How should the taxpayer source flow-through financial-service fees in its Florida corporate income tax sales factor?

Plain-English summary

The taxpayer had to source the flow-through service-fee receipts to Florida based on where the underlying customers were located.

The taxpayer's only activity was majority ownership through a chain of partnerships. A lower-tier partnership earned fees for financial services performed both inside and outside Florida, and its sales-factor information flowed through the partnerships to the corporate taxpayer.

The Department said the service income counted as sales and that the Florida numerator should include the taxpayer's share of fees attributable to customers located in Florida. The partnership-provided sales factor therefore had to reflect proper customer-location sourcing before it flowed into the taxpayer's own factor.

What this means for you

Where employees performed the work was not the only sourcing fact. For the described financial-service receipts, Florida focused on the location of the customers receiving the services.

The taxpayer also had to apply GAAP and section 220.13 and provide a pro forma return for the service fees with its Florida corporate income tax return.

Common questions

Were all flow-through fees sourced to Florida? No. Only the portion attributable to the redacted customer categories located in Florida.

Did the partnership level matter? Yes. The lower-tier entity's properly sourced sales factor flowed through to the corporate taxpayer.

Did the ruling require supporting computation? Yes. It required a pro forma return for the fees with the Florida return.

Citations and references

• Fla. Stat. § 220.15(5) and (6).
• Fla. Stat. § 220.13.
• Fla. Admin. Code r. 12C-1.0155(1)-(3).

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 23C1-012

Original ruling text

QUESTION:

When computing Taxpayer’s sales factor for purposes of computing its Florida
Corporate Income Tax, how should Taxpayer source the
it receives
as a flow through for services performed both inside and outside Florida?

ANSWER:

Based on the facts provided and for purposes of computing its Florida Corporate
Income Tax sales factor that flows through from Taxpayer’s Florida partnership
information return, the Department concurs that Taxpayer should source its
to Florida to the extent of
and other
that
are located in Florida.
October 3, 2023

Via email to:
Re:

Technical Assistance Advisement – TAA #: 23C1-012
Corporate Income Tax – –Apportionment – Sales Factor
(“Taxpayer”)
Section 220.15, Florida Statutes (F.S.)
Rule 12C-1.0155(3), Florida Administrative Code (F.A.C.)
FEIN:
BP#:

Dear
This is in response to your letter dated,
requesting this Department’s issuance of a
Technical Assistance Advisement (TAA) pursuant to Section (s.) 213.22, F.S., and Rule Chapter 12-11
F.A.C., regarding the matter discussed below. Your request has been carefully examined, and the
Department finds it to be in compliance with the requisite criteria set forth in Chapter 12-11, F.A.C.
This response to your request constitutes a TAA and is issued to you under the authority of s. 213.22,
F.S.

Technical Assistance Advisement
October 3, 2023
Page 2

ISSUE PRESENTED
When computing Taxpayer’s sales factor for purposes of computing its Florida Corporate Income Tax,
how should Taxpayer source the
it receives as a flow through for services
performed both inside and outside Florida?
FACTS SUPPLIED BY TAXPAYER
Taxpayer is treated as corporation for federal income tax purposes and files a Florida Corporate
Income Tax return
. Taxpayer’s sole activity is the majority ownership in
(“
”), and
sole activity is the majority ownership in
(“
”), both of which are treated as partnerships for federal
income tax purposes and file partnership information returns in Florida. Taxpayer is requesting advice
on how to source fees earned from the services
provides for the purposes of computing its
Florida Corporate Income Tax sales factor that flows through from
Florida partnership
information return.
is organized under the laws of
(“

”). As an
(“

and is registered [as]

,
receives fees for performing
”) and other
.

for

primary revenue streams are as follows:
1.

2.

