Did Florida part-time employees who demonstrated products owned by military exchanges and answered technical questions create corporate-income-tax nexus?

Plain-English summary

The distributor had Florida corporate-income-tax nexus because its part-time military-sales employees performed services beyond protected solicitation.

The company's ordinary wholesale activity—orders solicited by an independent representative, approved outside Florida, and filled from out-of-state inventory—was protected under Public Law 86-272 on the facts described. Its military-sales division went further.

Florida employees set up displays, demonstrated products already owned by the military exchanges, answered technical questions, checked inventory, submitted performance reports, and could perform other assigned duties. The Department said demonstrations of exchange-owned products and post-sale technical responses did not facilitate requesting orders. Those activities exceeded pure solicitation and were sufficient to create nexus.

The ruling could not decide whether the unidentified additional duties were protected or de minimis because that question depended on facts the requester had not supplied.

What this means for you

Sales-support employees can cross the line from solicitation into independent service functions. The ruling distinguished demonstrations using sales samples from demonstrations of products already owned by the customer, and it treated technical assistance as a separate business service rather than an activity ancillary to requesting orders.

Common questions

Q: Were the independent sales representative's activities enough to create nexus?
A: No. The Department found the distributor's ordinary solicitation activities protected on the facts described.

Q: Which employee activities created nexus?
A: Demonstrating products owned by the military exchanges and responding to technical inquiries were the stated decisive activities.

Q: Did setting up displays automatically exceed solicitation?
A: The ruling said display setup and sample demonstrations generally could be ancillary, but the exchange-owned-product demonstrations and technical support went further.

Q: Did the Department decide whether every other assigned duty was de minimis?
A: No. Those duties were unidentified, so the Department said it lacked enough facts.

Citations and references

• Fla. Stat. § 220.11(1) — Florida corporate income tax
• Fla. Admin. Code r. 12C-1.011(1)(l), (2) — employees and sales solicitation
• 15 U.S.C. §§ 381-384 — Public Law 86-272
• Wisconsin Department of Revenue v. William Wrigley, Jr., Co., 112 S.Ct. 2447 (1992) — solicitation and de minimis activities
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C1-010

Original ruling text

Nov 21, 1995

Re: TAA 95(C)1-010
Corporate Income Tax - Nexus
XXX, hereinafter referred to as "A";
XXX, hereinafter referred to as "Division"

Dear :

Your letter of XX, requested a Technical Assistance Advisement
concerning whether the business activities engaged in by "A"
create nexus for Florida corporate income tax purposes. 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.

FACTS

"A," is a wholesale distributor of consumer electronics and
sells its products through retail distributors and military
installations (PX's) in Florida. An independent sales
representative solicits orders for "A's" products from retail
distributors and may perform additional activities such as
carrying samples and promotional materials for display or
distribution, furnishing and setting up display racks and
advising customers on product lines they have contracted to
sell. Orders taken by the independent sales representative are
sent to "A's" headquarters in XX for approval. Shipment is made
by common carrier from a store of goods outside Florida. "A"
does not maintain a store of goods in Florida. Products returned
to "A" are shipped directly to XX and are not picked up by "A's"
employee. Repairs to "A's" products are performed by
independent authorized service centers which also service
products of other manufacturers. Additionally, "A" sells its
products in PX's through "Division," its military sales
division. Orders for shipments to all Florida base PX's are
solicited by "Division" at military national purchasing centers
located in Texas and Virginia. The orders are sent to "A's"

headquarters for approval and are filled from a store of goods
outside Florida. "Division" employs part-time employees living
in Florida to set up displays, demonstrate the products to sales
people at the PX's, as well as respond to technical inquiries.
Duties of the part-time employees include demonstration of "A's"
products; checking inventory levels to obtain orders for
additional products, which are sent to the regional exchange
purchasing centers; responding to technical inquiries regarding
"A's" products and advising on their display; providing
performance reports to "Division;" and any other duties assigned
to them by "Division."

QUESTION

Do the activities of "Division's" employees create nexus for
Florida corporate income tax purposes?

