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