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