DISCUSSION AND ANALYSIS OF LAW

Subsection 220.11(1), F.S., states:

"A tax measured by net income is hereby imposed on every
taxpayer for each taxable year commencing on or after
January 1, 1972, and for each taxable year which begins
before and ends after January 1, 1972, for the privilege of
conducting business, earning or receiving income in this
state, or being a resident or citizen of this state. Such
tax shall be in addition to all other occupation, excise,
privilege, and property taxes imposed by this state or by
any political subdivision thereof, including any
municipality or other district, jurisdiction, or authority
of this state."

Rule 12C-1.011(1)(l), F.A.C., states in part:

"(1) The following activities, notwithstanding others
within the meaning of taxable privileges described in s.
220.02, F.S., will be construed as conducting business,
earning or receiving income in this state, or constitute
those activities of a resident or citizen of this state for
purposes of this tax, and corporations participating

therein are subject to taxation unless exempted by the
constitution or the laws of the United States or this
state.

"(l) Having employees that are present in the state and
that perform functions other than the solicitation of sales
within Florida."

Rule 12C-1.011(2), F.A.C., provides that having salesmen of a
corporation in Florida who solicit sales of tangible personal
property, maintain samples to demonstrate the product or to give
(they may not be sold) to customers will not necessarily create
taxable nexus for the corporation, nor will providing those
salesmen with company cars. However, Rule 12C-1.011, F.A.C.,
above, states having salesmen in Florida who engage in
activities other than pure solicitation of sales will cause the
employing corporation to be subject to Florida corporate income
tax.

In Wisconsin Department of Revenue v. William Wrigley, Jr., Co.,
112 S.Ct. 2447 (1992), the United States Supreme Court
determined that under Public Law 86-272 (15 U.S.C. ss. 381-384)
"solicitation of orders" included not only activities essential
to making requests for purchases, but also activities that are
"entirely ancillary" to the making of requests for purchases.(FN 1)
Activities which exceed this standard result in the loss of
the protection provided by Public Law 86-272, unless the
activities are considered "de minimis" because they do not
establish a "nontrivial additional connection" with the taxing
state. Therefore, activities performed in Florida which exceed
the "solicitation of orders" standard result in the loss of the
protection afforded by Public Law 86-272, unless the "de
minimis" exception applies.

In Wrigley, several activities performed by Wrigley employees in
Wisconsin were held to exceed the "solicitation of orders"
standard. Principally, the Court found that the supplying of
gum through "agency stock checks" (which involved setting up
racks and filling them with gum which was then paid for by a
retailer), the replacement of stale gum, and the storage of
products in Wisconsin to have "constituted independent business

functions quite separate from the requesting of orders." Some
of these activities parallel the activities engaged in by
"Division" employees.

Demonstrating "A's" products and responding to technical
inquiries made by individuals who purchased products from a PX
would not facilitate the "requesting of orders." Additionally,
the duties of "Division's" employees in Florida include "other
ancillary duties as may be assigned." These other duties are
unidentified in the information provided, but could further
serve as a basis for establishing nexus for Florida corporate
income tax purposes. Since activities which may meet the "de
minimis" standard established for Public Law 86-272, are
generally fact specific, we are unable to determine whether or
not any of your "other" activities would be considered protected
activities.

From the information provided, the activities engaged in
strictly by "A" are protected by Public Law 86-272, and would
not subject "A" to Florida corporate income tax. In the case of
"Division," while setting up displays is generally considered to
be an activity ancillary to sales, as is demonstrating product
samples maintained by salesmen, the activities of demonstrating
products owned by the PX's, and responding to technical
inquiries regarding the products, appear to exceed pure
solicitation of sales. Although these activities quite probably
serve to enhance the quantity of "Division's" sales, they appear
to be services which "Division" elects to provide rather than
activities ancillary to sales of "A's" products.

Based on the information presented, the activities of "Division"
in Florida exceed pure solicitation of sales and are sufficient
to create nexus for "A" for Florida corporate income tax
purposes.

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,

Suzanne C. Paul
Statutory Compliance Section

SCP/kk
Control No.: 22293

FOOTNOTE 1 In establishing this standard, the Court drew a
distinction between activities which serve no independent
business function apart from their connection to the soliciting
of orders and those activities which a company would have reason
to do anyway, but chooses to have an in-house representative
perform.