Could a real-estate company exclude gross proceeds from selling Florida business property from its corporate-income-tax sales factor?

Plain-English summary

The Florida Department of Revenue denied a commercial-real-estate company's request to exclude the gross proceeds from selling Florida business property from its corporate-income-tax sales factor.

The property had been used in the taxpayer's business and was located in Florida. Florida's standard formula therefore included the sale proceeds in both the sales-factor denominator and, because the property was in Florida, the Florida numerator. The resulting increase in the apportionment percentage corresponded to the substantial Florida income-producing activity.

Alternative apportionment is reserved for rare cases in which the standard formula operates unreasonably or arbitrarily and materially taxes value outside Florida. The taxpayer showed that the percentage and tax increased, but did not provide clear and cogent evidence of that constitutional-level distortion. Different apportionment rules in other states and resulting overlap did not by themselves prove Florida's formula invalid.

What this means for you

Multistate real-estate businesses

An occasional sale can sharply increase a sales factor, but magnitude alone does not establish distortion when the sold business asset and the resulting income are tied to Florida.

Corporate tax teams

An alternative-method petition needs evidence that the standard formula is out of all proportion to Florida activity, not merely a comparison showing that the alternative produces less tax.

Common questions

Q: Were the gross proceeds included even though the sale was occasional?
A: Yes. The Department found no material distortion on these facts.

Q: Did possible taxation by other states require Florida to change its formula?
A: No. Differences among states' apportionment rules did not establish that Florida taxed extraterritorial value.

Q: Was alternative apportionment granted?
A: No.

Citations and references

• Fla. Stat. §§ 220.15(5), 220.152, and 213.22
• Fla. Admin. Code rr. 12C-1.0152, 12C-1.055(1)(b) and (2), and 12C-1.016(1)(b)2.
• Roger Dean Enterprises v. State, Department of Revenue, 387 So. 2d 358 (Fla. 1980)
• Moorman Manufacturing Co. v. Bair, 437 U.S. 267 (1978)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 14C1-001

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: WHETHER THE STANDARD APPORTIONMENT FACTOR, WHICH WOULD
INCLUDE THE SALE OF THE FLORIDA BUSINESS ASSETS (COMMERCIAL PROPERTY),
FAIRLY REPRESENTS THE EXTENT OF A TAXPAYER’S TAX BASE ATTRIBUTABLE TO
FLORIDA?
ANSWER: THE INCLUSION OF THE PROCEEDS FROM THE SALE OF ASSETS THAT WERE
USED IN THE TAXPAYER’S COMMERCIAL REAL ESTATE BUSINESS IS FOUND NOT TO
MATERIALLY DISTORT THE APPORTIONMENT FACTOR OR TO TAX EXTRATERRITORIAL
VALUES.
January 16, 2014
Re:

Technical Assistance Advisement 14C1-001
Corporate Income Tax - Apportionment - Other Methods
Section 220.152, F.S.
Rule 12C-1.0152, F.A.C.
XXX, hereinafter referred to as “Taxpayer”

Dear XXX:
Your letter dated XXX, requests a Technical Assistance Advisement concerning whether the Taxpayer
may use an alternative apportionment factor. This response to your request constitutes a Technical
Assistance Advisement under Chapter 12-11, Florida Administrative Code, and is issued to you under the
authority of s. 213.22, Florida Statutes.
FACTS
Taxpayer, a wholly owned subsidiary of XXX (Parent), was incorporated in XXX. Taxpayer owns
commercial buildings, other undeveloped land primarily in the XXX metropolitan area, a property in each
of XXX, XXX, XXX, XXX, and XXX, and a XXX limited partnership interest in a three-story office
building located near the XXX in downtown XXX.
During its XXX tax year, Taxpayer sold a commercial property that was located in Florida. The sale of
the business assets located in Florida generated XXX of gross proceeds and resulted in a net gain to the
Taxpayer of XXX. 1

