Did on-site product training and technical advice by an out-of-state manufacturer's employee create Florida corporate income-tax nexus?

Plain-English summary

Florida ruled that an out-of-state rescue-tool manufacturer had corporate income-tax nexus because its employee regularly provided on-site training, product demonstrations, and technical advice to Florida dealers and end users.

Public Law 86-272 protects certain interstate sellers when their in-state activity is limited to soliciting orders for tangible goods. Florida found that training customers to properly use previously sold technical products and supporting dealer goodwill served independent business functions. Those activities might facilitate sales generally, but they did not facilitate requesting orders.

The company argued that the visits were rare and de minimis. The Department rejected that position because the work was a regular company policy, could not be adequately handled other than in person, and created a meaningful quantitative and qualitative connection to Florida.

The company therefore had to file a Florida corporate income-tax return and remit tax.

What this means for you

Post-sale support, training, demonstrations, and technical service can exceed federal solicitation protection. Frequency matters, but the importance and independent business function of the activity matter too.

Common questions

Was sales solicitation itself the problem? No. The problem was recurring training and technical work beyond solicitation.

Did dealer rather than end-user training change the result? No.

Were the activities de minimis? No, under the ruling's facts.

Citations and references

• Fla. Stat. §§ 220.02 and 220.11, Fla. Admin. Code r. 12C-1.011, and Public Law 86-272, as quoted and discussed in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10C1-001

Original ruling text

TAX: Corporate Income Tax
TAA NUMBER: 10C1-001
ISSUE: Request for Determination of Nexus
STATUTE CITES: Section 220.02(1), F.S .
RULE CITES:
Rule 12C-1.011(1), F.A.C.
QUESTION: Whether the Taxpayer’s business activities in Florida exceeded the scope of
activities protected by Public Law 86-272, thereby subjecting Taxpayer to Florida corporate
income tax?
ANSWER: Taxpayer’s activities in Florida exceed pure solicitation of sales and are
sufficient to create nexus for Florida corporate income tax purposes.

February 11, 2010
Re:

Request for Technical Assistance Advisement 10C1-001
Corporate Income Tax: Nexus
XXX (“Taxpayer”)
Sections 220.02, 220.11, Florida Statues (F.S.)
Rule 12C-1.011, Florida Administrative Code (F.A.C.)

Dear XXX:
This letter is in response to your letter of XXX, requesting a ruling as to whether Taxpayer
has nexus for purposes of Florida’s corporate income tax. This response constitutes a
Technical Assistance Advisement (“TAA”) under Chapter 12-11, Florida Administrative
Code, and is issued to you under the authority of section 213.22, Florida Statutes.
FACTS AS PROVIDED BY THE TAXPAYER
Taxpayer is a manufacturer of high performance rescue tools, with its worldwide
headquarters in XXX. Taxpayer operates XXX facilities, with XXX in XXX and XXX in the
XXX. Through its dealer network, Taxpayer offers products, training, service, and support
to its customers XXX.
In a letter dated XXX, Taxpayer requested, from the Florida Department of Revenue, a
Letter of Technical Advice concerning the filing requirement for Florida corporate income
tax for Taxpayer. Based on the information provided in the Corporate Income Tax Nexus
Investigation Questionnaire (question #12), it was determined that Taxpayer has an
employee present in the state that performs functions other than the solicitation of sales
within Florida, and accordingly, there was sufficient nexus to file a corporate income tax
return with Florida. Subsequently, in a letter dated XXX, Taxpayer requested a Technical
Assistance Advisement regarding whether it has sufficient nexus with the State of Florida.
LEGAL AUTHORITY
Subsection 220.02(1), F.S., states, in part:

