Were receivables taxable on January 1 after a Florida parent sold them to an out-of-state subsidiary with no Florida business situs?

Subject

Property Subject to Tax - Accounts Receivable - Taxable Situs

Plain-English summary

The receivables were not subject to Florida intangible tax when the out-of-state subsidiary owned them on January 1 and had no Florida business situs. The Florida parent sold the receivables at face value before January 1 and planned to buy them back on or after January 2.

The parent could continue collection, accounting, booking, and recordkeeping only as ministerial work performed at the subsidiary's discretion; it retained no discretionary authority over the receivables. Because title had transferred before the valuation date, the parent also had no tax liability on those receivables.

The subsidiary's promissory note to the parent was taxable in isolation. The Department said the note would be eliminated as an intercompany receivable if both corporations were included in their affiliate's consolidated intangible-tax return.

What this means for you

The ruling separated ownership and situs of the receivables from taxation of the purchase note, then applied the historical consolidated-return rule to the intercompany note.

Common questions

Q: Were the subsidiary-owned receivables taxable on January 1? No, on the stated no-Florida-situs facts.

Q: Did the parent's ministerial servicing create Florida situs? No, because the parent had no discretionary authority under the proposal.

Q: Was the purchase note taxable? Yes, but the ruling allowed its elimination on a qualifying consolidated return that included both corporations.

Citations and references

• Fla. Stat. § 199.052, including subsection (9) — returns and consolidated filing
• Fla. Stat. § 199.175 — taxable situs of intangible property
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93C2-026

Original ruling text

Oct 01, 1993

Re: Technical Assistance Advisement 93(C)2-026
Intangible Tax - Property Subject to Tax - Accounts
Receivable - Taxable Situs
Sections 199.052 & 199.175, F.S.
XXX (Parent)

Dear :

Your letter of August 16, 1993, requesting a Technical
Assistance Advisement has been referred to this office for
response. The specific issue raised is whether trade accounts
receivable and other accounts receivable are subject to the
Florida intangible tax if they are sold to an out-of-state
subsidiary before the valuation date, and then sold back to the
parent company after the valuation date.

Statement of Facts

Parent is organized under the laws of the State of Florida
and is domiciled in the State of Florida. All of its stock is
owned by X, a Florida corporation, which is also domiciled in
Florida. Parent is included in X's consolidated returns. Parent
has accounts receivable that are generated from its sales of XXX
to its Florida customers. Parent has other accounts receivable
derived from XXX, and other miscellaneous items.

Parent will form a subsidiary, to be organized under the
laws of a foreign state, and which will be commercially
domiciled and maintain its principal office in a foreign state.
Subsidiary will have no business situs in Florida and will not
have any agents, employees, or representatives of any kind in
Florida. Parent will only perform ministerial activities at the
discretion of Subsidiary, and will have no discretionary
authority regarding any receivables owned by Subsidiary.

Prior to January 1, Parent will sell its accounts
receivable and other receivables to Subsidiary. The receivables

will be sold at face value in exchange for a promissory note.
Parent will continue, at the discretion of Subsidiary the
collection, processing, accounting, booking and record keeping
services related to the receivables, but will have no
discretionary authority over them. On or after January 2 of the
following year, Subsidiary will sell back to Parent the
receivables acquired from Parent. The promissory note from
Subsidiary to Parent will be satisfied. Parent and Subsidiary
will be included as part of the consolidated intangible tax
return filed by X as the parent of both corporations.

Based upon the transaction described above the following
issues have been raised for consideration:

To what extent are the receivables that are purchased by
Subsidiary and owned by Subsidiary on January 1 subject to
tax?

Will Parent be subject to the Florida intangible tax on the
receivables it sells to Subsidiary prior to January 1 and
which are owned by Subsidiary on January 1?

If parent and Subsidiary are included in X's consolidated
intangible tax return, will the note receivable from
Subsidiary to Parent be excluded from the taxable base on
X's consolidated intangible tax return?

Discussion of Law

The receivables acquired by Subsidiary from Parent will not
be taxable under Florida's Intangible Tax Act. Section 199.052,
F.S., requires that every person who owns, manages or controls
intangible property which has a taxable situs in this State,
file an intangible tax return and pay the tax with the return.
Section 199.175, F.S., provides that where the owner of taxable
intangible property is domiciled outside the state of Florida,
only those intangibles which have a business situs in Florida
are subject to tax. In the present situation Subsidiary has no
tax situs in Florida. Therefore, none of the receivable
transferred to Subsidiary by Parent are subject to intangible
tax in Florida.

With respect to the receivables transferred by Parent to
Subsidiary prior to January 1, Parent will have no tax liability
for the receivables which it transfers. Section 199.052, F.S.,
states that a return must be filed only for taxable intangible
property owned by a person subject to tax in this state and
having a taxable situs in this state. Title to the ownership of
the receivables will be transferred to Subsidiary before the
January 1 ownership date required by the statute.

The promissory note acquired by Parent from Subsidiary is
subject to the intangible tax. However, the filing of a
consolidated intangible tax return by X as the parent
corporation of Parent and Subsidiary will eliminate the
promissory note as it represents an intercompany account
receivable. Under the provisions of s. 199.052(9), F.S.,
affiliated groups of corporations may elect to file consolidated
intangible tax returns. When filing a consolidated return all
intercompany accounts receivable of included corporations are
excluded from taxation.

Conclusion

The receivables acquired by Subsidiary from Parent have no
tax situs in Florida. The promissory note given to Parent by
Subsidiary is subject to tax, but, will be eliminated if a
consolidated intangible tax return is filed which includes both
subsidiary and Parent.

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,

J.V. Parramore, Jr.
Technical Assistant
Technical Assistance

JVP/mh