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