Did a corporation retain Florida corporate-income-tax nexus when a Florida trustee managed its assets as assignee and litigated claims in Florida?

Plain-English summary

The corporation had Florida corporate-income and emergency-excise-tax nexus because its Florida trustee managed and controlled the assets as assignee.

The trustee was responsible for protecting and preserving the corporation's assets, managing them for a reasonable return, distributing assets and income to creditors, and litigating claims in Florida federal courts. Those activities went beyond merely maintaining financial accounts in the state.

The Department said nexus might not exist if the corporation's Florida activities ceased and its only remaining assets were cash, demand deposits, certificates of deposit, repurchase agreements, and other securities passively held in a Florida bank or savings association.

What this means for you

Passive accounts alone were distinguished from active Florida management and litigation by a fiduciary acting for the corporation.

Common questions

Q: Did the Florida financial accounts alone create nexus? A: The cited rule said maintaining bank accounts in Florida did not by itself create nexus.

Q: What activities created nexus here? A: The Florida-domiciled trustee managed and protected the assets as assignee and conducted substantial litigation in Florida.

Q: Could nexus end?
A: The ruling said it might not exist if the active Florida conduct ceased and only the listed passive financial assets remained in Florida accounts.

Citations and references

• Fla. Stat. § 220.11 — corporate income tax and taxable privileges
• Fla. Admin. Code r. 12C-1.011(1)(n), (1)(o), and (2) — nexus activities and bank accounts
• Fla. Admin. Code r. 12C-1.015(11) — financial-organization factor treatment
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C1-007

Original ruling text

Aug 04, 1995

Re: Taxable Nexus; TAA 95(C)1-007
XXX (Corporation)
XXX (Estate)

Dear :

Your letter of May 23, 1995, requested a Technical Assistance Advisement on the application of the corporate income tax to the above referenced matter. This response to your request constitutes a Technical Assistance Advisement under Chapter 12-11, Florida Administrative Code, and is issued to you under the authority of s. 213.22, Florida Statutes.

A summary of the information provided appears below:

The Trust was created in 1985 by a Federal Bankruptcy court, as part of a plan of reorganization, in order to liquidate the assets of the Trust, the Corporation and the Estate. The plan required the trustee to liquidate the real estate and distribute all of the trust property to the creditors of the various estates. The plan that was adopted was submitted by the largest creditor, but it did not address whether the trustee had to file income tax returns, or pay any of the income taxes due at the federal or state level.

Shortly after the plan was confirmed, as required by the plan, the trustee caused the Trust property to be conveyed to the largest creditor, for cash and cancellation of the creditor's mortgage claims. The proceeds from the sale were used to pay off third party creditors. Prior to the plan of confirmation, Corporation also sold properties located in Virginia, and these proceeds also went to the creditors. In 1987, Corporation filed a consolidated tax return for the fiscal year ended July 31, 1985; however, the debtors requested the trustee to pay the taxes. In

late 1987, the trustee requested declaratory relief from the Bankruptcy court with respect to his obligations. The U.S. Government and the debtors opposed the trustee's action, claiming the trustee was responsible for filing returns and paying the tax. All of the lower courts and the Court of Appeals agreed with the trustee. Eventually, the case was appealed to the U.S. Supreme Court. The court reversed and ruled that the trustee must file the required federal income tax returns and pay the taxes due from both the Estate and Corporation. The Supreme Court ruled that the trustee is an assignee of the assets of the debtors. Therefore, the assignee is to file such federal tax returns as Corporation and Estate would have been required to file. The requirement to file a federal return also makes the trustee liable to pay the federal and state taxes for the Corporation out of the available trust assets. The effect of the ruling for federal tax purposes is to consider Corporation as a taxpayer, and the trustee has the fiduciary responsibility to file its corporate returns as the assignee of all the corporate assets.

After the Supreme Court decision, the trustee entered into lengthy negotiations with the federal government and state governments in an attempt to quantify and measure the income and other tax liabilities of each taxpayer for the years 1985-1993. The settlements with Florida covered all tax liabilities for Corporation and Trust through the years ended July 31, 1993 and December 31, 1993, respectively.

In the years covered by the settlement agreement with Florida, Corporation has nexus (commercial domicile and business domicile). It conducted business in Florida. To the best of the requester's knowledge Corporation is a registered Delaware corporation, currently with no office, operations or management functions in any state. Corporation currently owns a limited number of assets, which are being held in Florida banks and investment accounts naming the assignee. Corporation's current assets consist of cash, demand deposit accounts, certificates of deposit, and repurchase agreements and other securities. All are located exclusively within bank accounts and

brokerage accounts located in Florida. There is a significant amount of time spent litigating various matters, including creditor claims, professional fee awards, etc. All claims are being litigated in federal courts in Florida.

Request

Based upon the above facts, the following requests for technical advice have been made:

1. Does Corporation have Florida corporate income and
   emergency excise tax nexus, based on the activities of the assignee and/or location of its investments?
2. If Corporation is subject to the Florida corporate
   income and emergency excise tax, based on the above question, what facts would need to change so as to not subject it to this tax for years starting after July 30, 1995?

Discussion Of Facts

Section 220.11, F.S., provides that a tax measured by net income is imposed on every taxpayer in this state for the privilege of conducting business, earning or receiving income in this state, or being a resident or citizen of this state.

Rule 12C-1.011(2), F.A.C., provides that maintaining bank accounts in banks and savings associations located in Florida will not, in itself, create nexus with Florida.

Rule 12C-1.011(1)(n), F.A.C. provides that having corporate officers who have permanent or extended temporary residence within the state who make management decisions while residing in the state will be construed as conducting business, earning or receiving income in this state.

"Officer" is defined by Black's Law Dictionary as a "[p]erson holding office of trust, command or authority in corporation, government, armed services, or other institution or organization."

Rule 12C-1.011(1)(o), F.A.C., provides that the selling, managing, or providing of consulting services in Florida for intangible assets creates taxable nexus.

Rule 12C-1.015(11), F.A.C., provides that any corporation whose only activity consists of holding stock of corporations, bonds, or other securities; earning interest on accounts maintained in banks and savings associations, will be required to modify the apportionment factors for property and sales as if the corporation was a financial organization.

Discussion And Analysis Of Law

In the instant case, the assignee was appointed by the Bankruptcy Court and is responsible to both the Bankruptcy Court and the creditors. The activity of Corporation is to distribute the assets and income to the creditors and the remainder, if any, will revert back to Corporation.

A significant amount of time is spent litigating various matters in federal courts in Florida, including creditor claims, professional fee awards, etc.

The trustee is acting as assignee of all the assets of Corporation and the litigation is to protect those assets. A trustee has the fiduciary responsibility of protecting and preserving the assets. This includes managing the assets to receive a reasonable rate of return.

The Trustee is domiciled in Florida. Therefore, the Trustee, as assignee, has management and control of the Trust assets and has taxable nexus in Florida.

Should Corporation's activities in Florida cease, and Corporation's assets consisting solely of cash, demand deposit accounts, certificates of deposit, and repurchase agreements and other securities simply be held in a Florida bank or savings association, taxable nexus may not exist.

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 based 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,

Val Poliuto
Technical Assistant
Statutory Compliance Section

VJP/kk
Control# 21574
Enclosure