Did Florida's annual intangible tax apply when a parent sold receivables before January 1 to an out-of-state subsidiary and filed a consolidated return?

Subject

Receivables Sold to a Subsidiary Corporation

Plain-English summary

The receivables and intercompany note were not subject to Florida annual intangible tax on the described consolidated return. The Florida parent sold the receivables at face value before January 1 to a wholly owned subsidiary with no Florida contacts. The subsidiary bore the economic risk, while the parent performed only bookkeeping functions.

The parent did not own the receivables on January 1, the subsidiary's receivables lacked the Florida situs described in the ruling, and the note was an intercompany account excluded from the affiliated group's consolidated return. The Department said the same treatment would apply if another wholly owned subsidiary sold the receivables.

What this means for you

The result depended on a real transfer of ownership and risk, limited ministerial services in Florida, common affiliation, and the consolidated-return election. A parent continuing to create, evaluate, control, or bear risk on the receivables would present different facts.

Common questions

Did the Florida parent owe tax on receivables it sold before January 1? No, while its remaining activity was solely ministerial.

Was the subsidiary's note taxable on the consolidated return? No. It was eliminated as an intercompany account.

Were the receivables owned by the out-of-state subsidiary taxable? No, on the stated facts.

Citations and references

• Fla. Stat. §§ 199.032, 199.052(1), (10), 199.175(2), and 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C2-013

Original ruling text

Jun 27, 1994

Re: Technical Assistance Advisement No. 94(C)2-013
Intangible Personal Property Tax on
Receivables Sold to a Subsidiary Corporation
XXX (Parent)
XXX (Subsidiary)

Dear :

Your request for a technical assistance advisement dated
May 2, 1994, has been received in this office.

Facts and Circumstances

The Parent is a distributor of electrical supplies and is
both legally and commercially domiciled in the State of Florida.
Parent has numerous subsidiaries, some of which have no contact
with Florida. Parent is considering selling its receivables at
face value to wholly owned subsidiary (Subsidiary) which has no
contact with Florida, in exchange for a promissory note bearing
the market rate of interest. This sale would take place
immediately prior to December 31. While the receivables are
owned by Subsidiary, Parent will not create receivables or
exercise any discretion or judgment as to the quality of the
receivables. The Parent's role will be limited to bookkeeping
functions and the economic risk of loss inherent in owning the
receivables will rest with Subsidiary during the time Subsidiary
owns the receivables. On or after January 2, Subsidiary will
transfer back to Parent the receivables, and the promissory note
will be satisfied. Parent and Subsidiary will file a
consolidated Florida intangible tax return for the tax year.

Issues

1. Will Parent be subject to intangible tax on the
   receivables it transfers to Subsidiary prior to
   January 1?
2. If Parent and Subsidiary file a consolidated

intangible tax return, will the note from Subsidiary
to Parent be included as a taxable item on the
consolidated return?

3. To what extent are the receivables purchased by
   Subsidiary subject to intangible tax?
4. Would the answer to items 1 through 3 above be
   different if the receivables in question had been
   generated by and been sold from another 100 percentowned subsidiary of Parent to the factoring
   subsidiary?

Discussion and Law

Section 199.032, F.S., imposes a tax of 2 mills on all
intangible property having a taxable situs in this state. Every
person, regardless of domicile, owning intangible property
having a taxable situs in this state is required to file a
return and include that property in accordance with s.
199.052(1), F.S. Section 199.175(2), F.S., provides that
intangible personal property shall have a taxable situs in this
state when it is deemed to have business situs in this state and
it is owned, managed, or controlled by a person transacting
business in this state. Intangibles that are credit card or
charge card receivables or related lines of credit or loans
shall be deemed to have business situs in this state only when
the debt represented by such intangibles is owed by a customer
who is domiciled in this state. However, the performance of
ministerial functions relating to, or the processing of, credit
card or charge card receivables in this state for the owner of
such receivables is not sufficient to support a finding that the
owner is transacting business in this state.

Under the provisions of s. 199.052(10), F.S., affiliated
groups of corporations may elect to file consolidated intangible
tax returns for any year. When filing a consolidated return,
intercompany accounts are excluded from taxation.

Conclusion

Issue No. 1: Parent will not be subject to Florida
intangible personal property tax on receivables it

transfers to Subsidiary prior to January 1, provided
Parent's activities are solely ministerial ones permitted
under the terms of s. 199.052(1), F.S.

Issue No. 2: The promissory note from Subsidiary to
Parent as consideration for the receivables will not be
subject to the Florida intangible personal property tax in
the consolidated return, as it represents intercompany
accounts.

Issue No. 3: The receivables purchased by Subsidiary
prior to January 1, will not be subject to Florida
intangible personal property tax.

Issue No. 4: The answers to issues 1 through 3 described
above would not be subject to the Florida intangible
personal property tax if the seller of the accounts
receivable was another 100 percent-owned subsidiary of
Parent. Since both the Subsidiaries would be in the same
affiliated group, they would be afforded the same treatment
as the Parent/Subsidiary transaction. Therefore, neither
would be subject to Florida intangible personal property
tax on the accounts receivable, and the note would be
eliminated in a consolidated return.

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
Tax Audit Specialist III
Technical Assistance

NCP/mh