Which credit extensions and interbank placements of a foreign bank with Florida offices had Florida intangible-tax situs?

Subject

Taxable Situs - Non-Florida Business

Plain-English summary

The foreign bank's credit extensions to Florida residents had Florida business situs and were subject to intangible tax, while credit extensions to nonresidents were not. The bank was neither legally nor commercially domiciled in Florida, but it used Florida offices and personnel in marketing and servicing customer credit.

The bank's placements of excess funds at affiliated or unaffiliated banks outside Florida were not taxable. They lacked Florida business situs and were also treated as exempt money.

What this means for you

Foreign domicile did not prevent asset-level Florida situs. The customer's Florida residence and the bank's local business activity made resident credit extensions taxable even though approval, agreements, collateral, governing law, and dispute venue were outside Florida.

Common questions

Q: Were all of the foreign bank's customer loans taxable? No. The ruling distinguished Florida-resident customers from nonresidents.

Q: Did foreign governing law prevent Florida situs for resident loans? No. The Department still found Florida business situs for credit extensions to Florida residents.

Q: Why were interbank placements exempt? They involved non-Florida banks, were not connected to Florida customers, and qualified as money.

Citations and references

• Fla. Stat. §§ 199.052(1), 199.175(1), (2) — filing, domicile, and business situs
• Fla. Stat. ch. 199 — intangible personal property tax
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93C2-005

Original ruling text

Jan 29, 1993

Re: Technical Assistance Advisement No. 93(C)2-005
Intangible Tax - Taxable Situs - Non-Florida Business
Section 199, F.S.
XXX (Bank A)
XXX (Bank B)
XXX (Firm 1)
XXX (Firm 2)

Dear :

This is in response to your recent request for a Technical
Assistance Advisement with respect to the Florida annual
intangible personal property tax consequences of the following
transactions:

1) Bank A makes credit extensions to Firm 1's customers
and the Foreign Affiliates' customers.
2) Bank A makes interbank placements of excess funds at
both affiliated and unaffiliated banks located outside
Florida.

Facts

Bank A is a foreign banking organization with its principal
business office in a foreign country with administrative and
representative offices in Florida.

Bank B is an international banking organization based in a
foreign country with no offices in Florida. Bank B maintains a
credit department in its foreign office which provides credit
evaluation and recommendation services to Bank A, pursuant to a
contract, for a fee.

Firm 1 is a domestic broker/dealer and investment firm with
its principal office out-of-state that makes markets in
securities both as principal and as agent for its customers and
provides a broad range of underwriting, research, financial and

advisor services. Firm 1 employs financial consultants (FC) to
provide services to its customers located both in and out of
Florida. Firm 1 is affiliated with Bank A. Firm 1 and Bank A
are also affiliated with various foreign sales affiliates
(Foreign Affiliates)

Bank A, Bank B, Firm 1 and Foreign Affiliates are all
ultimately owned and controlled by Firm 2 which maintains its
principal office out-of-state.

Proposed Transactions

(Issue 1)

Professionals from Bank A's representative office consult
with the FC's who work for Firm 1 and the Foreign Affiliates
furnishing them with the types of credit extensions that Bank A
can offer to the customers. Once the decision is made by the
customer, a signed copy of the Credit Extension Agreement is
submitted by the customer to the FC who in turn transmits the
Credit Application to the professionals for review and forwarded
to Bank B for approval. The documents are then sent to Bank A's
principal office for final approval. Upon approval a credit
agreement is executed and the funds are transmitted to Firm 1
customer's accounts pursuant to a loan participation arrangement
between Bank B and Bank A.

After approval of a credit extension to a customer, the
FC's will cause appropriate customer's securities to be
transferred to a separate collateral account maintained out-ofstate for the benefit of Bank A.

The staff of the administrative office then services credit
extensions by providing data processing services, record keeping
services, mailing customer statements, monitoring collateral,
etc.

Issue 2

Excess funds not currently needed to fund credit extensions
are placed in non-Florida based banks. Bank A's administrative

office monitors the placement of these funds and Bank A's
principal office executes the transactions.

