How did Florida source this service provider's receipts for the corporate-income-tax sales factor?

Plain-English summary

The Florida Department of Revenue concluded that the disclosed service receipts were Florida sales when the relevant customer or service recipient was physically located in Florida.

For telephone and online customer support, the Department identified the interaction with the person needing assistance as the income-producing activity. For other disclosed support services, it treated the customer's purchase of the service as the income-producing activity. The ruling analyzed each receipt-producing transaction separately rather than treating the taxpayer's entire business as one activity.

A separate business stream is heavily redacted. The visible conclusion says income tied to a delivered product was sourced by the product's delivery destination, while another redacted category was sourced to a redacted location. The public text does not support a more specific description of those hidden categories.

What this means for you

Multistate service businesses

Do not assume payroll or office location alone controls the Florida sales factor. For this taxpayer, the Department focused on the customer-facing transaction that produced each receipt.

Customer-support providers

The ruling treated the telephone or online interaction as the receipt-producing activity and looked to the physical location of the person receiving that support.

Accountants and tax professionals

Classify revenue streams separately and preserve location evidence. The ruling's redactions make its product-related discussion unsuitable for broader claims beyond the visible delivery-destination conclusion.

Common questions

Q: Did the Department source all receipts based on where the taxpayer's employees worked?
A: No. The disclosed analysis focused on the customer or service recipient's physical location.

Q: Did the ruling use one sourcing rule for the entire business?
A: No. It said each separate item of income and its directly related transaction and activity must be considered.

Q: Can the redacted business streams be identified from the public ruling?
A: No. The public text does not reveal enough detail to name them reliably.

Citations and references

• Fla. Stat. §§ 213.22(1), 220.02(1), and 220.15(1), (5)
• Fla. Admin. Code r. 12C-1.0155(1)(h), (2)(l)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 17C1-004

Original ruling text

Executive
Director
Leon M. Biegalski

QUESTIONS: WHETHER IT IS APPROPRIATE FOR TAXPAYER TO SOURCE
SALES TO THE LOCATION OF THE INCOME PRODUCING ACTIVITY? WHAT
IS THE PROPER DETERMINATION OF WHERE THE INCOME PRODUCING
ACTIVITY OCCURS FOR EACH OF THE FOUR TYPES OF SERVICES TAXPAYER
PROVIDES?
ANSWERS: PURSUANT TO RULE 12C-1.0155(2)(L), F.A.C., WHEN THE
ACTIVITY PRODUCING THE SALES REVENUE OCCURS ENTIRELY IN FLORIDA,
THE RECEIPTS FROM THE FLORIDA ACTIVITY ARE DEEMED TO BE FLORIDA
SALES. THE INCOME PRODUCING ACTIVITY OCCURS ENTIRELY IN FLORIDA
WHEN TAXPAYER’S CUSTOMER IS PHYSICALLY LOCATED IN FLORIDA.

April 17, 2017
XXXXX
XXXXX
XXXXX
XXXXX

Re:

Technical Assistance Advisement – 17C1-004
XXXXX (“Taxpayer”)
FEIN: XXXXX
Corporate Income Tax
Income Calculation
Section (“s.”) 220.15, Florida Statutes (“F.S.”)
Rule 12C-1.0155, Florida Administrative Code (“F.A.C.”)

XXXXX:
This is in response to your request dated October 21, 2016, for a Technical Assistance Advisement
(“TAA”) pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the sales
factor calculation for Taxpayer. 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.

Child Support – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – Dr. Maurice Gogarty, Director  Information Services – Damu Kuttikrishnan, Director

www.floridarevenue.com
Florida Department of Revenue
Tallahassee, Florida 32399-0100

Technical Assistance Advisement
Page 2
FACTS SUPPLIED BY TAXPAYER
Taxpayer has two distinct lines of business, customer support services and XXXXX. Taxpayer
provides customer support services to the XXXXX, allowing XXXXX to outsource certain
functions needed XXXXX. Taxpayer also provides general support services, such as accounting
and marketing, to its customers. Taxpayer’s customers are primarily located outside of Florida.
Customer Support Services
Taxpayer provides the following services to XXXXX on behalf of its customers:
•

•

General Telephone and Online Customer Services: Taxpayer provides support by
answering XXXXX product and service questions, and resolving product or service
problems. Much of these services are performed via telephone or online. To support these
operations, Taxpayer maintains call centers in Florida and contracts with third-party call
centers outside the United States. Approximately XXXXX of all calls/online discussions
are handled by third-party call centers outside the United States. For these services,
Taxpayer charges a XXXXX. The XXXXX may be located throughout the world.
Fulfillment Services: Taxpayer provides services related to the fulfillment of XXXXX
accounts. This includes maintaining XXXXX records, processing orders, payments, and
cancellation requests for XXXXX accounts. Taxpayer charges XXXXX for these services.

