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

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