How should a holding company with disregarded entities source service revenue for Florida corporate-income-tax apportionment?

Plain-English summary

The Florida Department of Revenue treated a holding company as a financial organization for sales-factor purposes because at least one of its disregarded entities engaged in activities typical of a financial organization. Florida attributed the disregarded entities' activities to their owner.

Financial-service receipts were sourced to the customer, affiliate, or other entity receiving the service. Nonfinancial service receipts were also sourced to the recipient's location on a market basis.

The public copy redacts the four service categories and many customer details. It supports the classification and market-location principles, but not a more specific public industry mapping.

What this means for you

Holding companies with disregarded entities

Entity form does not isolate the owner's classification. Activities conducted through disregarded entities can cause the owner to be treated as a financial organization.

Corporate tax teams

Classify each revenue stream as financial or nonfinancial and document the location of the party receiving the service.

Accountants and tax professionals

Section 220.15 uses inclusive language, so entities not expressly named in the statutory list may still be financial organizations based on their activities.

Common questions

Q: Why was the taxpayer a financial organization?
A: At least one disregarded entity performed activities typical of a financial organization, and those activities were attributed to the owner.

Q: How were financial-service receipts sourced?
A: To the location of the customer, affiliate, or other entity receiving the service.

Q: How were nonfinancial services sourced?
A: To the receiving party's location on a market basis.

Q: What were the actual services?
A: The official public copy redacts them, so this page does not infer their identities.

Citations and references

• Fla. Stat. §§ 220.03(1)(m), 220.15(5)(c), 220.15(6), and 213.22
• Fla. Admin. Code r. 12C-1.0155

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 18C1-008

Original ruling text

TAX: Corporate Income Tax
TAA NUMBER: TAA 18C1-008
ISSUE: Request for Guidance on the Sourcing of Sales
STATUTE CITES: S. 220.15, F.S.
RULE CITES: Rule 12C-1.0155, F. A. C.
QUESTION: How should the taxpayer source its income from different types of services it
provides?
ANSWER: The taxpayer should source its income from different types of services it provides to
the location of the customer to which the services are provided, on a market basis.
July 16, 2018
XXXXX
XXXXX
XXXXX
XXXXX
Re:

Technical Assistance Advisement 18C1-008
Request for Sales Sourcing Guidance
Section 220.15, F.S.
Rule 12C-1.0155, F.A.C.
XXXXX (“the taxpayer”)
FEIN: XXXXX

Dear XXXXX:
This is in response to your request dated June 1, 2017, for a Technical Assistance Advisement (“TAA”)
pursuant to s. 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding guidance on the sourcing of sales.
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
The taxpayer is a holding company that, through its four disregarded entities, provides XXXXX services,
XXXXX services, XXXXX services, and XXXXX services for related parties.

XXXX
July 16, 2018
Florida Department of Revenue
Page 2

XXXXX Services
The taxpayer provides XXXXX services to XXXXX through one of its disregarded entities which is
registered as a XXXXX with XXXXX. These services include providing XXXXX, XXXXX and XXXXX the
records of those transactions and other XXXXX activity. It also provides customer service and XXXXX for
all of the XXXXX it services.
Each XXXXX with which it has a XXXXX agreement in place pays the taxpayer a fixed, flat fee per XXXXX,
which varies based on the type of XXXXX and the services provided.

XXXXX Services
The taxpayer also contracts with XXXXX managers to provide XXXXX services through another of its
disregarded entities. These services include XXXXX of the XXXXX with which it has contracted, and
providing XXXXX services consisting of XXXXX, XXXXX, XXXXX, XXXXX, and other XXXXX services.
The taxpayer receives a portion of the XXXXX fee paid to the XXXXX, from each XXXXX manager with
whom the taxpayer has a contract in place. The XXXXX fee received by the XXXXX is based on XXXXX.
XXXXX Services
The taxpayer provides XXXXX services through a third disregarded entity, which XXXXX and XXXXX
services to XXXXX and XXXXX. This entity determines which XXXXX each XXXXX should XXXXX, XXXXX, or
XXXXX, and when these activities should occur, to maximize the XXXXX of each XXXXX. The disregarded
entity may also take the steps necessary to implement such decisions, including arranging for the XXXXX
and XXXXX and the XXXXX.
These services are provided pursuant to agreements between each XXXXX or XXXXX and the XXXXX.
Typically, the XXXXX pay a monthly fee to the disregarded entity based on XXXXX.
XXXXX Services
Through a fourth disregarded entity, the taxpayer employs personnel who XXXXX, XXXXX, XXXXX, XXXXX,
and XXXXX services, to its affiliates. The costs of providing these services are charged to the taxpayer’s
affiliates.
Additionally, the taxpayer is charged for XXXXX associated with XXXXX and XXXXX services that are
provided by XXXXX affiliates. The taxpayer recovers these costs from the appropriate affiliates at cost.

ISSUE
The taxpayer is requesting guidance on the proper sourcing of income derived from the types of services
it offers, for purposes of computing its Florida sales factor.

XXXX
July 16, 2018
Florida Department of Revenue
Page 3

LAW
Paragraph 220.03(1)(m), F.S., states:
“Includes” or “including,” when used in a definition contained in this code, shall not be
deemed to exclude other things otherwise within the meaning of the term defined.
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. However:

1. Rental income is included in the term if a significant portion of the taxpayer’s business
   consists of leasing or renting real or tangible personal property; and
2. Royalty income is included in the term if a significant portion of the taxpayer’s business
   consists of dealing in or with the production, exploration, or development of minerals.