In addition to the services above, Taxpayer provides these services directly to its customers:
•
•

XXXXX Services: Taxpayer provides support staff services to its customers. These
services include financial services such as accounting and reconciliation, as well as
marketing services XXXXX.
XXXXX Services: Taxpayer provides two general types of XXXXX services. One is a
XXXXX. The second service consists of Taxpayer XXXXX.

XXXXX
Taxpayer XXXXX. Specifically, Taxpayer uses XXXXX. To perform these services, Taxpayer
predominately XXXXX. Only one percent of XXXXX. Currently, Taxpayer provides its
XXXXX. Taxpayer XXXXX. In the future, Taxpayer plans to XXXXX.
ISSUES PRESENTED
Whether it is appropriate for Taxpayer to source sales of its customer support services to the
location of the income producing activity? If yes, what is the proper determination of where the
income producing activity occurs for each of the four types of services Taxpayer provides?
Whether it is appropriate for Taxpayer to source sales of XXXXX? Additionally, does the same
sourcing rule apply XXXXX?

Technical Assistance Advisement
Page 3
LEGAL AUTHORITY
Section 213.22(1), F.S., states in part:
(1) The department may issue informal technical assistance advisements to
persons, upon written request, as to the position of the department on the tax
consequences of a stated transaction or event, under existing statutes, rules, or
policies. After the issuance of an assessment, a technical assistance advisement may
not be issued to a taxpayer who requests an advisement relating to the tax or liability
for tax in respect to which the assessment has been made, except that a technical
assistance advisement may be issued to a taxpayer who requests an advisement
relating to the exemptions in s. 212.08(1) or (2) at any time. Technical assistance
advisements shall have no precedential value except to the taxpayer who requests
the advisement and then only for the specific transaction addressed in the technical
assistance advisement, unless specifically stated otherwise in the advisement. Any
modification of an advisement shall be prospective only…
Section 220.02(1), 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…
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 the fraction, and a payroll factor
representing 25 percent of the fraction…

(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,

Technical Assistance Advisement
Page 4
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., states 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.
(a) Sales of tangible personal property. In the case of a taxpayer engaged in
manufacturing and selling or purchasing and reselling goods or products, “sales”
includes all gross receipts from the sales of such goods or products. Gross receipts
for this purpose means gross sales, without regard to returns and allowances, and
includes all interest income, service charges, carrying charges, or time-price
differential charges incidental to such sales…

(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) Florida sales. The numerator of the sales factor includes gross receipts attributed
to Florida which were derived by the taxpayer from transactions and activities in
the regular course of its trade or business. All interest income, service charges,
carrying charges, or time-price differential charges incident to such gross receipts
shall be included, regardless of the place where the account records are maintained
or the location of the contract or other evidence of indebtedness.
(a) Sales of Tangible Personal Property in Florida. Gross receipts from sales of
tangible personal property are in Florida if the property is delivered or shipped to a
purchaser within Florida 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 outside Florida…

XXXXX
(l) Other Sales in Florida. Gross receipts from other sales shall be attributed to
Florida if the income producing activity which gave rise to the receipts is performed
wholly within Florida. Also, gross receipts shall be attributed to Florida if the
income producing activity is performed within and without Florida but the greater
proportion of the income producing activity is performed in Florida, based on costs
of performance. The term “income producing activity” applies to each separate item

