How should a Florida-licensed financial-services company source fees earned through disregarded entities?

Plain-English summary

The Florida Department of Revenue treated the taxpayer as a financial organization for corporate-income-tax apportionment. The taxpayer operated through disregarded entities and earned two categories of redacted service fees.

Those receipts were sourced to the location of the relevant owner or the customer receiving the service. When that owner or recipient was in Florida, the income entered both the numerator and denominator of the Florida sales factor.

The public copy redacts the services, products, and customer types, so this page does not infer their identities. The groundable rule is the financial-organization classification and recipient-location sourcing.

What this means for you

Financial-service groups

Activities conducted through disregarded entities are attributed to their owner and can determine the owner's Florida apportionment classification.

Corporate tax teams

Maintain reliable owner and recipient location data for each fee stream. The Florida numerator turns on those locations under this ruling.

Accountants and tax professionals

Do not treat the redacted industry as known. Apply section 220.15(5)(c) to the actual services and customer relationships.

Common questions

Q: Was the taxpayer treated as a financial organization?
A: Yes.

Q: How were the service fees sourced?
A: To the location of the relevant owner or service recipient.

Q: When did receipts enter the Florida numerator?
A: When the owner or recipient identified by the ruling was located in Florida.

Q: What exact services were involved?
A: The official public copy redacts them.

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 18C1-009

Original ruling text

TAX: Corporate Income Tax
TAA NUMBER : TAA 18C1-009
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 18C1-009
Request for Sales Sourcing Guidance
Section 220.15, F.S.
Rule 12C-1.0155, F.A.C.
XXXXX
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 incorporated in XXXXX, and is licensed as a XXXXX in Florida by the Office of Financial
Regulation. The taxpayer is the XXXXX and XXXXX of a number of XXXXX, and provides XXXXX services
through multiple disregarded entities. The XXXXX contract with the taxpayer and its affiliated entities to
provide services necessary to XXXXX.

XXXX
July 16, 2018
Florida Department of Revenue
Page 2

XXXXX Services
The taxpayer earns XXXXX fees pursuant to XXXXX established under XXXXX. Through its XXXXX
network, the taxpayer sells XXXXX and XXXXX and XXXXX associated with selling, distributing, and
marketing XXXXX through unrelated XXXXX and other third-party intermediaries who recommend
XXXXX. Included in those costs are the expenses incurred to develop and produce XXXXX, XXXXX, XXXXX,
XXXXX, and other regular filings with both federal and state authorities.
Each XXXXX pays the taxpayer directly for the XXXXX, XXXXX, XXXXX, XXXXX, and XXXXX services related
to the distribution of XXXXX. A portion of these fees are paid to the unrelated XXXXX and other thirdparty intermediaries as a commission for their sales activities. Fees for sales and distribution services
are based on the percentage of each XXXXX, or a portion of the upfront sales charges on certain XXXXX.
The taxpayer does not XXXXX or XXXXX, nor does it XXXXX. XXXXX transactions are cleared through
unrelated XXXXX on a fully disclosed basis.
XXXXX Services
The taxpayer has two disregarded entities that are registered as XXXXX with XXXXX. Through these
disregarded entities, the taxpayer XXXXX and provides XXXXX services to XXXXX, XXXXX, and XXXXX.
These entities determine which XXXXX each XXXXX should XXXXX, XXXXX, or XXXXX, and when these
activities should occur, to maximize the XXXXX of each XXXXX. The disregarded entities may also take
the steps necessary to implement such decisions, including arranging for the XXXXX and XXXXX and the
XXXXX and XXXXX.
These services are provided pursuant to agreements between each XXXXX, XXXXX or XXXXX, and the
XXXXX. Typically, the XXXXX pay a monthly fee to each disregarded entity based on XXXXX.
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.
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:

XXXX
July 16, 2018
Florida Department of Revenue
Page 3

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.
(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
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 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. 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.

XXXX
July 16, 2018
Florida Department of Revenue
Page 4

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 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 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.
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.: 86322