Did an out-of-state corporation have Florida corporate income tax nexus when eight officers, including key officers, lived and worked in Florida?

Plain-English summary

Florida found that the out-of-state corporation had corporate income tax nexus and a Florida filing requirement through its officers' in-state activities.

The corporation owned no Florida property and had no Florida office, but eight of its fifteen officers lived in the state. They included the president, chief operating officer, controller, vice presidents responsible for human resources and international affairs, and other general vice presidents.

The Department said an officer's residence or mere presence did not automatically create nexus. Nexus arose when Florida-resident officers made management decisions or otherwise conducted corporate business in the state. Here the officers performed duties beyond soliciting sales, multiple key officers lived in Florida, and the company appeared to meet both the doing-business standard and the cited officer-residence rule.

What this means for you

• A company can have Florida nexus without property or a formal office in the state.
• Residence alone was not enough; the officers' business and management activities mattered.
• A key officer's extended Florida residence created a presumption that management occurred in Florida under the cited rule.
• Florida employees performing nonsolicitation functions provided an additional nexus basis.

Common questions

Q: Did the corporation have Florida corporate income tax nexus? A: Yes.

Q: Was that solely because officers lived in Florida? A: No. The Department relied on their management and other corporate duties performed in Florida.

Q: Did the lack of a Florida office prevent nexus? A: No.

Citations and references

• Fla. Stat. § 220.02 — taxable privileges
• Fla. Stat. § 220.11(1) — corporate income tax
• Fla. Admin. Code r. 12C-1.011(1)(l) — Florida employees
• Fla. Admin. Code r. 12C-1.011(1)(n) — Florida-resident officers
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C1-001

Original ruling text

May 01, 1996

Re: TAA 96(C)1-001
Corporate Income Tax - Nexus
XXX, hereinafter referred to as "Company"

Dear :

Your letter of XX, requested a Technical Assistance Advisement concerning whether the activities engaged in by "Company" create nexus for Florida corporate income tax purposes. This response to your request constitutes a Technical Assistance Advisement under Chapter 12-11, Florida Administrative Code, and is issued to you under the authority of s. 213.22, Florida Statutes.

FACTS

Company is incorporated in the state of XXX, owns no property and has no offices in Florida. However, eight of the company's fifteen officers reside in Florida including its President, Chief Operating Officer, Controller, Vice President of Human Resources, Vice President of International Affairs, and other general Vice Presidents.

QUESTION

Is the residence of these officers in Florida sufficient to create nexus for Florida corporate income tax as provided by Rule 12C-1.011(1)(n), F.A.C.?

DISCUSSION AND ANALYSIS OF LAW

Subsection 220.11(1), F.S., states:

A tax measured by net income is hereby imposed on every taxpayer for each taxable year commencing on or after January 1, 1972, and for each taxable year which begins before and ends after January 1, 1972, for the privilege of conducting business, earning or receiving income in this

state, or being a resident or citizen of this state. Such tax shall be in addition to all other occupation, excise, privilege, and property taxes imposed by this state or by any political subdivision thereof, including any municipality or other district, jurisdiction, or authority of this state.

Rule 12C-1.011(1)(n), states:

(1) The following activities, notwithstanding others within the meaning of taxable privileges described in s. 220.02, F.S., will be construed as conducting business, earning or receiving income in this state, or constitute those activities of a resident or citizen of this state for purposes of this tax, and corporations participating therein are subject to taxation unless exempted by the constitution or the laws of the United States or this state.

(n) Having corporate officers who have permanent or extended temporary residence (3 months in the aggregate of a 12 month period) within the state who make management decisions while residing in the state. If the only officer of the corporation or a key officer of the corporation is residing within the state, management of the corporation is presumed to be occurring within the state.

As stated in the statute referenced above, corporations conducting business in Florida are subject to Florida's corporate income tax. The purpose of the rule is to clarify the intent of the statute and provide guidance to corporations in determining if they have sufficient nexus to create a Florida corporate income tax filing requirement.

The rule paragraph referenced above begins, in the first sentence, with the general condition of having officers with permanent or extended temporary residence in Florida who make management decisions during the time they are here, being sufficient to create nexus for Florida corporate income tax purposes. In the second sentence the rule becomes more specific, stating that if the only officer or a key officer of

the corporation resides in Florida, there is sufficient nexus to create a filing requirement. Additionally, the first sentence does not make the presumption that the presence of corporate officers in Florida automatically results in management decisions being made by them while in Florida. However, the second sentence makes the presumption that because the only officer, or a key officer of the corporation is in Florida, management decisions are being made by him while in Florida. Therefore, a corporation having officers in Florida for extended periods, who conduct the corporation's business in Florida will create sufficient nexus to subject the corporation to Florida corporate income tax, because the corporation is considered to be conducting business in Florida. If the only officer, or a key officer of the corporation is in Florida for an extended period, it will be presumed that the officer is participating in conducting the corporation's business.

The intent of the statute or rule is not to say that the mere presence of a corporate officer in Florida is sufficient to create nexus for Florida corporate income tax purposes. Nexus is created when the corporation is deemed to be conducting business, earning or receiving income, or being a resident or citizen of Florida. One means of conducting business in Florida is to have corporate officers in Florida who are involved in conducting the corporation's business.

Company has multiple officers living in Florida, and appears to satisfy both the definition of "doing business" in Florida, and the requirements of the rule sufficiently to create nexus and a Florida corporate income tax filing requirement. Additionally, Rule 12C-1.011(1)(l), F.S., provides that nexus is created for corporations having employees in Florida who perform functions in Florida other than solicitation of sales. In your request you state the officers perform duties other than solicitation of sales, in Florida. These activities would create nexus with Florida absent the provisions of the cited rule. Therefore, based on the facts provided in your letter, it appears the corporation has sufficient nexus to create a Florida filing requirement because it is conducting business in Florida through its officers who are here.

Although there is no definition of "key officer" in the statutes, rules or other authoritative source, a "key officer" is generally understood to be one who is so intrinsically involved in the running of the corporation or business, that their loss would be extremely detrimental to the corporation or business, and significantly impair its ability to conduct its business as it had previously. Frequently, "key person" insurance policies are written on these people to indemnify the corporation or business in the event of their deaths.

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 based 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,

Suzanne C. Paul
Tax Policy and Dispute
Resolution

SCP/kk
Control No.: 24185