(c) Sales of a financial organization, including, but not limited to, banking and savings
institutions, investment companies, real estate investment trusts, and brokerage companies,
occur in this state if derived from:
1. Fees, commissions, or other compensation for financial services rendered within this state;
2. Gross profits from trading in stocks, bonds, or other securities managed within this state;
3. Interest received within this state, other than interest from loans secured by mortgages,
deeds of trust, or other liens upon real or tangible personal property located without this
state, and dividends received within this state;
4. Interest charged to customers at places of business maintained within this state for
carrying debit balances of margin accounts, without deduction of any costs incurred in carrying
such accounts;
5. Interest, fees, commissions, or other charges or gains from loans secured by mortgages,
deeds of trust, or other liens upon real or tangible personal property located in this state or
from installment sale agreements originally executed by a taxpayer or the taxpayer’s agent to
sell real or tangible personal property located in this state;
6. Rents from real or tangible personal property located in this state; or
7. Any other gross income, including other interest, resulting from the operation as a
financial organization within this state.
In computing the amounts under this paragraph, any amount received by a member of an
affiliated group (determined under s. 1504(a) of the Internal Revenue Code, but without
reference to whether any such corporation is an “includable corporation” under s. 1504(b) of
the Internal Revenue Code) from another member of such group shall be included only to the
extent such amount exceeds expenses of the recipient directly related thereto.

XXXX
July 16, 2018
Florida Department of Revenue
Page 4

(6) The term “financial organization,” as used in this section, includes any bank, trust
company, savings bank, industrial bank, land bank, safe-deposit company, private banker,
savings and loan association, credit union, cooperative bank, small loan company, sales finance
company, or investment company.

ANALYSIS
The letter requesting this TAA states that the taxpayer does not consider itself to be a “financial
organization” for purposes of Florida’s corporate income tax. However, while section 220.15(6), F.S.,
defines the term “financial organization” for purposes of Florida’s corporate income tax, as specific
types of entities that would typically be engaged in financial transactions, section 220.15(5)(c), F.S.,
provides guidance as to types of transactions an entity might engage in that would cause it to be
classified as a “financial organization” for purposes of Florida’s corporate income tax.
It should also be noted that section 220.15(5)(c), F.S., uses the word “including,” which, under the
provisions of section 220.03(1)(m), F.S., means that other types of transactions, in addition to those
specified, could cause an entity to be treated as a “financial organization” under the provisions of
Chapter 220, F.S. Therefore, even though an entity might not be one of the types listed in section
220.15(6), F.S., which, incidentally, uses the word “includes,” engaging in the types of transactions listed
in section 220.15(5)(c), F.S., or other transactions typically conducted by a financial organization, even
though such transactions are not specifically listed in section 220.15(5)(c), F.S., could cause it to be
treated as a “financial organization” under the provisions of Chapter 220, F.S.
As Chapter 220, F.S., attributes the activities of disregarded entities to the owner of the disregarded
entity, and at least one of the disregarded entities owned by this taxpayer engages in activities typical of
a “financial organization,” the Department considers the taxpayer to be a “financial organization”
subject to the sales apportionment provisions of paragraph 220.15(5)(c), F.S.
Based on the provisions of paragraph 220.15(5)(c), F.S., and subsection 220.15(6), F.S., the activities of
the taxpayer are those of a financial organization. As the taxpayer is to be treated as a financial
organization, it should compute its sales factor as directed by paragraph 220.15(5)(c), F.S., sourcing its
income from XXXXX services, XXXXX services, and XXXXX services, to the location of the XXXXX, as the
XXXXX are the owners of the XXXXX in question, or to the location of the XXXXX to which it is providing
such services. Therefore, to the extent that the XXXXX are located in Florida, or the XXXXX receiving
these services are located in Florida, the income would appear in both the numerator and the
denominator of the taxpayer’s Florida sales factor.
Similarly, income derived from XXXXX services that are financial services should be sourced to the
XXXXX, the XXXXX, the XXXXX, or other entity that is receiving such services. Income derived from nonfinancial services should be sourced to the location of the party receiving such services, on a market
basis, as directed by the provisions of section 220.15, F.S.

XXXX
July 16, 2018
Florida Department of Revenue
Page 5

CONCLUSION
The taxpayer is to be treated as a financial organization and should compute its sales factor as directed
by paragraph 220.15(5)(c), F.S., sourcing its income from XXXXX services, XXXXX services, and XXXXX
services, to the location of the XXXXX, as the XXXXX are the owners of the XXXXX in question, or to the
location of the XXXXX to which it is providing such services. To the extent that the XXXXX are located in
Florida, or the XXXXX receiving these services are located in Florida, the income would appear in both
the numerator and the denominator of the taxpayer’s Florida sales factor.
Similarly, income derived from XXXXX services that are financial services should be sourced to the
XXXXX, the XXXXX, the affiliate, or other entity that is receiving such services. Income derived from nonfinancial services should be sourced to the location of the party receiving such services, on a market
basis, as directed by the provisions of section 220.15, F.S.
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 documents are public records
under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 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.
Sincerely,

Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6794
SCP/
cc: XXXXX
XXXXX
XXXXX
XXXXX
AMS No.: 16067