Were floor-plan receivables and a related intercompany note subject to Florida intangible tax after ownership moved to out-of-state entities before January 1?

Plain-English summary

The transferred floor-plan receivables were not subject to Florida's annual intangible tax under the detailed year-end arrangement.

The trust, non-Florida trustee, and Delaware subsidiary kept their books, records, assets, management, and control outside Florida and had no Florida employees or business activity. The Department found that they had no Florida taxable situs.

On or before December 31, the Florida subsidiary transferred 99% of its trust and receivables interests to the Delaware subsidiary for an escrowed promissory note. The parent also transferred the servicing duties and did not perform them from December 31 through January 2. The ruling said the receivables, then owned by the non-Florida entities, were not taxable in Florida on January 1.

The note owed by the Delaware subsidiary to the Florida subsidiary was eliminated from tax if the parent, Florida subsidiary, and Delaware subsidiary were all included in the consolidated intangible-tax return.

What this means for you

The result depended on the complete set of ownership, control, servicing, out-of-state-operation, escrow, and consolidated-return facts. The ruling did not treat a paper affiliation alone as enough; it described specific transfers and a temporary transfer of servicing obligations around January 1.

Common questions

Q: Did the trust or trustee have Florida taxable situs?
A: No. Their assets, records, management, and control were outside Florida, and the trust had no Florida employees.

Q: Were the transferred receivables taxable on January 1?
A: No, because ownership had been transferred to non-Florida entities under the stated arrangement.

Q: What happened to the intercompany promissory note?
A: It was eliminated if the related corporations were included together in the consolidated return.

Q: Did the Florida parent continue servicing the receivables through year-end?
A: No. It transferred the servicing duties and agreed not to exercise them from December 31 through January 2.

Citations and references

• Fla. Stat. § 199.052 and (10) — return requirement and affiliated-group elimination
• Fla. Stat. § 199.175 — Florida taxable situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-021

Original ruling text

Jul 12, 1995

Re: Technical Assistance Advisement 95(C)2-021
Intangible Tax - Taxable Situs - Property Subject To Tax
Sections 199.052, 199.103, 199.175, F.S.
XXX (Parent Corporation)
XXX (Subsidiary Corporation)
XXX (Delaware Subsidiary)
XXX (Trustee)

Dear :

Your letter requesting a Technical Assistance Advisement
has been received and examined by this office. The specific
request for advice asks if receivables held by a non-Florida
trustee and the interest in the trust transferred to a nonFlorida corporation prior to December 31 of the year are subject
to the annual intangible tax.

Statement of Facts

Parent Corporation is a Florida corporation engaged in the
business of wholesale floor planning to finance motor vehicle
dealers. Parent Corporation will routinely sell its receivables
to a wholly owned subsidiary corporation (Subsidiary
Corporation) pursuant to a Receivables Purchase Agreement.
Subsidiary Corporation is a Florida corporation. Parent
Corporation will transfer to the Subsidiary Corporation all of
its right, title and interest in, to and under the receivables
and its interest in the related vehicles and collateral security
to the Subsidiary Corporation. The Parent Corporation will
service the receivables throughout most of the year.

At the time of the first sale of the receivables to the
Subsidiary Corporation, the Parent Corporation and Subsidiary
Corporation will enter into a trust arrangement (the Trust) with
a non-Florida trustee (the Trustee) pursuant to a Pooling and
Service Agreement. Subsidiary Corporation will transfer to the
non-Florida Trustee the receivables and all its interest in the

vehicles and related collateral purchased by it from the Parent
Corporation.

The Trustee will hold the receivables and all interest in
the vehicles and related collateral and, pursuant to the Trust,
will issue certificates of investment and other interest in the
Trust to various classes of investors. The Trust will establish
a collateralized financing arrangement whereby collections on
the underlying receivables will be made available to make
payments to the investors with the residual collection amounts,
if any, being paid to the Subsidiary Corporation. The books,
records and assets, as well as the management and control, of
the Trust will be maintained and kept outside of Florida.
Trustee is not licensed or qualified to do business in Florida.
There will be no employees of the Trust in Florida.

