Under Florida's 1996 intangible tax, were consumer-loan receivables sold before January 1 to a non-Florida affiliate taxable, and did local servicing or later repurchase change the result?

Plain-English summary

The receivables were not subject to Florida intangible tax when the out-of-state affiliate owned them on January 1 and had neither Florida commercial domicile nor Florida business situs.

Two Florida-domiciled consumer lenders planned to sell receivables before January 1 at face value, a premium, or a discount in exchange for a market-rate promissory note. They would continue specified accounting, collection, remittance, customer-communication, and reminder-notice work for an arm's-length fee.

The Department approved all seven requested conclusions. The listed work was ministerial and did not give the receivables Florida situs. A transfer or contractual put back to the sellers after January 1 did not change the January 1 result. The promissory notes could be eliminated as intercompany accounts on the group's consolidated intangible-tax return. Selling at a premium or discount did not change those answers.

What this means for you

Under the historical annual tax addressed by the ruling, January 1 ownership and the buyer's domicile and business situs controlled. Limited servicing by Florida affiliates did not amount to ownership, management, or control on the stated facts.

Common questions

Q: Were the receivables taxable on January 1? A: No, because the out-of-state affiliate owned them and had no Florida domicile or business situs.

Q: Did Florida collection and reporting work make them taxable? A: No. The Department approved the characterization of the listed duties as ministerial.

Q: Did repurchase after January 1 change the assessment-date result? A: No.

Q: Were the affiliate promissory notes taxable? A: They could be eliminated as intercompany accounts on a consolidated return.

Q: Did a premium or discounted sale price change the result? A: No. The Department approved the same answers for those pricing alternatives.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.175 — taxable situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-028

Original ruling text

Nov 09, 1995

Re: Technical Assistance Advisement No. 95(C)2-028 Intangible Personal Property Tax XXX (Foreign Corporation) XXX (Foreign Subsidiary) XXX (Corporation A) XXX (Corporation B)

Dear :

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

Facts

Corporation A and Corporation B engage in consumer lending activities in Florida. Both entities are Florida incorporated subsidiaries of Foreign Corporation with commercial domicile in Florida. The entities join in the filing of a consolidated Florida intangible tax return. Receivables are generated from the consumer lending and intercompany activities conducted by the entities.

The affiliated group includes Foreign Subsidiary organized under the laws of a foreign state, which maintains both commercial domicile and principal office outside Florida. Foreign Subsidiary has no business situs in Florida and will not have any agents, employees, or representatives of any kind in Florida.

Prior to January 1, Corporations A and B are contemplating the transfer of all or a part of their accounts receivable to Foreign Subsidiary. The transfer will be accomplished through a sale at face, premium, or discounted value of such receivables to Foreign Subsidiary in exchange for a promissory note bearing a market rate of interest and will otherwise reflect the arm's length terms and conditions.

Foreign Subsidiary will enter into a service agreement with Corporations A and B to provide the following services:

*

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

*

Ensuring that receivables that are transferred/sold are in compliance with any credit and collection policies of the Foreign 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 purchaser on a periodic basis (typically monthly).

*

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

*

Remitting proceeds to the purchaser (Foreign Subsidiary).

*

Routine communications with the customer regarding the 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 Corporations A and B will be paid a fee for providing these services.

On or after January 2 of the following year, it is anticipated that Foreign Subsidiary will transfer some or all of its receivables back to Corporations A and B. If the receivables were sold in exchange for a promissory note, the transfer back will be in satisfaction of the note.

Requested Advisements

1. The receivables transferred by Corporations A and B to
   Foreign Subsidiary prior to January 1, 1996, and owned by Foreign Subsidiary on January 1, 1996, are not subject to the intangible personal property tax levied pursuant to s. 199.032, F.S., since Foreign Subsidiary has neither a business situs nor is commercially domiciled in Florida.
2. The performance of ministerial functions by
   Corporations A and B on behalf of Foreign Subsidiary will not establish a taxable situs in Florida for the transferred receivables. Similarly no tax with respect to the transferred receivables will be due if the ministerial functions are performed by Foreign Subsidiary from its location outside Florida.
3. The transfer of receivables back to Corporations A and
   B after January 1, 1996, will not affect the tax treatment of the receivables on January 1, 1996, prior to the transfer.
4. The transfer back of some or all of the receivables
   that may be "put" back to Corporations A and B after January 1 will not change the tax treatment of the receivables on January 1 for the reason set forth in 3, above.
5. The activities of Corporations A and B as outlined
   above, constitute ministerial functions or processing activities permissible under s. 199.032, F.S.
6. The promissory notes held by Corporations A and B
   received from Foreign Subsidiary on the sale of the receivables would be eliminated from the taxable intangible base as an intercompany account by the filing of a consolidated return.
7. The responses to questions 1-6 would not change if the
   receivables are sold at a premium or discounted value

rather than face value in exchange for a promissory 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. Further, intangible personal property has taxable situs in this state when it is deemed to have business situs in Florida and it is owned, managed, or controlled by a person transacting business in this state, even though the owner may claim domicile elsewhere. Intangibles shall be deemed to have business situs in Florida 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.

Conclusion

Based upon statutory provisions and the information provided in your request, the seven requested advisements are answered in the affirmative.

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
Senior Tax Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

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