1

While the request submitted on behalf of the Taxpayer makes no mention of this point, we presume from the nature of this
request that the Taxpayer acknowledges that the proceeds from this transaction are business income.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director

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

Technical Assistance Advisement 14C1-001
Page 2

The standard Florida apportionment factor requires Taxpayer to include the gross proceeds from the sale
of the business assets in the sales factor. Since the business assets that were sold were located in Florida,
most, if not all of the gross proceeds from the sale of the business assets are included in the numerator of
the Florida sales factor under this standard Florida apportionment methodology. This increase in the
numerator of the Florida sales factor (Florida sales) increases the Florida sales factor and consequently
increases the overall Florida apportionment factor.
The Taxpayer asserts that the standard Florida apportionment factor does not fairly tax the income that it
earned during its XXX tax year and has requested the use of an alternative apportionment factor. The
Taxpayer’s proposed alternative apportionment factor would exclude the gross proceeds from the sale of
the business assets from the apportionment factor.
In its XXX tax year, the Taxpayer’s weighted sales factor was XXX, and its total apportionment factor
was XXX. The standard Florida apportionment factor, which includes the sale of the Florida business
assets, produces a XXX weighted sales factor of XXX and a total apportionment factor of XXX. If the
Taxpayer’s alternative apportionment methodology were used for the XXX tax year, the Taxpayer’s
weighted sales factor would be XXX, and its total apportionment factor would be XXX.
The Taxpayer’s federal taxable income, after Florida additions and subtractions, for the XXX tax year is a
loss of XXX, and its federal taxable income, after Florida additions and subtractions, for the XXX tax year
is XXX. The substantial increase in federal taxable income is from the Taxpayer’s sale of the Florida
business assets. In addition, it should be noted that the Taxpayer’s XXX apportioned Florida loss of XXX
should be used to offset Florida income in XXX.
QUESTION
Does the standard apportionment factor, which would include the sale of the Florida business assets
(commercial property), fairly represent the extent of a taxpayer’s tax base attributable to Florida?
LAW
Section 220.02, F.S., states in part:
(1) 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. This code
is not intended to tax, and shall not be construed so as to tax, any natural person who
engages in a trade, business, or profession in this state under his or her own or any fictitious
name, whether individually as a proprietorship or in partnership with others, or as a
member or a manager of a limited liability company classified as a partnership for federal
income tax purposes; any estate of a decedent or incompetent; or any testamentary trust.
However, a corporation or other taxable entity which is or which becomes partners with

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Page 3

one or more natural persons shall not, merely by reason of being a partner, exclude from its
net income subject to tax its respective share of partnership net income. This statement of
intent shall be given preeminent consideration in any construction or interpretation of this
code in order to avoid any conflict between this code and the mandate in s. 5, Art. VII of
the State Constitution that no income tax be levied upon natural persons who are residents
and citizens of this state.
...
(3) It is the intent of the Legislature that the income tax imposed by this code utilize, to the
greatest extent possible, concepts of law which have been developed in connection with the
income tax laws of the United States, in order to:
(a) Minimize the expenses of the Department of Revenue and difficulties in administering
this code;
(b) Minimize the costs and difficulties of taxpayer compliance; and
(c) Maximize, for both revenue and statistical purposes, the sharing of information between
the state and the Federal Government.
(4) It is the intent of the Legislature that the tax imposed by this code be prospective in
effect only. Consistent with this intention and the intent expressed in subsection (3), it is
hereby declared to be the intent of the Legislature that:
(a) “Income,” for purposes of this code, including gains from the sale, exchange, or other
disposition of property, be deemed to be created for Florida income tax purposes at such
time as such income is realized for federal income tax purposes;
(b) No accretion of value, no accrual of gain, and no acquisition of a right to receive or
accrue income which has occurred or been generated prior to November 2, 1971, be
deemed to be “property,” or an interest in property, for any purpose under this code; and
(c) All income realized for federal income tax purposes after November 2, 1971, be subject
to taxation in full by this state and be taxed in the manner and to the extent provided in this
code.
...
Section 220.11, F.S., states in part:
(1) A tax measured by net income is hereby imposed on every taxpayer for each taxable
year commencing on or after January 1, 1972, and for each taxable year which begins
before and ends after January 1, 1972, for the privilege of conducting business, earning or
receiving income in this state, or being a resident or citizen of this state. Such tax shall be
in addition to all other occupation, excise, privilege, and property taxes imposed by this
state or by any political subdivision thereof, including any municipality or other district,
jurisdiction, or authority of this state.
...
Section 220.15, F.S., states in part:
(1) Except as provided in ss. 220.151, 220.152, and 220.153, adjusted federal income as
defined in s. 220.13 shall be apportioned to this state by taxpayers doing business within
and without this state by multiplying it by an apportionment fraction composed of a sales
factor representing 50 percent of the fraction, a property factor representing 25 percent of

