Was a global asset manager a financial organization, and where should it source management fees, incentive fees, carried interest, and advisory receipts?

Plain-English summary

Florida classified a global asset manager as a financial organization and required market sourcing of its asset-management receipts.

The taxpayer managed real estate, private equity, hedge-fund, and credit investments. Its receipts included regular management fees, incentive fees, performance allocations or carried interest, and advisory and transaction fees.

Under Fla. Stat. Sec. 220.15(5)(c) and (6), those activities fit a financial organization. The taxpayer sourced the receipts to the location of the customer receiving the services. Amounts from Florida customers entered both the Florida numerator and the everywhere denominator of the sales factor.

What this means for you

Asset managers

Customer location controlled the sales-factor sourcing in this TAA, not the office where investment professionals or technology staff performed their work.

Corporate tax teams

Identify the customer for each fund, account, or advisory arrangement and maintain reliable location records for all receipt types.

Common questions

Was the taxpayer a financial organization? Yes.

Where were receipts sourced? To the location of the customer receiving the asset-management service.

What happened to Florida-customer receipts? They appeared in both the numerator and denominator of the Florida sales factor.

Citations and references

• Fla. Stat. Sec. 220.15(5)(c) and (6)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 21C1-010

Original ruling text

QUESTION: How should the taxpayer source its income from the types of services it provides?
ANSWER: The taxpayer should source its income from the types of services it provides to the
location of the customer to which the services are provided, on a market basis.

March 5, 2021
XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 21C1-010
Request for Sales Sourcing Guidance
Section 220.15, F.S.
Rule 12C-1.0155, F.A.C.
XXX (“the taxpayer”)
FEIN: XXX

Dear XXX:
This is in response to your request dated XXX, 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 corporation headquartered in XXX, that provides asset management services
globally to pension funds, large institutions, and individuals. The asset services it provides
cover four business segments as follows:
Real Estate
Real Estate targets a broad range of real estate and real estate related investments in

XXX
March 5, 2021
Florida Department of Revenue
Page 2

logistics, rental housing, office, hospitality, and retail properties around the world, as
well as a variety of real estate operating companies.
Private Equity
Private Equity generally invests in corporate equity and other private businesses around
the globe.
Hedge Fund Solutions
Hedge Fund Solutions manages investments in hedge funds, including investment
platforms that seed new hedge fund businesses, purchase minority interests in more
established general partners and management companies of funds, invest in special
situations opportunities, create alternative solutions in the form of daily liquidity
products, and invest directly.
Credit
Credit’s portfolio primarily consists of loans and securities of non-investment grade
companies spread across the capital structure including senior debt, subordinated debt,
preferred stock, and common equity.
The employees who provide asset management services are responsible for raising capital from
investors, and selecting, evaluating, underwriting, researching, negotiating, executing,
managing and exiting investments on behalf of its clients.
In exchange for asset management services, the taxpayer receives “asset management
receipts” comprised of management fees paid by the customer to whom the services are
provided, on a regular basis (usually quarterly), as a percentage of assets under management;
incentive fees, usually paid annually, for achieving minimum levels of return; performance
allocations, commonly known as “carried interest,” which are an allocation of up to 20 percent
of the net realized income and gains generated by a fund; and advisory and transaction fees
that are received for consummation of a fund’s transactions or for various advisory services.
The taxpayer is planning to open an office in XXX that will initially provide information
technology services to its global operations. However, the operations of the XXX office may
subsequently be expanded to include management services as discussed above, which would
result in income in the form of “asset management receipts,” as described above.
ISSUE

XXX
March 5, 2021
Florida Department of Revenue
Page 3

The taxpayer is requesting guidance on the proper classification of its business and the sourcing
of income derived from the asset management 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:

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;

XXX
March 5, 2021
Florida Department of Revenue
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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 asset management services to the
location of the customer to whom such services are provided.
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 asset management services
to the location of the customer to whom such services are provided. To the extent asset
management services are provided to customers located in Florida, the income would appear in
both the numerator and the denominator of the taxpayer’s Florida sales factor.
Additionally, the taxpayer’s property factor should be computed as directed for financial
organizations by subsection 220.15(5), 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

XXX
March 5, 2021
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Page 5

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
Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
cc: XXX
XXX
XXX
XXX