Were lending notes and other receivables taxable after sale to a foreign affiliate before January 1?

Subject

Property Subject To Tax

Plain-English summary

The notes and other receivables sold before January 1 to the foreign affiliate were not subject to Florida intangible tax. The foreign buyer had no Florida business situs, and the Florida lending subsidiary no longer owned the property on the January 1 valuation date.

The promissory note received by the Florida seller was taxable by itself. It was eliminated, however, when the parent filed the described consolidated intangible-tax return including both the Florida seller and the foreign affiliate.

What this means for you

This ruling included unsecured notes generated by commercial lending as well as miscellaneous accounts receivable. Its historical result depended on the foreign affiliate's lack of Florida situs, completed title transfer before January 1, ministerial-only Florida servicing, and consolidated-return inclusion.

Common questions

Did the foreign affiliate's receivables have Florida tax situs? No, on the stated facts.

Did the Florida seller owe tax on property transferred before January 1? No.

What happened to the promissory note on the consolidated return? It was excluded as an intercompany account receivable.

Citations and references

• Fla. Stat. §§ 199.052, 199.175, and 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C2-019

Original ruling text

Sep 06, 1994

Re: Technical Assistance Advisement TAA 94(C)2-019
Intangible Tax - Property Subject To Tax
Sections 199.052 & 199.175, F.S.
XXX (Parent)
XXX (Subsidiary)

Dear :

Your letter 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. Subsidiary is
organized under the laws of the State of Florida and is
domiciled in the State of Florida. Subsidiary is a member of an
affiliated group of which Parent is the common parent.
Subsidiary will be included in the consolidated intangible tax
return to be filed by parent. Subsidiary has notes receivable
that are generated from its commercial lending activities.
These notes are not secured by real property. Subsidiary also
has accounts receivable derived from miscellaneous items.

Parent has a foreign subsidiary organized under the laws of
a foreign state, and which is commercially domiciled and
maintains its principal office in a foreign state. Foreign
subsidiary will have no business situs in Florida and will not
have any agents, employees, or representatives of any kind in
Florida other than Subsidiary, which will only perform
ministerial activities at the discretion of foreign subsidiary,
and will have no discretionary authority regarding any

receivables owned by foreign subsidiary.

Prior to January 1, Subsidiary is anticipating the sale of
its notes receivable and other receivables to foreign
subsidiary. The receivables will be sold at face value in
exchange for a promissory note. Subsidiary will continue to
perform, at the discretion of foreign subsidiary, 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, foreign subsidiary will sell back to Subsidiary the
receivables acquired in the above transaction in satisfaction of
the promissory note. Subsidiary and foreign subsidiary will be
included as part the consolidated intangible tax return filed by
Parent.

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

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

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

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

Discussion of Law

The receivables acquired by foreign subsidiary from
Subsidiary 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 foreign subsidiary has no tax situs in Florida.
Therefore, none of the receivables transferred to foreign
subsidiary by Subsidiary are subject to intangible tax in
Florida.

With respect to the receivables transferred by Subsidiary
to foreign subsidiary prior to January 1, Subsidiary 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
foreign subsidiary before the January 1 ownership date required
by the statute.

The promissory note acquired by Subsidiary from foreign
subsidiary is subject to the intangible tax. However, the
filing of a consolidated intangible tax return by Parent as the
parent corporation of Subsidiary and foreign 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 foreign subsidiary from
Subsidiary have no tax situs in Florida. The promissory note
given to Subsidiary by foreign subsidiary is subject to tax, but
will be eliminated if a consolidated intangible tax return is
filed by Parent which includes both Subsidiary and foreign
subsidiary.

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.
Tax Law Specialist
Technical Assistance

JVP/mh