Technical Assistance Advisement 14C1-001
Page 4

the fraction, and a payroll factor representing 25 percent of the fraction. If any factor
described in subsection (2), subsection (4), or subsection (5) has a denominator that is zero
or is determined by the department to be insignificant, the relative weights of the other
factors in the denominator of the apportionment fraction shall be as follows: . . .
(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. However: . . .
Section 220.152, F.S., states:
If the apportionment methods of ss. 220.15 and 220.151 do not fairly represent the extent
of a taxpayer’s tax base attributable to this state, the taxpayer may petition for, or the
department may require, in respect to all or any part of the taxpayer’s tax base, if
reasonable:
(1) Separate accounting;
(2) The exclusion of any one or more factors;
(3) The inclusion of one or more additional factors which will fairly represent the
taxpayer's tax base attributable to this state; or
(4) The employment of any other method which will produce an equitable apportionment.
Rule 12C-1.0152, F.A.C., states in part:
(1)(a) A departure from the applicable method of apportionment required under the
provisions of ss. 220.15 or 220.151, F.S., shall be permitted only where the method does
not accurately and fairly reflect business activity in Florida. An alternative method may
not be invoked, either by the Department of Revenue or by the taxpayer, merely
because it reaches a different apportionment percentage than the regularly applicable
formula. However, if the applicable formula will lead to a grossly distorted result in a
particular case, a fair and accurate alternative method is appropriate (see Norfolk and
Western Railway Co. v. Missouri State Tax Commission, 390 U.S. 317, 88 S. Ct. 995, 19 L.
Ed. 2d 1201 (1968), which is incorporated by reference in Rule 12C-1.0511, F.A.C.).
(b) A taxpayer seeking to utilize an alternative apportionment method must show by
clear and cogent evidence that the regularly applicable formula would result in
taxation of extraterritorial values (see Butler Bros. v. McColgan, 315 U.S. 501, 62 S. Ct.
701, 86 L. Ed. 991 (1942), which is incorporated by reference in Rule 12C-1.0511, F.A.C.).
This can be shown only if the regularly applicable formula is demonstrated to operate
unreasonably and arbitrarily in apportioning to Florida a percentage of income which
is out of all proportion to the business transacted in Florida and does not accurately
and fairly reflect business activity in Florida (see Hans Rees’ Sons, Inc. v. North
Carolina ex rel. Maxwell, 283 U.S. 123, 51 S. Ct. 385, 75 L. Ed. 879 (1931), which is
incorporated by reference in Rule 12C-1.0511, F.A.C.).
(Emphasis Supplied)

Technical Assistance Advisement 14C1-001
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Rule 12C-1.0155(1)(b), F.A.C., states:
Sales of business assets. If a taxpayer derives receipts from the sale of equipment
used in its business, such receipts constitute a “sale.” For example, a truck express
company owns a fleet of trucks and sells its trucks under a regular replacement program.
The gross receipts from the sales of the trucks are included in the sales factor. If amounts
of gross receipts arising from an incidental or occasional sale of a fixed asset used in
the regular course of the taxpayer’s trade or business would materially distort the
sales factor, the taxpayer may petition the Department, or the Department is
authorized to require, pursuant to s. 220.152, F.S., and Rule 12C-1.0152, F.A.C., an
adjustment to the sales factor. (Emphasis Supplied)
Rule 12C-1.0155(1)(f), F.A.C., states:
Income from intangible personal property.

