How should a multistate media distributor source broadcast-license fees for Florida corporate-income-tax apportionment?

Plain-English summary

The Florida Department of Revenue ruled that a media distributor should source broadcast-license revenue to the state where its direct customer—the multichannel video programming distributor, or MVPD—was domiciled or had its principal place of business.

The taxpayer licensed programming to cable, satellite, and other programming companies. Those companies then sold access to subscribers. Because the taxpayer received revenue only from the MVPDs and had no customer relationship or revenue from the subscribers, subscriber locations did not determine the taxpayer's Florida sales factor.

License fees from a Florida-based MVPD were Florida sales even if that MVPD served customers in other states. Fees from an out-of-state MVPD were not Florida sales merely because the MVPD served Florida subscribers.

What this means for you

Media and content licensors

Identify the taxpayer's actual customer before sourcing receipts. Downstream audiences do not automatically become the licensor's customers.

Corporate tax teams

Maintain customer domicile and principal-place-of-business records for each license agreement. The ruling treats each MVPD sale as a sale to one customer location.

Accountants and tax professionals

This taxpayer did not earn advertising or subscriber revenue, so the audience-ratio rule for broadcasters did not control its licensing receipts. Different revenue models may produce different sourcing.

Common questions

Q: Did the end viewer's location control sourcing?
A: No. The taxpayer's customer was the MVPD, not the subscriber.

Q: When was a license fee sourced to Florida?
A: When the MVPD was domiciled or had its principal place of business in Florida.

Q: What if a Florida MVPD served neighboring states?
A: The license sale was still sourced to Florida.

Q: What if an out-of-state MVPD had Florida subscribers?
A: That did not make the taxpayer's license fee a Florida sale.

Citations and references

• Fla. Stat. §§ 220.15(5) and 213.22
• Fla. Admin. Code r. 12C-1.0155(1) and (2)
• Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 18C1-012

Original ruling text

QUESTION: TAXPAYER SEEKS GUIDANCE ON HOW BROADCAST LICENSING FEES
SHOULD BE TREATED WITH RESPECT TO SALES APPORTIONMENT FOR INCOME
TAX PURPOSES.
ANSWER: BASED ON THE REPRESENTATION OF TAXPAYER, TAXPAYER SHOULD
ONLY SOURCE SALES OF LICENSES TO FLORIDA BROADCASTERS TO FLORIDA.
September 28, 2018

XXXXXXX
XXXXXXX
XXXXXXX
Re:

Technical Assistance Advisement 18C1-012
Corporate Income Tax
Apportionment
Section 220.15, Florida Statutes (F.S.)
Rule 12C-1.0155, Florida Administrative Code (F.A.C.)
XXXXXXXX (hereinafter “Taxpayer”)

Dear XXXXX:
This is in response to your request, dated September 4, 2018, for a Technical Assistance
Advisement (TAA) pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding
Taxpayer’s sale of media broadcast licenses with respect to apportionment. 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 is a multi-state distributor of original and third-party broadcasting content, based in
California. They license broadcast rights for cinematic digital media content to multi-channel
video programming distributors (MVPDs), including cable and satellite television providers, as
well as other programming companies, which in turn sell access to the same content to
individual subscribers. Taxpayer states that they collect revenue solely from the MVPD’s and
not from any of the MVPD’s customers; the subscribers drawn from the general public within
and without Florida. Taxpayer seeks guidance with respect to apportionment of license fee
revenue, which is earned within and without Florida.

XXXXXXXX
September 28, 2018
Florida Department of Revenue
Page 2

LEGAL AUTHORITY
Section 220.15(5), Florida Statutes, provides:
“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”.
Section 220.15(5)(a), Florida Statutes, states in relevant part:
“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”.
Rule 12C-1.0155(1), Florida Administrative Code, provides:
“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”.
Rule 12C-1.0155(1)(f)1, Florida Administrative Code, provides:
“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”.
Rule 12C-1.0155(1)(f)2 Florida Administrative Code, provides:
“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”.

