Did a Florida data-entry service center give foreign affiliates' accounts receivable a Florida taxable situs for intangible tax?

Subject

Taxable Situs

Plain-English summary

The affiliates' accounts receivable did not acquire a Florida taxable situs merely because a Florida service center entered data and printed bills. The affiliates did no business in Florida, owned no Florida property, had no Florida employees or offices, and earned no revenue from Florida activity.

The parent company's Florida service center performed only ministerial processing. It did not solicit, accept, or fill orders; control the underlying transactions; record the affiliates' receivables on the parent's books; receive or collect customer payments; make affiliate management decisions; or authorize its employees to act for the affiliates.

Section 199.052 expressly excluded ministerial functions and processing activity from control or management. Because the receivables also did not arise from business conducted in Florida, neither the parent nor the affiliates owed intangible tax on those receivables under the stated facts.

What this means for you

Locating back-office processing in Florida did not by itself establish taxable situs. The operational boundary mattered: the Florida center handled data and paperwork, while ownership, transaction authority, customer dealings, collections, and management stayed elsewhere.

Common questions

Did printing bills in Florida create taxable situs? No, when it was only a ministerial processing task.

What facts supported the conclusion? The affiliates had no Florida business, property, offices, employees, or Florida-source revenues, and the service center lacked authority over their transactions and receivables.

Would collection or management activity matter? The advisement's result depended on those functions being absent and on the statutory exclusion for ministerial and processing work.

Citations and references

• Fla. Stat. §§ 199.032, 199.052(1), 199.023(3), and 199.175(1)-(2)
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C2-26

Original ruling text

Dec 23, 1994

Re: Technical Assistance Advisement No. 94(C)2-26 Intangible Tax - Taxable Situs Sections 199.052 & 199.175, F.S. XXX (Parent)

Dear :

Your letter requesting a Technical Assistance Advisement (TAA) has been referred to this office for response.

Statement of Facts

Parent is a XXX corporation with its corporate offices in XXX. Parent makes and markets information systems, software products and professional services. Parent is qualified to do business in Florida. Parent files consolidated corporate income and intangibles tax returns in Florida.

Parent owns, either directly or indirectly, various foreign subsidiaries and domestic subsidiaries operating abroad. The relationship between Parent and the foreign subsidiaries (Subject Affiliates) is the subject of this request for technical advice. The revenues of the Subject Affiliates are also generated through the sale of information systems, software products and professional services. None of the Subject Affiliates conduct business in Florida. None of the Subject Affiliates is qualified to do business in Florida. None of the Subject Affiliates owns any property or has offices in Florida. None of the Subject Affiliates has employees in Florida. None of the revenues earned by the Subject Affiliates arise from business conducted in Florida.

Parent is in the process of establishing a Service Center to be located in Florida. The Service Center will be a part of Parent. The Service Center will perform data-entry functions. Some of these data-entry functions will be performed for the Subject Affiliates. The Subject Affiliates will forward copies

of purchase orders, sales orders, accounting journal entries, accounts payable reports, accounts receivable reports and similar reports to the Florida Service Center, either in paper form or by electronic transmission. The Service Center personnel will input data from these various orders and reports. In addition, the Service Center will print bills and other administrative paperwork for the Subject Affiliates. However, the Service Center will not solicit orders, accept orders, fill orders, be a party to or exercise any control over the transactions that underlie the orders, bills and reports. Parent will not enter on its books any of the accounts receivable of the Subject Affiliates. The Service Center personnel will have no authority to act on behalf of the Subject Affiliates in dealing with their customers or with other third parties. The Service Center will not receive payments from customers of the Subject Affiliates. The Service Center will not be responsible for any collection activity. The Service Center will not be responsible for any hiring or management decisions relating to the Subject Affiliates. None of the Service Center employees will be employees, directors, officers, or shareholders of the Subject Affiliates. The Service Center will perform only the ministerial functions of entering data into the Parent's computer system and processing paperwork. For this data entry service, the Subject Affiliates will pay the Service Center a fee equal to costs incurred plus five percent.

Ruling Requested

It is requested that a Technical Assistance Advisement be issued that Parent and the Subject Affiliates have no intangible tax liability with respect to accounts receivable owned, controlled or managed by the Subject Affiliates under the circumstances described.

Discussion of Law

Chapter 199, F.S., provides for the levy of intangible personal property taxes at the rate of two mills. The statutes require that the tax levied by s. 199.032, F.S., be paid by June 3Oth of each year. An intangible tax return must be filed with the Department of Revenue by every person authorized to do

business in this state or doing business in this state, regardless of domicile, who on January 1 owned, controlled or managed intangible personal property that has a taxable situs in Florida. (See s. 199.052(1), F.S.) The term "person" includes any individual, firm, partnership, joint adventure, or corporation. (See s. 199.023(3), F.S.) Section 199.175(1), F.S., provides that intangible property shall have a taxable situs in this state when it is owned, managed, or controlled by any person domiciled in this state.

With respect to the first basis for situs, as outlined in section 199.175(1), F.S., (i.e., Florida domicile), Parent and the Subject Affiliates will have their principal places of business outside of Florida. Therefore, they will not have commercial domiciles in Florida. Even if Parent were determined to have a commercial domicile in Florida, the data-entry and processing functions performed at the Service Center would not constitute the control or management of the accounts receivable of the Subject Affiliates. Section 199.052(1), F.S., provides that control or management does not include any ministerial function or any processing activity. All of the functions described above as performed by the Service Center constitute ministerial functions and processing activity.

With respect to the provisions of s. 199.175(2), F.S., the Subject Affiliates are not transacting business with customers in this state. None of the accounts receivable of the Subject Affiliates are derived from, arise out of, or are issued in connection with any business conducted in Florida. The Subject Affiliates do not conduct business in Florida. In summary, the Subject Affiliates are contracting with Parent to provide dataentry and processing services at a Florida location. These circumstances do not create a Florida taxable situs for the accounts receivable of the Subject Affiliates.

Summary

Based upon the provisions of the statutes discussed above and the scenario as described, it is the opinion of this office that neither the Parent nor the Subject Affiliates will be subject to the intangible tax with regard to the receivables of

the Subject Affiliates being processed at the service center in Florida.

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 that 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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