Requested Advisement

1) Will Bank A be subject to intangible tax on Credit
Extensions made to Firm 1's customers and the Foreign
Affiliates' customers?
2) Will Bank A be subject to intangible tax on placements
made with the Placement Banks?

Discussion and Law

Issue 1

Section 199.052(1), F.S., states that an annual intangible
tax return must be filed with the department by every
corporation authorized to do business in this state or doing
business in this state, who on January 1 owns, controls or
manages intangible personal property which has a taxable situs
in this state. Corporations organized under the Florida law
and/or corporations that establish a commercial domicile in
Florida are considered domiciliaries for intangible tax
purposes. In accordance with s. 199.175(1) (a) and (b), F.S.,
the legal domicile of a corporation is the state or country of
its incorporation, regardless of where it does business. The
commercial domicile of a corporation may be located in a place
other than its place of incorporation. In general, a
corporation's commercial domicile is where it maintains its
chief or principal office, where executive and management
functions are performed, or where the course of business
operations is determined.

Florida Statutes s. 199.175(2)(a)1. and 2. provides in
pertinent part:

"(2) Intangible personal property shall have a taxable
situs in this state when it is deemed to have a business
situs in this state and it is owned, managed, or controlled
by a person transacting business in this state, even though
the owner may claim a domicile elsewhere. This provision

shall apply regardless of where the evidence of the
intangible is kept or where the intangible is created,
approved, or paid.
(a) Intangibles shall be deemed to have a Florida business
situs when they receive the benefit and protection of
Florida laws and courts and they are derived from, arise
out of, or are issued in connection with the business
transacted in this state with a customer in this state.
For purposes of this paragraph:

1. Business is transacted in this state when any
   occupation, profession, or commercial activity, including
   financing, leasing, selling, or servicing activities, is
   regularly conducted with customers in this state from an
   office, plant, home, or any other business location in this
   state.
2. Business is transacted in this state when any
   occupation, profession, or commercial activity, including
   financing, leasing, selling, or servicing activities, is
   regularly conducted with customers in this state by or
   through agents, employees, or representatives of any kind
   in this state, whether or not such persons are vested with
   discretionary authority."

The current and the proposed Credit Extension Agreements
provide that the transactions shall be governed by foreign laws
and that the foreign courts shall be the venue for the
resolution of all disputes. As such, upon default, Bank A can
seize the Customer's Securities, which are located outside
Florida, without any reliance on Florida laws or courts. Thus,
the intangible assets held by Bank A do not receive the benefit
or protection of Florida laws.

Issue 2

In this situation, the Placement Banks are always nonFlorida based banks. The agreements by and between the
Placement Banks and Bank A never provide that the terms are
governed by Florida laws. In addition, Bank A's intangible
assets are not derived from, arise out of, or issued in
connection with business transacted in Florida with a customer
in Florida.

Department's Position

Issue 1

Pursuant to provisions in the Florida Statutes and the
information furnished in your letter, Bank A is not legally or
commercially domiciled in Florida. Therefore, the intangible
assets owned by Bank A, resulting from Bank A's credit
extensions to Firm 1's customers and the Foreign Affiliates'
customers, will not be subject to intangible tax based upon Bank
A's domicile.

The intangible assets owned by Bank A, resulting from
credit extensions to Florida residents, have a business situs in
Florida and are subject to intangible tax. Bank A's intangible
assets, resulting from credit extensions to Firm 1's customers
and the Foreign Affiliates' customers who are not Florida
residents, do not have taxable situs in Florida and are not
subject to intangible tax.

Issue 2

The intangible assets owned by Bank A, resulting from Bank
A's Placements, are not subject to intangible tax based upon
Bank A's domicile and its business situs position. In addition
to being exempt from intangible tax for the foregoing reasons,
Bank A's intangible assets resulting from Placements, are
"money" and as such, are exempt from intangible tax.

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 and your request
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 by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

Nadine C. Posey
Technical Assistant
Technical Assistance

NCP/mh