1. Where the income producing activity in respect to business income from intangible
   personal property can be readily identified, such income is included in the denominator of
   the sales factor and, if the income producing activity occurs in this state, in the numerator
   of the sales factor as well. For example, usually the income producing activity can be
   readily identified in respect to interest income received on deferred payments on sales of
   tangible personal property and income from the sale, licensing, or other use of intangible
   personal property. The sale or licensing of the use of a trade name, trademark, or patent
   will be attributable to the state in which the trade name, trademark, or patent is used.
2. Where business income from intangible property cannot readily be attributed to any
   particular income producing activity of the taxpayer, such income cannot be assigned to the
   numerator of the sales factor for any state and shall be excluded from the denominator of
   the sales factor. For example, where business income in the form of dividends received on
   stock, royalties received on patents or copyrights, or interest received on bonds, debentures
   or government securities results from the mere holding of the intangible personal property
   by the taxpayer, such dividends and interest shall be excluded from the denominator of the
   sales factor.
3. In the case of a taxpayer engaged in the sale, assignment, or licensing of intangible
   personal property such as patents and copyrights, “sales” includes the gross receipts
   therefrom.
   Rule 12C-1.0155(2)(a), F.A.C., states:
   Sales of Tangible Personal Property in Florida. Gross receipts from sales of tangible
   personal property are 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 sales, or the ultimate
   destination of the property. Tangible personal property shipped by common or contract
   carriers will use a destination test to determine whether the sale is a Florida sale or a sale
   without this state.
   1.a. Property shall be deemed to be delivered or shipped to a purchaser within this state if
   the recipient is located in this state, even though the property is ordered from outside this
   state.

Technical Assistance Advisement 14C1-001
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b. Example: The taxpayer, with inventory in State A, sold $100,000 of its products to a
purchaser having branch stores in several states including this state. The order for the
purchase was placed by the purchaser’s central purchasing department located in State B.
$25,000 of the purchaser’s order was shipped directly to purchaser’s branch store in this
state. The branch store in this state is the “purchaser within this state” with respect to
$25,000 of the taxpayer’s sales.
2.a. Property is delivered or shipped to a purchaser within this state if the shipment
terminates in this state, even though the property is subsequently transferred by the
purchaser to another state.
b. Example: The taxpayer makes a sale to a purchaser who maintains a central warehouse
in this state at which all merchandise purchases are received. The purchaser reships the
goods to its branch stores in other states for sale. All of the taxpayer’s products shipped to
the purchaser’s warehouse in this state are property “delivered or shipped to a purchaser
within this state.”
3.a. With respect to sales made to a citrus cooperative by a grower-member, the growermember’s sales factor shall be the same as the sales factor for the most recent taxable year
of the citrus cooperative-processor. With respect to sales made to a Florida processor by a
grower-participant, the grower participant's sales factor shall be the same as the sales factor
for the most recent taxable year of the Florida processor. A copy of the processor’s sales
factor as furnished to the grower-member or grower-participant shall be attached to the
grower-member’s or grower-participant’s corporate income tax return, Form F-1120, which
is incorporated by reference in Rule 12C-1.051, F.A.C.
b. If there is delivery of citrus fruit in Florida, other than citrus fruit delivered by a
cooperative for a grower-member, citrus fruit delivered by a grower-member to a
cooperative, or citrus fruit delivered by a grower-participant to a Florida processor, the sale
will be a Florida sale. For example, if a citrus grower delivers fruit to a processor or
middle-man for cash, the sale is considered to be a Florida sale, regardless of any
subsequent shipment of the fruit outside the state.
4.a. The term “purchaser within this state” shall include the ultimate recipient of the
property if the taxpayer in this state, at the designation of the purchaser, delivers to or has
the property shipped to the ultimate recipient within this state.
b. Example: A taxpayer in this state sold merchandise to a purchaser in State A. Taxpayer
directed the manufacturer or supplier of the merchandise in State B to ship the merchandise
to the purchaser’s customer in this state pursuant to purchaser’s instructions. The sale by
the taxpayer is in this state.
5.a. When property being shipped by a seller from the state of origin to a consignee in
another state is diverted while en route to a purchaser in this state, the sales are in this state.
b. Example: The taxpayer, a produce grower in State A, begins shipment of perishable
produce to the purchaser’s place of business in State B. While en route the produce is
diverted to the purchaser’s place of business in this state in which state the taxpayer is
subject to tax. The sale by the taxpayer is attributed to this state.
Rule 12C-1.0155(2)(c), F.A.C., states:
Real Property. Gross receipts from the sale, lease, rental, or licensing of real property
are in this state if the real property is located in this state.
(Emphasis Supplied)