The Subsidiary Corporation will incorporate a wholly owned
subsidiary in Delaware (Delaware Subsidiary). Delaware
Subsidiary will have no contacts with, activities, or assets in
Florida. The only connection with Florida will be through the
ownership of its stock by the Subsidiary Corporation, a Florida
corporation. None of the Delaware Corporation's officers or
directors will be permanent residents of Florida, will have
extended temporary residences in Florida or will engage in any
business activities on behalf of the Delaware Subsidiary while
in Florida.

Pursuant to the Pooling and Servicing Agreement and an
agreement (known as the Annual Transfer Agreement) between
Trustee, Subsidiary Corporation, Parent Corporation and Delaware
Subsidiary, Subsidiary Corporation will, on or before December
31, of each year, transfer and assign 99% of its right, title
and interest in, to and under the Trust and to and under all
receivables and related collateral security with all its rights
and obligations under the Pooling and Servicing Agreement to the
Delaware Subsidiary, in return for a promissory note made
payable to Subsidiary Corporation. On January 2 the rights
assigned will be reassigned, and retransferred to the Subsidiary
Corporation and the promissory note will be returned to the
Delaware Subsidiary. On December 31 Parent Corporation will
also assign and transfer any rights and duties it may have to

service the receivables or to perform any activities in
connection with the Pooling and Servicing Agreement or the
Receivables Purchase Agreement to the Delaware Subsidiary.
Further, Parent Corporation agrees not to exercise any such
duties or obligations from December 31 to January 2. The rights
and obligations in respect of the servicing duties transferred
to the Delaware Subsidiary will be reassigned effective January
2 of each succeeding year.

All of the assignments, transfers and obligations are
secured through an Escrow Agreement entered into between Trustee
and Delaware Subsidiary under which the Trustee agrees to
release the promissory note to the Delaware Subsidiary upon
confirmation of the retransfer described above from the Delaware
Subsidiary to the Subsidiary Corporation. The Parent,
Subsidiary Corporation and Delaware Subsidiary will file a
Florida consolidated intangible tax return.

Based upon the scenario described above requests for
technical advice are made on the following issues:

1. To what extent are the Trustee and the receivables
   held by the Trust subject to Florida's annual
   intangible Tax?
2. To what extent are the rights and interest in the
   Trust or the receivables held by the Trust, that are
   sold to the Delaware Subsidiary by the Subsidiary
   Corporation and owned, managed and controlled by the
   Delaware Subsidiary on January 1, subject to Florida's
   annual intangible tax?
3. If the Parent Corporation, Subsidiary Corporation and
   the Delaware Corporation are included in the Parent's
   consolidated intangible tax return, to what extent
   will the note due from the Delaware Subsidiary to
   Subsidiary Corporation be included in the Florida
   intangible taxable base?

Provisions of Law

Section 199.052, F.S., requires that every person that
owns, manages or controls intangible personal property that has

a taxable situs in Florida, file an intangible tax return and
pay the tax. Section 199.175, F.S., provides that persons will
have a taxable situs in Florida when they are a domiciliary of
Florida (legal domicile or commercial domicile) or have a
business situs in the state through business locations in
Florida or employees, agents or representatives visiting Florida
customers at the customer's Florida location. Section
199.052(10), F.S., allows corporations connected through stock
ownership by a common parent corporation to file as an
affiliated group and eliminate from tax specific items of
intangible property that would otherwise be subject to Florida's
intangible tax.

Applying these statutory provisions to the scenario above
reveals that the Trust, the Trustee and the Delaware Subsidiary
have no taxable situs in Florida. Further, the receivables
transferred to the Delaware Subsidiary and then to the Trust are
not subject to tax in Florida. Under a consolidated intangible
tax return all intercompany accounts receivable of included
corporations are eliminated. The note given by the Delaware
Subsidiary to Subsidiary Corporation and held in escrow will be
eliminated from tax provided the Delaware Subsidiary and the
Subsidiary Corporation are included in the consolidated return
with the Parent Corporation. In summary, as described in the
scenario above, the receivables arising from the wholesale floor
plan financing of motor vehicle dealers by a Florida corporation
are rendered nontaxable because of the transfer of ownership to
a non-Florida entity prior to January 1.

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,

J.V. Parramore, Jr.
Tax Law Specialist
Technical Assistance

JVP/mh