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

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