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Rule 12C-1.0155(2)(f), F.A.C., states:
(f) Intangible personal property in Florida.

1. The rental, leasing, licensing, or other use of a trade name, trademark, or patent to a
   business entity located in Florida will be considered a Florida sale. The mere holding of
   intangible personal property is not, of itself, an income producing activity.
2. Franchises. The franchise fees paid to rent, lease, license, or otherwise use a trade name
   and system of sales are Florida sales if the franchise location is in the state.
   Rule 12C-1.016(1)(b)2., F.A.C., states:
   Gains or losses from sales of assets. Gain or loss from the sale, exchange or other
   disposition of real or tangible or intangible personal property constitutes business income if
   the property while owned by the taxpayer was used in the taxpayer’s trade or business. . . .
   Rule 12-11.007(1), F.A.C., states in part:
   A taxpayer may not rely on an advisement issued to another taxpayer, except that an
   advisement issued to a taxpayer association provides guidance to those taxpayers who are
   members of the taxpayer association for the particular transaction(s) discussed in the TAA.
   . . . (Emphasis Supplied)
   DISCUSSION
   The Taxpayer is requesting the use of an alternative apportionment factor for Florida because it believes
   that the standard apportionment factor, which includes the sale of the business assets, taxes extraterritorial
   values and apportions more income to Florida than Florida is constitutionally allowed to tax.
   Florida Standard Apportionment Factor
   Subsection 220.15(5), F.S., provides the intent of the Florida Legislature and states that 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. This subsection further provides in paragraph (a) that 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. Since the sale of these business assets (the
   commercial property) is a gross receipt of the Taxpayer, which is not interest, a dividend, a rent, a royalty,
   or a receipt from the disposition of securities, the standard Florida apportionment methodology would
   include in the numerator and denominator of the sales factor the proceeds from the sale of the Florida
   business assets. See Rule 12C-1.055(1)(b) and (2), F.A.C.
   Following Florida’s standard apportionment law, the Taxpayer’s apportionable/business income of XXX
   is subject to a Florida apportionment factor of XXX. The Taxpayer’s Florida income tax liability is XXX,
   when offset by the Taxpayer’s XXX net operating loss of XXX.