Technical Assistance Advisement 10C1-001
Page 2

It is the intent of the Legislature in enacting this code to impose a tax upon
all corporations, organizations, associations, and other artificial entities
which derive from this state or from any other jurisdiction permanent and
inherent attributes not inherent in or available to natural persons, such as
perpetual life, transferable ownership represented by shares or certificates,
and limited liability for all owners. . . . It is the intent of the Legislature to
subject such corporations and other entities to taxation hereunder for the
privilege of conducting business, deriving income, or existing within this
state. . . .
Rule 12C-1.011(1)(k) and (l), F.A.C., state in part:
(1) The following activities, notwithstanding others within the meaning of
taxable privileges described in s. 220.02, F.S., will be construed as
conducting business, earning or receiving income in this state, or constitute
those activities of a resident or citizen of this state for purposes of this tax,
and corporations participating therein are subject to taxation unless
exempted by the constitution or the laws of the United States or this state.
(k) Making sales that are approved in the state by "independent contractors"
who do not hold themselves out as engaged in selling, or soliciting orders
for the sale of more than one principal; or making sales through the use of
representatives in this state, when activities engaged in exceed those
protected by P.L. 86-272 (15 U.S.C. ss. 381-384), which is incorporated by
reference in Rule 12C-1.0511, F.A.C.
(l) Having employees that are present in the state and that perform functions
other than the solicitation of sales within Florida.
ISSUE PRESENTED
Whether Taxpayer’s business activities in Florida exceeded the scope of activities protected
by Public Law 86-272, thereby subjecting Taxpayer to Florida corporate income tax?
DISCUSSION AND ANALYSIS
In subsection 220.02(1), F.S., the Florida Legislature expressed its intent to tax corporations
for the “privilege of conducting business, deriving income, or existing within” Florida.
Subsection 220.11(1), F.S., imposes the tax on corporations for exercising those privileges.
Congress has directed that states may not impose taxes on income derived from “business
activities” in interstate commerce which are limited to the “solicitation of orders.” 15 U.S.C.
Section 381. Section 381 provides in pertinent part:
(a) No state, or political subdivision thereof, shall have power to impose,
for any taxable year ending after September 14, 1959, a net income tax
on the income derived within such State by any person from interstate

Technical Assistance Advisement 10C1-001
Page 3

commerce if the only business activities within such State by or on
behalf of such person during such taxable year 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 this 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).
15 U.S.C. Section 381 (1988) (codifying Section 101 of Pub. L. 86-272).
While P.L. 86-272 was designed to define a lower limit for the exercise of a state's power to
tax, Heublein, Inc. v. South Carolina Tax Comm., 409 U.S. 275, 280 (1972), the statute does
not define what is encompassed within the meaning of the term “solicitation of orders.” As a
result, states have been left to determine, on a case-by-case basis, whether the activities of a
particular corporation exceeded “solicitation of orders.”
Rule 12C-1.011, F.A.C., addresses nexus issues within the context of P.L. 86-272. Rule
12C-1.011(1) contains a list of “unprotected activities” that will subject a non-Florida
corporation to the income/franchise tax. Among the list of unprotected activities are
“making sales that are approved in the state by independent contractors who do not hold
themselves out as engaged in selling, or soliciting orders for the sale of more than one
principal; or making sales through the use of representatives in this state, when activities
engaged in exceed those protected by P.L. 86-272.”
Taxpayer’s activities within Florida involve providing training and technical advice at
customer’s location (to independent dealers and end users). In your TAA request, you stated
that Taxpayer’s products are highly technical in nature and may require on-site staging for
demonstration and training, which cannot adequately be handled other than in-person.
Providing on-site training and demonstrations, both to independent dealers and end-users, is
an important aspect of Taxpayer’s business both to secure proper utilization of previously
sold products and to ensure future sales. In your TAA request, you stated that:
1) The training or technical advice rendered at a customer location is
specifically targeted to the continued goodwill with an independent
dealer.
2) Without the training, there may be times when questions of a highly
technical nature would go unanswered or undemonstrated, thus
hindering Taxpayer’s ability to maintain a market for its products in
Florida through its independent dealer network.

