Under Florida's 1996 intangible tax, were discounted receivables sold before January 1 to an out-of-state affiliate taxable?

Plain-English summary

Florida did not tax receivables sold at a discount before January 1 to an out-of-state affiliate, provided the sale reflected arm's-length terms.

The Florida tile seller planned to take a market-rate promissory note and continue routine recordkeeping, collection, reporting, remittance, and customer communications for a fee. It could not compromise accounts or send them for outside collection. The Department treated those duties as ministerial, so they did not create Florida situs for the buyer's receivables.

The buyer's limited right to put delinquent accounts back to the seller after January 1, and an actual later transfer back, did not change the assessment-date result. The ruling also allowed the intercompany note to be eliminated through the group's consolidated return.

Every answer depended on the discounted price reflecting an arm's-length transaction; the Department expressly warned that the result could change otherwise.

What this means for you

• The buyer's lack of Florida domicile and business situs supported the exemption.
• Limited-recourse rights exercisable after January 1 did not change January 1 ownership.
• The seller had to stay within ministerial servicing functions.
• Arm's-length pricing was an express condition of the ruling's conclusions.

Common questions

Q: Were the buyer-owned receivables taxable on January 1?
A: No, on the stated arm's-length facts.

Q: Did routine servicing by the Florida seller create situs?
A: No.

Q: Did the right to put delinquent accounts back change the result?
A: No, when exercised after January 1.

Q: What could change the ruling's answers?
A: A discounted sales price that did not reflect an arm's-length transaction.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052 — control and management
• Fla. Stat. § 199.175 — Florida taxable situs
• Fla. Stat. § 199.051(10) — consolidated-return provision as cited in the ruling
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C-024

Original ruling text

Mar 01, 1996

Re: Technical Assistance Advisement No. 96(C)-024
Intangible Tax - Taxable Situs
Sections 199.052 and 199.175, F.S.
XXX ("Seller")
XXX ("Purchaser")
XXX ("Parent")

Dear

Your letter requesting a Technical Assistance Advisement has
been received by this office. The request deals with the
taxation of intangible property transferred to a non-Florida
entity.

STATEMENT OF FACTS

Seller is incorporated and commercially domiciled in Florida.
It is a manufacturer and wholesaler of decorative, ceramic tiles
with business locations in Lakeland, Florida. Seller has
previously filed a separate Florida intangible tax return.

Purchaser, a newly formed affiliate of Seller, is incorporated
in Delaware and commercially domiciled in Illinois. Purchaser
is not qualified to do business in Florida nor does it have a
business situs in Florida. Purchaser does not currently, and
will not for the duration of the proposed transaction, have any
agents, employees, or representatives of any kind in Florida,
other than the Seller, who may, perform ministerial activities
at the discretion of Purchaser.

Purchaser and Seller are wholly-owned subsidiaries of Parent, a
non-Florida corporation not involved in the proposed
transaction.

Prior to January 1, Seller is contemplating the sale of all or a
part of its accounts receivable to Purchaser. The receivables
will be sold at a discounted value in exchange for a promissory

note which will bear a market rate of interest and will
otherwise reflect arm's-length terms and conditions. The
transfer documents covering delinquent accounts will provide
that Purchaser may "put" delinquent accounts to the Seller,
pursuant to limited recourse provisions contained in the
documents.

The Purchaser will enter into a service agreement with the
Seller whereby the Seller will provide the following services:

*

Identifying the receivables which are sold, as such,
in their accounting records.

*

Ensuring that the sold receivables are in compliance
with any credit and collection policies of the
Purchaser or that the receivables are not in default
prior to 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 the purchaser on a

periodic basis

(typically monthly).
*

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

*

Remitting proceeds to Purchaser.

*

Routine communications with the customer regarding
late 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 the Seller will be paid a fee for providing these services.
Note that, the Seller shall be restricted to the ministerial
type functions outlined above and not have the authority to: (1)
compromise or settle any account; or (2) refer any account to an
outside collection agency, attorney, or other person for
collection. Only Purchaser will have responsibility to perform
the restricted activities.

Parent will start to file a Florida consolidated intangible tax
return in which both Seller and Purchaser will be included.

On or after January 2 of the following year, the Purchaser may
transfer some or all of its receivables back to the Seller. If
the receivables have been sold to the Purchaser in exchange for
a promissory note, the transfer back may be in satisfaction of
the note.

DISCUSSION OF 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.

REQUESTED ADVISEMENTS

1. The receivables sold by the Seller to the Purchaser prior to
   January 1, 1996, and owned by the Purchaser on January 1, 1996,
   are not subject to the intangible personal property tax levied
   pursuant to s. 199.032, F.S., since the Purchaser has neither a
   business situs nor is commercially domiciled in Florida.

2. The performance of ministerial functions by the Seller on
   behalf of the Purchaser will not establish a taxable situs in
   Florida for the sold receivables. Similarly no tax with respect
   to the sold receivables will be due if the ministerial functions
   are performed by the Purchaser from its location outside
   Florida.

3. The sale of receivables back to the Seller after January 1,
1996, will not affect the tax treatment of the receivables as
stated in 1., above.

4. The sale back of some or all of the receivables that may be
   "put" back to the Seller after January 1, 1996, will not change
   the tax treatment of the receivables for that year.

5. The activities of the Seller as outlined above, constitute
   ministerial functions or processing activities permissible under
   s. 199.032, F.S.

6. The promissory notes held by the Seller received from the
   Purchaser 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 in conformity with s.
   199.051(10), F.S.

CONCLUSION

Based upon statutory provisions and the information provided in
your request, the six requested advisements are answered in the
affirmative. However, the answer to each of these questions may
change if the receivables' discounted sales price are not
reflective of an arm's-length transaction.

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,

George D. Turner
Tax Policy & Dispute Resolution

GDT