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

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