Would receivables transferred to an out-of-state subsidiary before January 1 remain subject to Florida intangible personal property tax?

Plain-English summary

Receivables owned on January 1 by the out-of-state subsidiary had no Florida taxable situs on the stated facts.

The result was the same whether the Florida-domiciled corporation transferred the receivables by capital contribution or sold them to the subsidiary. The Florida corporation could perform the listed recordkeeping, collection, reporting, remittance, and routine customer-contact work without creating situs because the Department treated those tasks as ministerial. If the subsidiary itself performed those functions from Florida, however, the receivables would be taxable.

What this means for you

The ruling focused on who owned the receivables on January 1, where that owner was domiciled, whether it had a Florida business situs, and who performed the servicing work from Florida.

Common questions

Q: Did a sale instead of a capital contribution change the situs result?
A: No.

Q: Did transferring the receivables back after January 1 change the January 1 tax treatment?
A: No.

Q: Were the Florida corporation's listed servicing activities ministerial?
A: Yes.

Q: What happened to the related promissory note on a consolidated intangible-tax return?
A: The ruling said tax on the note held by the Florida corporation would be eliminated as an intercompany account.

Citations and references

• Fla. Stat. §§ 199.032 and 199.175 — annual tax and Florida taxable situs
• Fla. Stat. § 199.103 — January 1 valuation date
• Fla. Stat. § 199.052(9) — principal and agent responsibility
• Fla. Stat. § 199.051(10) — intercompany accounts on consolidated returns
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-004

Original ruling text

Feb 08, 1995

Re: Technical Assistance Advisement No. 95(C)2-004
Intangible Personal Property Tax - Sale of Receivables
XXX (Corporation B)
XXX (Corporation A)
XXX (Subsidiary)

Dear :

Your recent request for a technical assistance advisement
has been received in this office.

Facts

Corporation A is incorporated in Delaware and is domiciled
in Florida by virtue of sharing executive officers with
Corporation B, its parent. The operations of Corporation A are
conducted by four separate divisions commercially domiciled
outside Florida. Each of the divisions, however, generates
sales within and without Florida, and has accounts receivable
that are generated in Florida as well as intercompany
receivables. Corporation A is included in Corporation B's
consolidated return for intangible tax purposes.

Subsidiary is organized under the laws of a state other
than Florida; is commercially domiciled and maintains its
principal office outside of Florida. Subsidiary has no business
situs in Florida and will not have any agents, employees, or
representatives of any kind in Florida other than Corporation A,
which may perform ministerial activities at the discretion of
Subsidiary.

Prior to January 1, Corporation A is contemplating the
transfer of all or a part of its accounts receivable to
Subsidiary. The transfer of receivables to Subsidiary will be
accomplished through either a sale or a capital contribution to
Subsidiary. If a sale is made, the receivable will be sold at
face value in exchange for a promissory note which will bear a

market rate of interest and will otherwise reflect arm's length
terms and conditions. Provisions will be made in the transfer
documents covering delinquent accounts and will likely provide
that Subsidiary may "put" delinquent accounts to Corporation A
pursuant to limited recourse provisions contained in the
documents.

Corporation A and Subsidiary will enter into a service
agreement whereby Corporation A will provide the following
services:

*

Identifying all transferred/sold receivables as
transferred/sold in its accounting records.

*

Ensuring that receivables that are transferred/sold
are in compliance with any credit and collection
policies of Subsidiary or that the receivables are not
in default prior to transfer/purchase.

*

Maintaining the books and records necessary for the
collection of the sold receivables (i.e., accounting
records).

*

Reporting activities, outstanding balances, and aging
of receivables to the purchaser on a periodic basis
(typically monthly).

*

Collecting the receivables (receiving payments) and
accounting for same.

*

Remitting proceeds to the purchaser (Subsidiary).

*

Routine communications with the customer regarding
late payments.

*

Routine communications with the customer regarding
credit problems.

*

Notifying the purchaser of uncollected accounts.

*

Sending routine form reminder notices to customers for
late payments.

The agreement will be based on arm's length terms and
conditions and Corporation A will be paid a fee for providing
these services. It is contemplated that Corporation A and
Subsidiary will be included in Corporation B's consolidated
Florida intangible personal property tax return.

On or after January 2 of the following year, it is

anticipated that Subsidiary will transfer some or all of its
receivables back to Corporation A. If the receivables have been
sold to Subsidiary in exchange for a promissory note, the
transfer back would be in satisfaction of the note.