Technical Assistance Advisement 10C1-001
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3) In strictly adhering to dealer requests, Taxpayer is actively continuing its
ongoing solicitation of sales and the development of a market for its
products—rather than offering an “add-on” service.
These activities do not fall within the scope of solicitation of orders. They involve activities
that exist independently of any sales activity. They may help facilitate sales by providing
better service to customers, but the activities do not help facilitate the requesting of sales,
which is the standard established by the U.S. Supreme Court in Wisconsin Department of
Revenue v. William Wrigley, Jr., Co., 505 U.S. 214 (1992) (“it is not enough that the
activity facilitate sales; it must facilitate the requesting of sales”). See also Kennametal, Inc.
v. Commissioner of Revenue, 686 N.E. 2d 436 (Mass. 1997); Amgen, Inc. v. Commissioner
of Revenue, 693 N.E. 2d 175 (Mass. 1998). In Kennametal, Inc., Kennametal’s employees
typically offered technical assistance to the customers, both on an individual basis and
through group presentations. Due to the highly technical nature of the Kennametal product,
its employees customarily offered “in-plant training programs.” The subject matter of the
sessions typically concerned the proper use and application of Kennametal products. The
Massachusetts Supreme Court found that Kennametal’s activities exceeded “solicitation of
orders.” In this case, demonstrating products and responding to technical inquiries made by
customers who purchased products would not facilitate the “requesting of orders.”
Providing on-site training, both to independent dealers and to end users, is an important
aspect of Taxpayer’s business, both to ensure proper utilization of previously sold products
and to ensure future sales. It is not, however, necessary for or entirely ancillary to the
requesting of orders. Taxpayer’s activities serve an independent business function apart
from soliciting or delivering orders (e.g., helping enhance future sales and maintaining
goodwill with independent dealers). Thus, the activities of the Taxpayer’s employees
exceed the “pure solicitation of sales” and, therefore, exceed those activities which would
cause the taxpayer to be protected by Public Law 86-272 and are sufficient to create nexus
for Florida income tax purposes. This is true regardless of whether the technical advice is
rendered to the Taxpayer’s independent dealers or to end users.
The taxpayer through its employees clearly was doing business in Florida during the taxable
year in question. The taxpayer contends that even if its activities are not immune from
taxation under P.L. 86-272, those activities are de minimis. In Wisconsin Dep’t of Revenue
v. William Wrigley, Jr. Co., supra, the United States Supreme Court held that a taxpayer
does not forfeit protection under P.L. 86-272 by engaging in de minimis activities that
exceed solicitation of orders. To qualify for the exception, the non-immune activities must
be analyzed as a whole to determine whether they constitute a “non trivial additional
connection with the State.” Id. at 235. Although the nonimmune activities in Wrigley made
up only 0.00007 percent of Wrigley’s annual sales in Wisconsin, the Court found that they
were conducted “as a matter of regular company policy, on a continuing basis” and were not
de minimis. Id.
Taxpayer conducted activities that exceed the solicitation of orders protected by P.L. 86-272.
Taxpayer’s activities involve rendering training and technical advice at a customer location
(to independent dealers and to end users) 1 . In your TAA request, you stated that these
1

These activities were conducted as a matter of regular company policy, on a continuing basis.

Technical Assistance Advisement 10C1-001
Page 5

activities required on-site staging for demonstration and training, which cannot adequately
be handled other than in-person and that such onsite-training at a customer location, on rare
occasion, is unavoidable. You stated that Taxpayer’s dealer market would suffer without the
ability to conduct them. The on-site technical training Taxpayer provides to independent
dealers and end users is an important aspect of Taxpayer’s business, both to ensure proper
utilization of previously sold products and to ensure future sales. As a result, these activities
constitute both a quantitative and qualitative nontrivial additional connection to Florida and
are not de minimis.
CONCLUSION
Based upon the above analysis, the Taxpayer is not entitled to claim the protection of Public
Law 86-272. As a result, the taxpayer is required to file a Florida corporate income tax
return and remit the tax due.
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. 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 interpretation of the statutes or rules upon which this
advice is based may subject similar future transactions to a different treatment from that
which is expressed in this response.
You are further advised that this response, your request and related backup 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 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,

Jermane L. Wright, Esq., CPA, LL.M.
Senior Attorney
Technical Assistance and Dispute Resolution
JLW/tlg

Record ID: 74327