

Dear:

Your letter requesting a Technical Assistance Advisement has been referred to this office for response. The

specific scenario for which advice has been requested is summarized below.

Facts as Presented by Petitioner

The individual became a Florida resident during 2004. The Florida resident is a sole shareholder of a Delaware S
Corporation. The Florida resident serves as the Chairman and CEO of the Corporation. The Corporation is presently

headquartered outside the state of Florida.

During 2004, the Corporation opened a satellite office and became qualified to do business in Florida. The
Corporation will, however, regularly conduct the ordinary course of business, including its executive, management and
operational functions from its offices(s) outside the state. The Florida resident will use the Florida satellite office to
participate in the Corporation's business activities when he is present in Florida and will continue to work outside the
State through the Corporation's out-of-state office(s). Except for the Florida resident and a personal assistant, all other

employees of the Corporation, including all officers and business personnel, are situated outside of Florida.

The Corporation is a management company employed by a group of investment partnerships (the "Partners"). The
Partners have a complicated structure consisting of several entities, including Entity | and Entity Il. Because of the
complexity of the structure, a flow chart was included showing how the various entities were related and what entities
were owned by the Florida resident. Neither the Partners nor Entity I, Entity Il, Entity Ill, Entity IV, or Entity V has a
business location in Florida, nor do they transact business in this State. The relationship between the Corporation and

the Partners is strictly contractual. The Corporation has no ownership interest in the Entity |, Entity Il, or Entity Ill.

The Corporation now and in the future may serve as the general partner to other non-Florida limited partnerships
owned entirely or in significant part by the Florida resident. None of the group of limited partnerships referred to as

Entity VI have a business location in Florida, nor do they transact business in Florida.

Request for Advisement

You request an advisement as to whether intangible personal property of any of the following entities will be

deemed to have taxable situs:

a. Corporation
b. Entity |

c. Entity Il

d. Entity III

e. Entity IV

f. Entity V

g. Entity VI

Provisions of Law and Discussion

Section 199.052(1), F.S., provides for an annual intangible tax return to be filed with the Department by every
corporation authorized to do business in this state. An annual return is also to be filed by every person, regardless of
domicile, who on January 1 owns, manages or controls intangible personal property which has a taxable situs in this

state.

Pursuant to s. 199.175(1), F.S., intangible personal property shall have a taxable situs in this state when it is

owned, managed or controlled by any person domiciled in this state on January 1 of the tax year.

For intangible tax purposes, s. 199.175(1)(a), F.S., provides that domiciled in this state means: any natural person
who is a legal resident; a business, business trust as described in chapter 609, company, corporation, partnership or
other artificial entity, except a trust that is organized or created in this state; or a business or other artificial entity,

including a business trust, that has a commercial domicile in this state.

For intangible tax purposes, s. 199.175(1)(b), F.S., provides that a business or other artificial entity acquires its
commercial domicile when it maintains its chief or principal office in this state where executive or management

functions are performed or where the course of business operations is determined.

Per s. 199.175(2), F.S., intangible personal property will have a taxable situs in Florida when it is deemed to have
business situs in this state and it is owned, managed or controlled by a person transacting business in this state, even

when the owner is domiciled outside the state.

Rule 12C-2.0062, F.S., provides:

(1) This rule provides guidance on management and control for purposes of Rules 12C-2.0061 and 12C-2.0063,
F.A.C., which describe certain circumstances in which an item of intangible personal property would not have taxable
situs. This rule is also intended to provide taxpayers with separate criteria under which management or control would
not exist with regard to intangible personal property. Taxable situs and taxability of intangible personal property held
by taxpayers whose circumstances do not fall within the following provisions concerning management and control will
be judged upon the facts and circumstances applicable to the taxpayer. This rule does not provide the basis upon

which an assessment can be made or sustained.

(2) Control is power, authority, or right to exercise influence over an item of intangible personal property. Management

is indicated by organizing, effecting or implementing control.

(a) The terms control or manage do not include any ministerial function or any processing activity. A ministerial
function is an act the performance of which does not involve the exercise of discretion or judgment. A processing
activity is an activity undertaken to administer or service intangible personal property in accordance with such terms,
guidelines, criteria or directions as are provided solely by the owner of the property. Methods, systems, or techniques
chosen by the processor to implement such terms, guidelines, criteria or directions are not considered the exercise of

management or control.

(b) Except as provided in [paragraph] (2)(a) of this rule, management or control of an item of intangible personal

property includes the possession or exercise, in whole or in part, of the right to:

1. Transfer or otherwise dispose of the item, including by selling, conveying, encumbering, assigning, delegating,

alienating, or abandoning; or

2. Compromise, release, relinquish, or waive any right or claim with respect to the item.

(3) If a person exercises control or management of intangible personal property, that person will be considered to
control or manage the property regardless of any written or oral agreements to the contrary. An isolated act by an

employee, representative or agent without authority, does not by itself constitute management or control.

(4) Management or control of an item of intangible personal property does not include a shareholder or limited partner
acting solely in its capacity as shareholder or a limited partner of a corporation or limited partnership, respectively, that
owns the item. Where an employee in the course of their employment exercises management or control over

intangible personal property, the acts of the employee shall be attributed solely to the employer as if the employer has

performed the acts.

(5) Servicing agreements. A servicing agreement, whereby the servicing agent performs ministerial functions or
processing activities regarding intangible personal property, does not confer management or control over the

intangible personal property on the servicing agent.

Position of the Department

Based on the information presented in the inquiry, the statutes and rules cited, the Department's determination is

as follows.

1. Entity I, Entity V, and Entity VI are deemed owned by the Florida resident.

2. The non-Florida businesses included in this TAA do not have intangible property having a business situs in the

state. Therefore, the non-Florida businesses have no tax situs in Florida.

3. Based ons. 199.175(1) and (2), F.S., no other entity in the structure will be deemed to have taxable situs in Florida.

4. For purposes of this TAA, we assume no business decisions or other activity occur that would cause the business

to have taxable situs in Florida.

5. None of the entities presented will have a tax liability.

6. None of the entities within Entity VI will be subject to tax.

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 Florida resident.

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

Sincerely,

Celestine Grantham
Senior Tax Specialist

Technical Assistance and Dispute Resolution

CG/mh