Discussion and Law

For purposes of the annual tax imposed under s. 199.032,
F.S., intangible personal property shall have a taxable situs in
this state when it is owned, managed, or controlled by any
person domiciled in this state on January 1 of the tax year, as
provided in s. 199.175, F.S. " Any person domiciled in this
state" means: (a) any natural person who is a legal resident of
this state; (b) any bank or financial institution, company,
corporation, partnership, or other artificial entity organized
or created under the laws of this state, except a trust; or (c)
any person, including a trust, who has established a commercial
domicile in this state. A business or other artificial entity
acquires its commercial domicile in this state when it maintains
its chief or principal office in this state where executive or
management functions are performed or where the course of
business operations is determined.

Intangible personal property shall have a taxable situs in
this state when it is deemed to have a business situs in this
state and it is owned, managed, or controlled by a person
transacting business in this state, even though the owner my
claim a domicile elsewhere. Intangibles shall be deemed to have
a Florida business situs when they receive the benefit and
protection of Florida laws and courts and they are derived from,
arise out of, or are issued in connection with business
transacted in this state with a customer in this state.

Requested Advisements and Our Responses Are As Follows:

Question 1:

Are receivables which are transferred by Corporation A as a
capital contribution to Subsidiary and owned by Subsidiary
on January 1 subject to the intangible personal property
tax levied pursuant to s. 199.032, F.S.? If so, to what

extent are the receivables subject to tax?

Response:

Receivables that are transferred by Corporation A as a
capital contribution to Subsidiary and owned by Subsidiary
on January 1 would not be subject to the intangible
personal property tax imposed under s. 199.032, F.S., since
Subsidiary neither has business situs nor is commercially
domiciled in Florida.

Question 2:

Are the receivables which are sold by Corporation A to
Subsidiary and owned by Subsidiary on January 1 subject to
the intangible tax levied pursuant to s. 199.032, F.S.?

Response:

Receivables that are sold by Corporation A to Subsidiary
and owned by Subsidiary on January 1 would not be subject
to the intangible personal property tax imposed under s.
199.032, F.S., since Subsidiary neither has business situs
nor is commercially domiciled in Florida.

Question 3:

Does it make a difference whether Corporation A or
Subsidiary performs the ministerial functions within
Florida related to the transferred receivables referred to
in Questions 1 and 2?

Response:

Yes. If Corporation A performs the ministerial functions
for Subsidiary no taxable situs would be gained. If the
ministerial functions are performed by Subsidiary from its
location outside Florida no tax would be due. However, if
Subsidiary performs ministerial functions from a location
in Florida, the accounts receivable would be subject to the
intangible tax.

Question 4:

Does the fact that the receivables may be transferred back
to Corporation A after January 1 affect the tax treatment
of the receivables on January 1 prior to the transfer?

Response:

No. Section 199.103, F.S., provides that all intangible
personal property shall be subject to the annual tax at its
just valuation as of January 1 of each year.

Question 5:

If some or all of the receivables are, in fact, "put" or
otherwise transferred back to Corporation A after January
1, will this subsequent event change the tax treatment?

Response:

No. (See response to Question 4.)

Question 6:

Do the activities of Corporation A, as outlined above,
constitute ministerial functions or processing activities
under s. 199.032, F.S.? If not, which activities would be
deemed to exceed ministerial functions or processing
activities?

Response:

Yes. The activities described in your letter do constitute
ministerial functions.

Question 7.

If Corporation A's activities exceed ministerial functions
or processing activities, which entity would report the
receivables (Corporation A, which would be deemed to manage

or control the receivables, or Subsidiary, which owns the
receivables)?

Response:

Section 199.052(9), F.S., provides that where an agent has
control or management of intangible personal property, the
principal is primarily responsible for returning such
property and paying the annual tax on it. Therefore,
Subsidiary would be liable for filing a return and paying
tax on any receivables generated in Florida. If Subsidiary
failed to pay the tax, an assessment would be levied
against Corporation A as Subsidiary's agent in Florida.

Question 8:

If Corporation A receives a promissory note from Subsidiary
on the sale of the receivables, may the promissory note be
eliminated from its taxable intangibles through the filing
of a consolidated intangible personal property tax return?

Response:

In accordance with s. 199.051(10), F.S., intangible
personal property tax due on the promissory note held by
Corporation A would be eliminated as an intercompany
account by the filing of a consolidated return.

Question 9:

If the receivables are sold at a discount in exchange for a
promissory note, instead of the receivables being sold at
face value in exchange for a promissory note, would your
responses to questions 1-8 change?

Response:

No. The receivables being sold at a discount would not
change the responses to questions 1-8.

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,

Nadine C. Posey
Tax Audit Specialist III
Technical Assistance

NCP/mh