How did Florida source an education provider's online-course tuition receipts for the corporate income tax sales factor?

Plain-English summary

Online-course tuition receipts were sales earned in the education provider's regular trade or business and therefore belonged in its Florida corporate income tax sales factor.

Under the service analysis, the income-producing activity was providing students access to online classes at their location. Under the computer-related-sales analysis, the web-based courses qualified as an interactive network that students used from their own homes. Both approaches produced the same sourcing result.

Receipts were sourced to Florida when students accessed course content from Florida. Because students generally studied at home and supplied addresses for billing and other purposes, receipts from Florida-resident students entered the Florida numerator.

What this means for you

The operative fact was where the student received and accessed the online course, with residence serving as the practical location evidence under the taxpayer's model.

Common questions

Were online tuition receipts included in the sales factor? Yes.

Where were they sourced? To the state where the student accessed the online course content.

Why did residence matter? Students generally accessed from home, and the taxpayer maintained their home addresses.

Citations and references

• Fla. Stat. §§ 220.02 and 220.15 and Fla. Admin. Code r. 12C-1.0155, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 12C1-006

Original ruling text

Executive Director
Lisa Vickers

QUESTION: How should the tuition revenues from Taxpayer’s online courses be sourced within and without
Florida for sales factor purposes?
ANSWER: Taxpayer’s receipts from its online courses constitute sales under the Florida statutes and rules
and would be included in its sales factor for apportionment purposes. Taxpayer’s revenues from its online
courses would be sourced the student’s state of residence. Since Taxpayer’s business also meets the
definition of an interactive network, the online revenues received from Florida students accessing its
online courses would be Florida sales and sourced to Florida.

May 17, 2012
XXX
XXX
XXX
Re:

Technical Assistance Advisement (TAA) 12C1-006
Corporate Income Tax
Sections: 220.02; 220.15
Rule: 12C-1.0155
XXX (hereinafter referred to as “Taxpayer”)

Dear XXX:
This is in response to your request dated XXX, for a Technical Assistance Advisement (TAA) pursuant to
section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the treatment of online tuition revenues
for Taxpayer’s Florida sales factor. An examination of your letter has established that you have complied
with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby
granting your request for a TAA.
FACTS SUPPLIED BY TAXPAYER
Taxpayer offers XXX and XXX through both its physical locations and “online” division. The majority of
Taxpayer’s tuition receipts are paid by student financial aid services on behalf of students or made by
students directly. Students typically apply for and enter into financial agreements and make direct
payments from their state of residence.
Taxpayer’s online students are located across the country, with approximately XXX located in Florida.
Students must provide a home address for billing, shipping, and other purposes, so Taxpayer is able to
determine tuition by its students’ state of residence.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Jim Evers, Director
Property Tax Oversight – James McAdams, Director  Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement 12C1-006
Page 2

Taxpayer has service centers in XXX, XXX, and XXX, each of which supports online students. The
service centers conduct admissions, student financial services, general student services, information
technology and career placement services. Taxpayer also has academic support teams in XXX and XXX
that support both the online and ground school students.
ISSUE
How should the tuition receipts from Taxpayer’s online courses be sourced within and without Florida for
sales factor purposes?
LAW
Section 220.02(1), F.S., states in part:
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....
Section 220.15, F.S., states in part:
(5) The sales factor is a fraction the numerator of which is the total sales of the taxpayer in this
state during the taxable year or period and the denominator of which is the total sales of the
taxpayer everywhere during the taxable year or period.
(a) As used in this subsection, the term "sales" means all gross receipts of the taxpayer except
interest, dividends, rents, royalties, and gross receipts from the sale, exchange, maturity,
redemption, or other disposition of securities….
(b)1.Sales of tangible personal property occur in this state if the property is delivered or shipped to
a purchaser within this state, regardless of the f.o.b. point, other conditions of the sale, or ultimate
destination of the property, unless shipment is made via a common or contract carrier….
Rule 12C-1.0155, F.A.C., provides in part:
(1) For the purposes of the sales factor, the term "sales" means all gross receipts received by the
taxpayer from transactions and activities in the regular course of its trade or business.
…
(h) Sales of services. In the case of a taxpayer engaged in providing services, such as the operation
of an advertising agency, the performance of equipment service contracts, or research and
development contracts, "sales" includes the gross receipts from the performance of such services
including fees, commissions, and similar items.
…
(2)(e) Personal Services.