Technical Assistance Advisement 14C1-001
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Alternative Apportionment
As noted above, the Taxpayer believes that the standard Florida apportionment factor taxes extraterritorial
values and apportions more income to Florida than Florida is constitutionally allowed to tax. As a result of
this belief, the Taxpayer is requesting permission to use an alternative apportionment factor. The
Taxpayer notes the language in Rule 12C-1.055(1)(b), F.A.C., which provides that if amounts of gross
receipts arising from an incidental or occasional sale of a fixed asset used in the regular course of the
taxpayer’s trade or business would materially distort the sales factor, the taxpayer may petition the
Department, or the Department is authorized to require, pursuant to s. 220.152, F.S., and Rule 12C1.0152, F.A.C., an adjustment to the sales factor.
Alternative apportionment is very rare. The Florida Supreme Court recognized this fact in Roger Dean
Enterprises v. State, Department of Revenue, 387 So. 2d 358 (Fla. 1980)., at 363:
There is a very strong presumption in favor of normal three-factor apportionment and
against the applicability of relief provisions. . . . The relief provision should be used where
the statute reaches arbitrary or unreasonable results so that its application could be attacked
successfully on constitutional grounds. Departures from the basic formula should be
avoided except where reasonableness requires.
In Moorman Manufacturing Co. v. Bair, Director of Revenue of Iowa, 437 U.S. 267 (1978), the U.S.
Supreme Court stated:
…[the] claim that the Constitution invalidates an apportionment formula whenever it may
result in taxation of some income that did not have its source in the taxing state is incorrect.
437 U.S. at 272.
The Department has only allowed alternative apportionment on a few occasions. As noted, Rule 12C1.0155(1)(b), F.A.C., permits an adjustment to the sales factor where the inclusion of the proceeds from an
incidental or occasional sale of fixed assets could be distortive to the sales factor and may in fact create a
situation where the standard apportionment factor provides Florida with more or less income tax than
Florida is constitutionally allowed to collect. However, situations where the inclusion of an incidental or
occasional sale of fixed assets actually distorts a taxpayer’s apportionment factor are very rare.
Rule 12C-1.0152, F.A.C., provides for an adjustment to the apportionment formula if the standard formula
leads to a grossly distorted result. This rule requires the Taxpayer to show by clear and cogent evidence
that the apportionment formula results in taxation of extraterritorial values. The Taxpayer must
demonstrate that the apportionment formula operates unreasonably and arbitrarily in apportioning income
to Florida, and that it is out of all proportion to the business transacted in Florida and does not accurately
and fairly reflect business activity in Florida.
The Taxpayer has shown that the numerator and the denominator of its sales factor, as well as its overall
apportionment factor, substantially increase when the Taxpayer’s sale of Florida business assets are
included in the sales factor on the XXX Florida corporate income tax return. Now, we must consider
whether the inclusion of the proceeds from the sale of the business assets in the sales factor materially
results in the taxation of extraterritorial values.

