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

NCP/mh