Under Florida's 1996 intangible tax, did receivables remain taxable after an out-of-state retailer transferred them to a new out-of-state subsidiary before January 1?

Plain-English summary

The retailer was not subject to Florida intangible tax on the receivables it transferred before January 1, and the new out-of-state subsidiary had no Florida taxable situs on the stated facts.

The retailer contributed six billing cycles of Florida-customer receivables to the new subsidiary at the close of business on December 31. The subsidiary was organized and operated outside Florida, had no Florida employees or business operations, and owned the receivables on January 1. The retailer continued specified billing, recordkeeping, collection, and communication services under an agreement, but could not perform other activities without the subsidiary's written permission.

The subsidiary was scheduled to liquidate back into the retailer on January 2. The Department said potential federal treatment of the transaction as transitory did not change either Florida intangible-tax answer.

What this means for you

Under the historical annual tax addressed by the ruling, ownership, management, and control on January 1 were decisive. The Department separately evaluated Florida taxable situs and did not let the transaction's possible federal income-tax characterization change the state result.

Common questions

Q: Why was the retailer not taxed on the receivables?
A: It did not own, manage, or control the transferred receivables on January 1.

Q: Why was the new subsidiary not taxed?
A: On the stated facts, it was organized and operated outside Florida and had no taxable situs here.

Q: Did liquidating the subsidiary on January 2 change the January 1 result?
A: The ruling still concluded that the retailer and subsidiary were not liable as described, despite the planned January 2 liquidation.

Q: Did federal income-tax treatment control the Florida result?
A: No. The Department expressly said federal treatment of the transaction would not change its answers.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-032

Original ruling text

Dec 29, 1995

Re: Technical Assistance Advisement 95(C)2-032
Intangible Tax - Property Subject To Tax
XXX (Corporation)
XXX (Credit)

Dear :

This letter is response to your recent request for a
technical assistance advisement concerning the sale of certain
assets prior to December 31 of the year.

Facts

Corporation is legally domiciled outside of Florida and has
its principal and administrative offices in a state other than
Florida and its legal domicile.

As part of Corporation's retailing business, credit is
extended by a credit card issued to the customer. When a
customer charges merchandise using a credit card, an account
receivable is generated. It is these receivables that are the
subject of the transaction.

Credit, a division of Corporation, has divided
Corporation's receivables into ten billing cycles of
approximately equal balances. The cycles are used to facilitate
billing and collections for Corporation. Each cycle is billed
once each month. A separate closing date is assigned to each
cycle. Corporation owns six of the billing cycles; the other
four cycles are held in trust. Credit provides all services
related to billing and collection of all receivables.

Corporation will create a new subsidiary (Newco) organized
under the laws of another state and having operations in a
different state. Newco will have no operations or employees in
Florida and will conduct no business operations in Florida. At
the close of business on December 31, 1995, all receivables from

Florida customers in the six cycles owned by Corporation will be
contributed to Newco in exchange for all of the stock of Newco.
At the time of the transfer, Corporation will enter into an
agreement with Newco to provide services to Newco, which will be
in effect for the period Newco owns the Florida receivables.
Pursuant to the Service Agreement, Corporation will provide,
through Credit, the following services:

a) Identifying all receivables contributed to Newco in
its accounting records.
b) Insuring that receivables that are contributed are in
compliance with any credit and collection policies of
Newco, or that the receivables are not in default
prior to contribution.
c) Maintaining the books and records necessary for
collection of the contributed receivables.
d) Reporting activities, outstanding balances, and aging
of receivables to Newco.
e) Recording cash payments on the receivables.
f) Remitting proceeds to Newco.
g) Routine communications with customers regarding
payment and credit problems.
h) Notifying Newco of uncollected accounts.
i) Sending routine billing and late payment notices to
customers.

Florida customer inquiries will be routed to a service
center outside of Florida. Customer representatives in Florida
will handle only routine communication with Florida customers in
accordance with the Service Agreement. Corporation will have no
authority to engage in activities on behalf of Newco, other than
those enumerated in the Service agreement, without the express
written permission of Newco.

At the opening of business on January 2, 1996, Newco will
be liquidated into Corporation. Under the Internal Revenue Code
(IRC) and applicable Regulations, this entire transaction should
be considered a tax free contribution to capital under IRC
Section 351 followed by a tax free liquidation under IRC Section
332 for Federal Income Tax purposes.

Discussion of Law

For the 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
a person domiciled in this state on January 1 of the tax year.
Section 199.175, F.S., states that "any person domiciled in this
state" means (a) any natural person who is a legal resident of
the state; (b) any bank or financial institution, company,
corporation, partnership, or other entity organized or created
under Florida law, 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 a
commercial domicile in Florida when it maintains its chief or
principal place of business in this state where executive or
management functions are performed or where the course of
business operations is determined.

Intangible property shall have a taxable situs in this
state when it is owned, managed, or controlled by a person
transacting business in this state, even though the owner may
claim a domicile elsewhere. Intangible property shall be deemed
to have a Florida business situs when it receives the benefits
and protection of Florida laws and it is derived from, arises
out of, or is issued in connection with business transacted in
Florida with customers in Florida.

Ruling Requested

Based upon the above described transaction the following
rulings are requested:

1) Will Corporation be subject to the intangible tax on
the receivables it contributes to Newco prior to
January 1, 1996?

Response: Based upon the facts presented, Corporation will
not own, manage or control the Florida receivables on
January 1, 1996 related to the six cycles contributed by
Corporation to Newco. Therefore, Corporation will not be
subject to the intangible tax on the receivables

transferred to Newco.

2) To What extent, if any will Newco be subject to the
intangible tax?

Response: Newco will have no taxable situs in Florida based
upon the facts presented above.

3) Under the Internal Revenue Code and Regulations, this
entire transaction may be treated as transitory and
would therefore be disregarded for Federal Income Tax
purposes. Would that change the answer to either of
the prior questions?

Response: The treatment for Federal Income Tax purposes
will not change the responses to the prior questions.

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
Tax Policy and Dispute Resolution
Office of General Counsel

JVP/mh