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We must examine the two activities that produced income for the Taxpayer in XXX. The Taxpayer’s
regular business operations produced revenue of XXX and income of XXX. When this income of XXX is
multiplied by the Florida apportionment factor that would have existed without the sale of the business
assets (XXX), the Taxpayer would have had a Florida net income of XXX. In addition to its regular
business activities, the Taxpayer also made a sale of some of its Florida business assets that produced
revenue of XXX and income of XXX. Since all of the business assets that were sold were located in
Florida, one would expect that all of the XXX in income would be subject to tax by Florida. When these
two income producing activities are combined, the Taxpayer would have XXX in Florida income that
would be subject to the Florida corporate income tax. This amount of Florida income, when offset by the
Taxpayer’s XXX net operating loss, would produce a Florida income tax liability of XXX. 2
Following Florida’s standard apportionment law, the combination of the Taxpayer’s two income activities
produces income of XXX, which is subject to a Florida apportionment factor of XXX. Apportionable
income, when offset by the Taxpayer’s XXX net operating loss, produces a Florida income tax liability of
XXX.
Under the Taxpayer’s proposed alternative methodology, which would exclude the sale of the business
assets from the sales factor, the combination of the Taxpayer’s two income producing activities produces
income of XXX, which would be subject to an apportionment percentage of XXX. Apportionable
income, when offset by the Taxpayer’s XXX net operating loss, would produce a Florida tax of zero, and
the Taxpayer would still have a Florida loss carryover to XXX of XXX. 3
The Taxpayer’s argument fails to recognize that a significant portion of the income generated was a result
of Florida activity, the sale of business assets (the commercial property) located in Florida. The income of
the Taxpayer substantially increases as a result of the Taxpayer’s sale of Florida business assets. What
logically follows an increase in income resulting from the sale of business assets located in Florida is an
increase in the sales factor in Florida. The corresponding increase in the weighted sales apportionment
factor from XXX to XXX and corresponding increase in the apportionment formula from XXX to XXX is
commensurate with the fact that the business assets that were sold by the Taxpayer were substantial and
were located in Florida. The increase in the Taxpayer’s Florida tax liability reflects the fact that Florida
may subject to tax a substantial portion of the income generated by the sale of Florida business assets.
Although the difference in the apportionment factors between including or excluding the sale of the
business assets is substantial, we do not believe that extraterritorial values are being taxed by Florida. The
regular apportionment factor, which includes the sale of the business assets that were used in the
Taxpayer’s business, does not operate unreasonably and arbitrarily in apportioning to Florida a percentage
of income that is out of all proportion to the business transacted in Florida. The Taxpayer’s mere
suggestion that extraterritorial values are being taxed and that an alternative apportionment results in less
tax due to the State of Florida is insufficient proof.
In Norfolk, supra, the U.S. Supreme Court found the application of the apportionment formula
unconstitutional where the taxing state imposed an ad valorem property tax on the railroad rolling stock,
using the familiar single-factor mileage formula apportionment basis. The taxpayer presented evidence
showing that the actual inventory of rolling stock in Missouri on tax day was less than half (approximately
$7,600,000 versus assessed value of $19,981,000) the value assessed using Missouri’s apportionment
2
3

XXX
XXX

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formula. The taxpayer further demonstrated that its calculation of the tax-day value was representative of
the value of rolling stock located within the state throughout the year and in the preceding year. The
Supreme Court in Norfolk, at page 329, noted that it is not necessary for a state to demonstrate that its use
of the mileage formula yields an exact measure of value. However, the Supreme Court further stated that:
[w]hen a taxpayer comes forward with strong evidence tending to prove that the mileage
formula will yield a grossly distorted result in its particular case, the State is obliged to
counter that evidence or to make the accommodations necessary to assure that its taxing
power is confined to its constitutional limits. If it fails to do so and if the record shows that
the taxpayer has sustained the burden of proof to show that the tax is so excessive as to
burden interstate commerce, the taxpayer must prevail.
In the Hans Rees’ case, supra, North Carolina attempted to apportion income of a manufacturing concern
using a formula based on the ratio of the value of the taxpayer’s real and tangible personal property
located in North Carolina over the value of its real and tangible property located everywhere times its
entire income. The taxpayer was able to demonstrate that such a one-factor (property) apportionment
formula “operated unreasonably and arbitrarily” in attributing income to the state that was “out of all
proportion” to the taxpayer’s activities in the state. The Court concluded that proof that the formula
produced a tax on 83% of the taxpayer’s income when only 17% of that income actually had its source in
the State would suffice to invalidate the assessment under the Due Process Clause. See Moorman
Manufacturing, supra. The type of distortion present in Hans Rees’ is largely remedied today by use of a
three-factor apportionment formula. The three factors now generally used by states to apportion the
income of most businesses (like the taxpayer in Hans Rees’) to their state, are sales, property, and payroll.
In its request for TAA, Taxpayer states that it has operations in other states where the proceeds from the
sale of the commercial property are excluded or only the net gain is included in the denominator of the
sales factor. Consequently, Taxpayer asserts that it has a higher apportionment factor in other filing states
(e.g., XXX, XXX, XXX, XXX, and XXX) in addition to Florida and that overall Taxpayer is paying
higher taxes on the net gain included in the total taxable income because of higher apportionment factor in
all states.
Taxpayer asserts that because greater than 100% of its income is being taxed by Florida and the other
filing states, Florida’s apportionment calculation must be taxing extraterritorial values. Apportionment is
merely a method to break out a multi-state entity’s income amongst the states in which it conducts
business. Apportionment is not an exact science, but it has been widely accepted by both state and federal
courts as a reasonable approximation for this purpose.
Regarding this overlap taxation issue, the U.S. Supreme Court stated in Moorman Manufacturing, 437
U.S. at 277:
Even assuming some overlap, we could not accept appellant’s argument that Iowa, rather
than Illinois, was necessarily at fault in a constitutional sense. It is, of course, true that if
Iowa had used Illinois’ three-factor formula, a risk of duplication in the figures computed
by the two States might have been avoided. But the same would be true had Illinois used
the Iowa formula. Since the record does not reveal the sources of appellant’s profits, its
Commerce Clause claim cannot rest on the premise that profits earned in Illinois were
included in its Iowa taxable income and therefore the Iowa formula was at fault for
whatever overlap may have existed. . . . The only conceivable constitutional basis for