Technical Assistance Advisement 12C1-006
Page 3

1. Gross receipts for the performance of personal services are attributable to this state if such
   services are performed in this state.
   2.a. If services relating to a single item of income are performed partly within and partly without
   this state, the gross receipts for the performance of such services shall be attributable to this state
   only if a greater portion of the services were performed in this state, based on costs of
   performance.
   b. The term "costs of performance" means direct costs determined in a manner consistent with
   generally accepted accounting principles and in accordance with accepted conditions or practices
   in the taxpayer's trade or business. Where independent contractors are used to complete a contract,
   the term "costs of performance" will include amounts paid to the independent contractors.
2. Where services are performed partly within and partly without this state, the services performed
   in each state may constitute a separate income producing activity, even though the client is billed a
   lump sum amount. In such cases, the gross receipts for the performance of services attributable to
   this state shall be measured by the ratio which the time spent in performing such services in this
   state bears to the total time spent in performing such services everywhere. Time spent in
   performing services includes the amount of time expended in the performance of a contract or
   other obligation which gives rise to such gross receipts. Personal services not directly connected
   with the performance of the contract or other obligation, as for example, time expended in
   negotiating the contract, are excluded from the computations.
   …
   (h)Computer related sales.
3. Hardware delivered in Florida constitutes Florida sales.
4. Canned software programs are Florida sales if delivered to a customer in Florida.
   …
5. Licensing fees for software are Florida sales to the extent the software is used in Florida.
6. Interactive networks.
   a. Where there are charges to Florida customers for direct access to a data base, these charges are
   considered Florida sales. These charges include, but are not limited to, fees to access the network,
   fees based on the number of information requests made, time charges for connection to the data
   base and lines, and information retrieval from the data base.
   b. Where there are charges by a corporation located in Florida to Florida customers for access to
   third party data bases, all charges will be considered Florida sales, regardless of where the thirdparty data bases are located.
   c. Where a foreign (out-of-state) corporation charges Florida customers for access to third party
   data bases, all charges will be considered Florida sales except for charges directly related to the
   retrieval of information from the third-party data base.
   d. When a P.C. or mainframe is physically located in Florida, a corporation will have a "Florida
   customer" for purposes of this subparagraph.
   …
   (l) Other Sales in Florida. Gross receipts from other sales shall be attributed to this state if the
   income producing activity which gave rise to the receipts is performed wholly within this state.
   Also, gross receipts shall be attributed to this state if the income producing activity is performed
   within and without this state but the greater proportion of the income producing activity is
   performed in this state, based on costs of performance. The term "income producing activity"

Technical Assistance Advisement 12C1-006
Page 4

applies to each separate item of income and means the transactions and activity directly engaged in
by the taxpayer for the ultimate purpose of obtaining gains or profits. Where independent
contractors are used to complete a contract, the term "income producing activity" will include
amounts paid to the independent contractors.

ANALYSIS
Taxpayer asserts that the item of value that the student obtains is purchasing the right to attend the online
course, and the subsequent delivery of the online course content to the student. Taxpayer further asserts
that both elements of this transaction occur in the state where the student is physically located. In this
case, the income producing activity is the convenience of taking courses from home at a time most
suitable for the student. The income from the online courses is earned when Taxpayer provides the student
with access to the online classes. Taxpayer states that generally, students access the courses from their
homes; therefore, the tuition revenue would be sourced to the student’s state of residence.
The numerator of the sales factor includes gross receipts attributed to Florida that were derived by a
taxpayer from transactions and activities in the regular course of its trade or business. 1 The specific
transactions and activities at issue that occur in the regular course of Taxpayer’s trade or business are the
provision of online courses to the student’s location. If we consider this the provision of a service to the
student, Rule 12C-1.0155(2)(l), F.A.C., is applicable. This rule attributes sales to Florida if the income
producing activity which gave rise to the receipt is within Florida. “Income producing activity” is defined
as “the transaction and activity directly engaged in by the taxpayer for the ultimate purpose of obtaining
gains or profits.” In this case, Taxpayer is paid by students who desire to take courses online, generally
from their homes. As a result, the service is provided to the student at their place of residence, and if the
student’s place of residence is in Florida, then the sale is a Florida sale.
Likewise, if we consider Taxpayer’s sales as providing computer related sales, Rule 12C-1.0155(2)(h)5.,
F.A.C., would source Taxpayer’s sales in the same manner. Students enrolling in the online courses are
paying for the convenience of accessing Taxpayer’s virtual classrooms from their homes. Online courses
are interactive by nature, which means that students receive instruction and feedback from their professor,
as well as connection with their peers from their own homes. Generally, online courses are offered
through a web-based learning management system that contains tools for distance learning, such as course
content and notes, a bulletin board system and chat for collaboration and communication, assignment drop
boxes, interactive quizzes, and exams. Since Taxpayer charges students for access to these online courses
and materials, Taxpayer’s business meets the definition of an interactive network, and therefore, the
receipts received from Florida students accessing the online courses would be considered Florida sales and
sourced to Florida.

1

Rule 12C-1.0155(2)(e), F.A.C.

Technical Assistance Advisement 12C1-006
Page 5

CONCLUSION
Taxpayer should source its tuition receipts from its online courses to Florida if the student is accessing the
course content from Florida. Since students generally access the course content from the state in which
they reside, receipts from students that reside in Florida should be sourced to Florida in the numerator of
the sales factor.
This response constitutes a Technical Assistance Advisement under Section 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 Section 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 documents are public records under
Chapter 119, F.S., which are subject to disclosure to the public under the conditions of Section 213.22,
F.S. Your name, address, and any other details, which might lead to identification of the taxpayer, must
be deleted before disclosure. In an effort to protect the confidentiality of such information, we request you
provide the undersigned with an edited copy of your request for Technical Assistance Advisement, backup
material and response within fifteen days of the date of this advisement.
If you have any further questions with regard to this matter and wish to discuss them, you may contact me
directly at (850)717-7658.
Sincerely,

Pamela K. Slater, Esq., LL.M.
Senior Attorney
Technical Assistance & Dispute Resolution
Record ID: 115237