XXXXXXXX
September 28, 2018
Florida Department of Revenue
Page 3

Rule 12C-1.0155(1)(f)3, Florida Administrative Code, provides:
“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)(i), Florida Administrative Code, states, as concerns television and radio
broadcasting, that:
“Gross receipts, including advertising revenues, from broadcasting within and without
Florida will be attributed to the numerator of the sales factor on the basis of the ratio
of the audience within Florida to the audience everywhere.”
Rule 12C-1.0155(2)(l), Florida Administrative Code, states:
“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 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 AND ANALYSIS
A state is allowed by the United States Constitution to tax the income of a multistate
corporation if the state applies a formula that fairly apportions a percentage of the
corporation’s income attributable to business activities within and without the state1.
Under Section 220.15, Florida Statutes, and Rule 12C-1.015, Florida Administrative Code, a
Florida corporation that conducts business activities occurring both within and without Florida
and that, by virtue of that activity, are taxable in another state, must apportion its business
income to Florida. Florida has adopted an apportionment fraction with a sales factor
representing 50% of the fraction, a property factor representing 25% of the fraction, and a
payroll factor representing 25% of the fraction.
The Florida sales factor is a measure of receipts received from business activity conducted in
Florida. Subsection (5) of Section 220.15, F.S., provides the general proposition that the “sales
1

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977)

XXXXXXXX
September 28, 2018
Florida Department of Revenue
Page 4

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.”
Rule 12C-1.0155(2), F.A.C., states that
“The numerator of the sales factor shall include gross receipts attributed to this state
which were derived by the taxpayer from transactions and activities in the regular
course of its trade or business.”
Taxpayer does not dispute that the sale of broadcast licenses to MVPD’s is within its regular
course of business.
The determination of whether a sale is to be attributed (or “sourced”) to Florida generally will
be based upon the factors and concepts set forth in sub-section (5) of Section 220.15, Florida
Statutes, and Rule 12C-1.0155(2), Florida Administrative Code.
The income-producing activity underlying the questioned sales is Taxpayer’s delivery of
programming content to its customer MVPD’s. Performance occurs when the license period
enabling the MVPD to access the content commences. Taxpayer merely makes its content
available to MVPD’s who then deal directly with the public through their sale of access to the
content to subscribers. Taxpayer has no contact with, nor revenue from, the subscribers
among the general public. Rather, they earn license revenue from the MVPD’s to whom they
sell access to their programming. Taxpayer’s customer base consists of MVPD’s domiciled or
with their principal places of business in multiple states.
The sale of a license agreement to an MVPD serving more than one state cannot objectively be
said to constitute a sale to multiple states. The MVPD may earn subscription revenue from
residential and business subscribers in more than one state, but the customers of the MVPD
are—per terms of license agreements professed by the taxpayer in the request letter—not
customers of the taxpayer. It follows that in determining the location of a sale to an MVPD, we
must look to the location in which the MVPD is domiciled or has its principal place of business,
regardless of where its customers may reside.
When an MVPD—Taxpayer’s customer—is domiciled or has its principal place of business in
Florida, the sale of the license agreement to it by Taxpayer can only reasonably be attributed to
Florida, regardless of whether the particular MVPD may serve customers in neighboring states.
The location of the MVPD’s customers is an apportionment question for the MVPD; not for
Taxpayer. Likewise, the sale of a license agreement by Taxpayer to an MVPD domiciled or with
its principal place of business outside of Florida does not constitute income reasonably
apportionable to Florida, regardless of whether the MVPD may serve Florida subscribers.

XXXXXXXX
September 28, 2018
Florida Department of Revenue
Page 5

The state in which an MVPD is located should be deemed to be the state in which the MVPD is
domiciled or has its principal place of business.
CONCLUSION
Taxpayer’s stated cardinal business endeavors consist of the sale of licenses to MVPD’s. The
revenue from these sales should be sourced to Florida wherein the MVPD is domiciled or has its
principal place of business on Florida.
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,

Sam Berkowitz
Technical Assistance and Dispute Resolution
(850)-617-8346