Were receivables taxable when a Florida corporation sold them at face value to a no-nexus subsidiary before January 1 and bought them back after January 2?

Plain-English summary

The receivables and related intercompany note were not included in the Florida intangible-tax base under the stated year-end arrangement.

The no-nexus subsidiary bought the receivables before January 1 and owned them on the valuation date. It sold them back after January 2. The Department found no tax on the subsidiary or the Florida parent for those receivables, and the note was eliminated as an intercompany account on the consolidated return.

What this means for you

The result depended on actual ownership on January 1, the subsidiary's lack of Florida situs, and consolidated-return treatment.

Common questions

Q: Were the receivables taxable to the out-of-state subsidiary? A: No.

Q: Were they taxable to the Florida parent? A: No, because it had sold them before January 1.

Q: Was the note included in the consolidated tax base? A: No. It was eliminated as an intercompany account.

Citations and references

• Fla. Stat. §§ 199.023(3), 199.032, 199.052(1), and 199.175(1) — person, tax, return, and situs provisions
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-012

Original ruling text

Apr 07, 1995

Re: Technical Assistance Advisement No. 95(C)2-012 Intangible Personal Property Tax; Taxability of Receivables Sold to Out-of-State Subsidiary XXX (Corporation) XXX (Subsidiaries) XXX (foreign Subsidiary)

Dear :

This is in response to your recent request for a technical assistance advisement.

Issue

Whether retail receivables, wholesale receivables or other receivables are subject to the Florida intangible personal property tax if they are sold to an out-of-state subsidiary before December 31, and then sold back to the parent or related company after the January 1 valuation date.

Facts

Corporation is organized under the laws of the State of Florida and has its principal and administrative offices in the state. Corporation and its Subsidiaries file a consolidated Florida intangible tax return. Corporation and its Subsidiaries engage in the production, processing and sale of various products, and transportation. The purchasers of such products consist primarily of wholesale dealers, but also include retail customers. These sales generate accounts receivable.

Corporation also has a foreign Subsidiary that has no nexus with Florida. It is organized under the laws of a state other than Florida and is commercially domiciled with its principal office in another state. The foreign Subsidiary has no business situs in Florida and does not have any agents, employees, or representatives in this state.

Prior to January 1, Corporation sold certain accounts receivable and other trade receivables to foreign Subsidiary at face value in exchange for promissory notes. On or after January 2 of the following year, foreign Subsidiary sold back to Corporation the receivables acquired in satisfaction of the promissory notes. The foreign Subsidiary is included in Corporation's consolidated Florida intangible tax return. Subsidiaries provide certain ministerial functions for the foreign Subsidiary.

Requested Advisement

To what extent are the receivables that were purchased by foreign Subsidiary and owned by Subsidiary on January 1 subject to the Florida intangible tax?

Will Corporation be subject to the Florida intangible tax on the receivables it sold to foreign Subsidiary prior to January 1 and which are owned by foreign Subsidiary on January 1?

If Corporation and foreign Subsidiary are included in Corporation's consolidated Florida intangible tax return, will the notes receivable from foreign Subsidiary to Corporation be excluded from the taxable base on Corporation's consolidated intangible tax return?

Discussion and Law

Chapter 199, F.S., provides for the levy of intangible personal property taxes at the rate of 2 mills. The statutes require that the tax levied by s. 199.032, F.S., be paid by June 30 of each year. An intangible tax return must be filed with the Department of Revenue by every person authorized to do business in this state or doing business in this state, regardless of domicile, who on January 1 owned, controlled, or managed intangible personal property that had a Florida taxable situs. (See s. 199.052(1), F.S.) The term "person" includes any individual, firm, partnership, joint adventure, or corporation as provided in s. 199.023(3), F.S. Section

199.175(1), F.S., provides that intangible property shall have a taxable situs in this state when it is owned, managed, or controlled by any person domiciled in this state.

Conclusion

Based upon statutory provisions and the information provided in your letter, foreign Subsidiary is not subject to Florida intangible tax on the receivables purchased from Corporation prior to January 1 and owned by foreign Subsidiary on January 1. Corporation is not liable for the intangible tax on the receivables sold to foreign Subsidiary prior to January

1. Intercompany accounts are eliminated when filing a
   consolidated return. Therefore, the notes receivable will be excluded from the taxable base on Corporation's consolidated intangible tax return.

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

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