In return for providing
(“
”),

and

These services are performed both

, the

. Currently,

LAW AND REGULATIONS
Section 220.15(5), F.S., provides, in pertinent part,

pay

a fee

Technical Assistance Advisement
October 3, 2023
Page 3

(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:

(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;

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.
   Section 220.15(6), F.S., provides that,
   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.
   Rule 12C-1.0155(3), F.A.C., provides,
   (a) The sales factor for a financial organization includes gross receipts as described in section
   220.15(5)(a), F.S. However, the sales factor is expanded by section 220.15(5)(c), F.S., for a
   financial organization.
   (b) Regular monthly charges for an account maintained in a Florida branch will be deemed to be
   Florida sales, regardless where the accounting services for the account are performed.

Technical Assistance Advisement
October 3, 2023
Page 4

(c) Gross profits from trading in stocks, bonds, or other securities are considered sales for a
financial organization. The gross profits are considered Florida sales if the stocks, bonds, or
securities are managed within Florida. The management is deemed to be within Florida if the
customer or client is within Florida.
(d) Interest on loans is included in the sales factor. Interest received within Florida, other than
interest from loans secured by mortgages, deeds of trust, or other liens upon real or tangible
personal property located outside Florida, is included in the numerator of the factor.
(e) Dividends are included in the factor. Dividends received within Florida are included in the
numerator.
(f) Where a loan is secured by multiple liens upon real or tangible personal property, part of
which is within Florida and part of which is without Florida, the amount of the interest which
is included in the numerator of the factor is based on a fraction, the numerator of which is
the value of the secured property in Florida, and the denominator of which is the value of the
secured property everywhere. The “value of the secured property” will be the fair market
value of the property at the time of the loan.
Taxpayer’s position is that
and other

should source its
are located in
for sales factor purposes.

to the extent a

DISCUSSION AND ANALYSIS OF LAW
Subsection 220.15(5)(c), F.S., defines sales of a financial organization, to include, but not limiting to
investment companies, occur in this state if derived from fees, commissions, or other compensation
fir financial services rendered within Florida along with any other gross income resulting from the
financial organization’s operation in Florida. Rule 12C-1.0155, F.A.C., describes how the receipts from
different types of sales activities are computed, and then provides information on the computation
of the Florida portion of those receipts.
As noted in the request, the income from the services provided by
, meets the definition of
“sales,” provided by s. 220.15(5)(a), F.S., and should be included in the computation of the Florida
sales factor.
Rule 12C-1.0155(1)(h), F.A.C., which addresses “Sales of Services,” states that income received for
providing services includes the gross receipts from the performance of such services and, to the
extent that those services are provided to customers located in Florida, Rule 12C-1.0155(2), F.A.C.,
directs that the income is to be sourced to Florida and included in the numerator of the sales factor.
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.

Technical Assistance Advisement
October 3, 2023
Page 5

In the case of a flow-through entity (i.e.,
whose income flows through to Taxpayer,
Taxpayer’s portion of the sales factor provided to it by
for inclusion in Taxpayer’s own factors
should reflect the proper sourcing of the
based on the location of
customers (i.e.,
and
).
CONCLUSION
Based on the facts provided and for purposes of computing its Florida Corporate Income Tax sales
factor that flows through from
Florida partnership information return, the Department
concurs that Taxpayer should source its
to Florida to the extent of
and other
Bear in mind, Taxpayer must apply Generally Accepted Accounting Principles (GAAP) and the
provisions of s. 220.13, F.S. Taxpayer will be required to provide, with its
Florida
Corporate Income Tax return, the pro-forma return for the fees earned from the services that
provides.
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 backup documents are public
records under Chapter 119, F.S., and are subject to disclosure to the public under the conditions of s.
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 ten (10) days of the date of this letter.
If you have any further questions regarding this matter and wish to discuss them, you may contact
me directly at 850-717-6326.

Kind Regards,

Denise L. Smith
Denise L. Smith, MPM
Tax Law Specialist
Technical Assistance & Dispute Resolution
Record ID # 7000952092

Technical Assistance Advisement
October 3, 2023
Page 6

cc:

Technical Assistance Advisement
October 3, 2023
Page 7

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