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invalidating the Iowa statute would be that the Commerce Clause prohibits any overlap in
the computation of taxable income by the States. If the Constitution were read to mandate
such precision in interstate taxation, the consequences would extend far beyond this case.
For some risk of duplicative taxation exists whenever the States in which a corporation
does business do not follow identical rules for the division of income. . . . The prevention
of duplicative taxation, therefore, would require national uniform rules for the division of
income. Although the adoption of a uniform code would undeniably advance the policies
that underlie the Commerce Clause, it would require a policy decision based on political
and economic considerations that vary from State to State. The Constitution, however, is
neutral with respect to the content of any uniform rule. . . . It is clear that the legislative
power granted to Congress by the Commerce Clause of the Constitution would amply
justify the enactment of legislation requiring all States to adhere to uniform rules for the
division of income. It is to that body, and not this Court, that the Constitution has
committed such policy decisions. . . .
If the other filing states weighted theirs apportionment factors in the same manner that Florida does, the
combination of the all the apportionments would result in exactly 100% of the Taxpayer’s income being
subject to tax between the states. However, as stated by the U.S. Supreme Court in Wisconsin v. J.C.
Penny Co., 311 U.S. 435, 444 (1940):
A State is free to pursue its own fiscal policies, unencumbered by the Constitution, if by the
practical operation of a tax the State has exerted its power in relation to the opportunities
which it has given, to protection which it has afforded, to benefits which it has conferred by
the fact of being an orderly, civilized society.
The Taxpayer has not shown by clear and cogent evidence that Florida’s standard apportionment
calculation results in taxation of extraterritorial values. The Taxpayer receives the benefits and
protections of Florida law, and there is no question that Florida may constitutionally tax the sale of the
assets located in Florida and used in the Taxpayer’s business. Also, the Taxpayer has not demonstrated
that the inclusion of the proceeds from the sale of the business assets in the apportionment formula makes
the formula operate unreasonably and arbitrarily in apportioning the Taxpayer’s income to Florida, or that
the apportionment formula is inaccurate and does not fairly reflect the Taxpayer’s business activity in
Florida in XXX.
CONCLUSION
Florida law requires the Taxpayer to include the proceeds from the Taxpayer’s sale of its Florida business
assets in its apportionment factor. Based on the discussion above, the inclusion of the proceeds from the
sale of assets that were used in the Taxpayer’s commercial real estate business is found not to materially
distort the apportionment factor or tax extraterritorial values.
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 based 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.

Technical Assistance Advisement 14C1-001
Page 12

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,

Jermane L. Wright
Senior Attorney
Technical Assistance and Dispute Resolution

JLW/
Control No.: 153524