Under Florida's 1995 intangible tax, what happened when affiliated companies sold receivables to an out-of-state subsidiary before January 1?

Plain-English summary

Receivables sold before January 1 to the out-of-state subsidiary were not subject to Florida intangible tax while that subsidiary owned, managed, and controlled them on the assessment date.

The buyer was organized and commercially domiciled outside Florida, did no business here, and had no Florida employees, agents, or representatives. That result also covered receivables that had originally acquired a Florida business situs. Transferring the assets back after January 1 did not change their treatment on January 1.

The sellers received interest-bearing promissory notes. The Department allowed those notes to be eliminated as intercompany accounts on the affiliated group's consolidated intangible-tax return. The listed bookkeeping, reporting, collection, remittance, customer-communication, and reminder-notice services were ministerial and did not make the assets taxable.

What this means for you

Under the historical tax addressed by the ruling, the January 1 owner and that owner's domicile and Florida business activity drove the result. Post-assessment-date transfers did not rewrite January 1 ownership, and limited servicing by related companies did not amount to management or control on the facts described.

Common questions

Q: Did formerly Florida-situs receivables remain taxable after the sale?
A: No. The Department said they were no longer taxable because the new owner was neither commercially domiciled nor doing business in Florida.

Q: Did transferring the receivables back after January 1 change the result?
A: No. The annual tax used the property's value and ownership as of January 1.

Q: Were the promissory notes taxable on the consolidated return?
A: No. They could be eliminated as intercompany accounts under the stated consolidated-return treatment.

Q: Did the sellers' collection and customer-contact work make the assets taxable?
A: No. The Department characterized the listed services as ministerial functions.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1), (10) — ministerial functions and consolidated returns
• Fla. Stat. § 199.103 — January 1 valuation date
• Fla. Stat. § 199.175 — domicile and taxable situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-031

Original ruling text

Dec 19, 1995

Re: Technical Assistance Advisement No. 95(C)2-031
Intangible Personal Property Tax - Sale of Assets
XXX (Corporation)
XXX (Subsidiary A)
XXX (Subsidiary B)

Dear :

This is in response to your recent request for a technical
assistance advisement concerning the sale of certain assets.

Facts

Corporation is organized under the laws of a state other
than Florida and commercially domiciled in Florida. Further,
Corporation is the common parent of Subsidiary A, organized and
commercially domiciled outside the State; however, it does
transact business in Florida. Subsidiary B is organized and
commercially domiciled in a state other than Florida and
transacts no business, has no employees, agents, or
representatives of any kind in this State.

Prior to January 1, Corporation, Subsidiary A and certain
other subsidiaries which are members of Corporation's affiliated
group (Affiliated Group) anticipate the sale to Subsidiary B of
the following: (a) trade accounts receivable, (b) unbilled
amounts receivable under cost plus fixed fee contracts and (c)
notes receivable from installment sales. These accounts will be
sold at fair market value in exchange for promissory notes which
will bear a market rate of interest. It is contemplated that
Corporation will file a consolidated intangible tax return which
will include Subsidiary B and all other members of the
Affiliated Group. All notes receivable generated from this sale
will be eliminated from the taxable base as an intercompany
account.

Corporation and Subsidiary A will enter into service

agreements with Subsidiary B and will perform, at the discretion
of Subsidiary B, the following services:

*

Maintaining the books and records necessary for the
collection of the assets sold.

*

Reporting activities, outstanding balances, and aging
of receivables to Subsidiary B on a Periodic basis.

*

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

*

Remitting proceeds to Subsidiary B.

*

Routine communications with the customer regarding
late payments.

*

Routine communications with the customer regarding
credit problems.

*

Sending routine form reminder notices to customers for
late payments.

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
Florida 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. "Any person domiciled in this
state" means: (a) any natural person who is a legal resident of
this State; (b) any bank or financial institution, company,
corporation, partnership, or other artificial entity organized
or created under the laws of this State, except a trust; or (c)
any person, including a trust, who has established a commercial
domicile in this State. A business or other artificial entity
acquires its commercial domicile in Florida when it maintains
its chief or principal office in this State where executive or
management functions are performed or where the course of
business operations is determined.

Intangible personal property shall have a taxable situs in
Florida when it is deemed to have a business situs in this State
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 a Florida
business situs 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.

Requested Advisements and Responses

1. Are the assets which are sold to Subsidiary B and
   owned, managed and controlled by Subsidiary B on
   January 1 subject to the Florida intangible tax?

Response: Assets which are sold to Subsidiary B and
owned, managed, or controlled by it on January 1 would
not be subject to the Florida intangible personal
property tax, since Subsidiary B neither is
commercially domiciled in Florida, nor is transacting
business in Florida.

2. If the accounts receivable sold include accounts
   receivable which originally had Florida business
   situs, will such receivables be subject to the Florida
   intangible tax?

Response: The accounts receivable are no longer
subject to Florida intangible tax since the owner
neither is commercially domiciled in Florida, nor is
transacting business in Florida.

3. If the assets are transferred back to prior owners
   after January 1, does this affect the tax treatment of
   the assets on January 1?

Response: No. Section 199.103, F.S., provides that
all intangible personal property shall be subject to
the annual tax at its just valuation as of January 1
each year.

4. If Affiliated Group members receive promissory notes
from Subsidiary B on the sale of the assets, may the
promissory notes be eliminated from its intangible tax
base through the filing of a consolidated intangible
tax return?

Response: In accordance with s. 199.052(10), F.S., the
promissory notes held by Corporation and Affiliated
Group members may be eliminated as an intercompany
account on a consolidated intangible tax return.

5. Do the activities listed above, which are services to
   be provided by Corporation and Subsidiary A for
   Subsidiary B, subject the assets to the intangible
   tax? If so, which of the activities would be deemed
   to exceed the ministerial functions or processing
   activities in s. 199.052(1), F.S.

Response: The activities described in your letter
constitute ministerial functions. Therefore, the
assets are not subject to Florida intangible personal
property tax.

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