Technical Assistance Advisement
Page 5
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.
DISCUSSION
Reliance on Technical Assistance Advisements
Taxpayer states that its suggested sourcing method is consistent with several TAAs issued by the
Department. TAAs are binding on the Department only under the facts and circumstances
described in the request for a specific taxpayer. Section 213.22(1), F.S., states “Technical
assistance advisements shall have no precedential value except to the taxpayer who requests the
advisement…” Therefore, other TAAs have not been taken into consideration when reviewing
Taxpayer’s request.
Customer Support Services
Section 220.02(1), F.S., conveys the Legislature’s intent to subject corporations and other entities
to corporate income tax for the privilege of conducting business, deriving income, or existing in
Florida. The apportionment factor provides a measure of a taxpayer’s business activity in the
states in which it does business, and serves as a means of attributing income to the states from
which the income was derived.
Furthermore, section 220.15(5), F.S., provides that “[T]he sales factor is a fraction the numerator
of which is the total sales of the taxpayer in this state during the taxable year and the denominator
of which is the total sales of the taxpayer everywhere during the taxable year or period.”
Rule 12C-1.0155, F.A.C., provides guidance on sourcing income to Florida. Subsection (2)(l) of
this rule focuses on each separate item of income and the activities which produce that income.
To paraphrase that rule, sales are attributed to Florida if the income producing activity which gave
rise to the receipt is within Florida. The income producing activity is not analyzed holistically as
one major activity, but each individual transaction is considered a separate transaction and
consequently a separate income producing activity.
The term "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."1 The word “and” signifies
that both transactions and activities must exist simultaneously in order for any activity to be
considered the income producing activity. The word “transaction” is used several times in the
Florida Statutes and Rules, but is not defined. Black’s Law Dictionary2 defines “transaction” as:

1. The act or an instance of conducting business or other dealings.
2. Something performed or carried out; a business agreement or exchange.
   1
   2

Rule 12C-1.0155(2)(l), F.A.C.
716 (2nd Pocket Edition 2001)

Technical Assistance Advisement
Page 6

3. Any activity involving two or more persons.
   Under Rule 12C-1.0155(2)(l), F.A.C., when the activity producing the sales revenue occurs
   entirely or predominately in Florida, the receipts from the Florida activity is deemed to be a Florida
   sales. Since Florida is generally referred to as a market state, and the sales factor is generally based
   upon where the customer is located.
   Taxpayer performs general telephone/online customer service and XXXXX. The income
   producing activity for the services provided to XXXXX is the telephone/online discussion or
   interaction. It is that contact that generates the income for Taxpayer. The income producing
   activity occurs entirely in Florida when the XXXXX is physically located in Florida. Taxpayer
   would not be entitled to receive the fee unless there was a XXXXX who required assistance from
   customer support and if that XXXXX is located in Florida the fee would be received in Florida.
   It also provides XXXXX services and XXXXX services for its customers. The income producing
   activity for the XXXXX and XXXXX services performed for Taxpayer’s customer is the purchase
   of those services by its customer. Therefore, the income producing activity occurs entirely in
   Florida when Taxpayer’s customer is located in Florida.
   XXXXX
   Section 220.15(5), F.S., provides that “[T]he sales factor is a fraction the numerator of which is
   the total sales of the taxpayer in this state during the taxable year and the denominator of which is
   the total sales of the taxpayer everywhere during the taxable year or period.” It provides that a
   taxpayer’s gross receipts from sales of tangible personal property are to be included in both the
   numerator and the denominator of its Florida sales factor when the goods are delivered or shipped
   to a purchaser in Florida, regardless of the F.O.B. point, other conditions of the sale, or the ultimate
   destination of the property. However, when tangible personal property is shipped by common or
   contract carriers, a destination test is to be used to determine if the sale is a Florida sale or if the
   sale should be sourced to another state.
   XXXXX income will be attributed to Florida if XXXXX is performed in Florida and the customer
   XXXXX. It also states, if the XXXXX. Therefore, based on the facts provided by Taxpayer,
   XXXXX, would be sourced based on the destination of the product. If the product is delivered in
   Florida, then the income would be sourced to Florida. The remaining XXXXX, where Taxpayer’s
   customer XXXXX, would be sourced to the location XXXXX and if the XXXXX is located in
   Florida, the income would be sourced to Florida.
   CONCLUSION
   Pursuant to Rule 12C-1.0155(2)(l), F.A.C., when the activity producing the sales revenue occurs
   entirely in Florida, the receipts from the Florida activity is deemed to be a Florida sales. The
   income producing activity occurs entirely in Florida when Taxpayer’s XXXXX is physically
   located in Florida.

Technical Assistance Advisement
Page 7
XXXXX, provides that XXXXX income will be attributed to Florida if XXXXX. Also, if the
XXXXX income will be sourced based on the delivery destination of the product.
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 based on those facts and specific
situation summarized above. You are advised that subsequent statutory or administrative rule
changes or judicial interpretations of the statutes or rules upon this advice is based may subject
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
section 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,

Susan R. Coxwell
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6478
Record ID 212092
Cc: XXXXX