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.