Could a Florida manufacturer apportion its corporate income when it used an out-of-state contract plant staffed and supervised by its employees?

Plain-English summary

The Florida Department of Revenue concluded that the manufacturer was doing business outside Florida and could apportion its corporate income. Its activities at an out-of-state contract manufacturing plant were substantial enough to satisfy the cited statute and rule.

The company had an employee who split time between the Florida and out-of-state plants and managed quality control, manufacturing problems, purchasing, receiving, and shipping. That employee also supervised company employees and leased workers at the contract plant, where they generated monthly reports and occupied office space dedicated exclusively to the company.

The company controlled separately stored raw materials at the plant, bore their risk of loss, and allowed only its own employees to release its goods. Products were shipped from the out-of-state plant either directly to customers or back to Florida. On those facts, the Department allowed apportionment, provided the income was included in the company's U.S. corporate income tax return.

What this means for you

Manufacturers using out-of-state contractors

Using a contract manufacturer did not prevent the company from being treated as doing business in that state. Its own people, supervision, dedicated space, inventory control, and shipping activity made the out-of-state operation more than a passive vendor relationship.

Multistate corporate tax departments

Florida's cited rule required business activity taxable both within and outside Florida before apportionment. The ruling tied that status to the company's operational presence and control at the contract plant.

Accountants and tax professionals

The conclusion was not based on interstate sales alone. The Department expressly relied on the broader out-of-state manufacturing facts, and limited the apportionment permission to income included in the federal corporate return.

Common questions

Q: Could the manufacturer apportion its Florida corporate income?
A: Yes. The Department found it was doing business both within and outside Florida on the facts presented.

Q: Did using a contract manufacturer count as out-of-state business activity?
A: Yes in this situation, because the company maintained its own employees and leased workers, supervision, dedicated office space, inventory control, and shipping functions at the plant.

Q: Were interstate sales alone enough?
A: The ruling did not say so. It relied on the operational activities at the out-of-state plant in addition to the company's interstate sales.

Q: Was every category of income eligible for apportionment?
A: The Department stated that apportionment was allowed provided the income was included in the company's U.S. corporate income tax return.

Q: Can another manufacturer rely on this TAA?
A: Not automatically. The advisement states that it binds the Department only under the facts and circumstances described in the request, and later legal changes or court interpretations may produce a different result.

Citations and references

• Fla. Stat. § 220.15(1) (apportionment for taxpayers doing business within and outside Florida)
• Fla. Stat. § 220.13 (adjusted federal income)
• Fla. Stat. §§ 220.151 and 220.152 (exceptions referenced by section 220.15)
• Fla. Admin. Code r. 12C-1.015(1) (doing business within and outside Florida)
• Black's Law Dictionary, Fifth Edition (definition of "doing business" quoted by the Department)
• Fla. Stat. § 213.22 and Fla. Admin. Code ch. 12-11 (technical assistance advisements)
• Fla. Stat. ch. 119 (public records)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C1-007

Original ruling text

Dec 19, 1996

Re: TAA 96(C)1-007
Corporate Income Tax - Apportionment
XXX, hereinafter referred to as "A"

Dear :

Your letter of XX, requested a Technical Assistance Advisement
concerning whether the activities engaged in by "A" are
sufficient to allow it to apportion its income. 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

Your letter states that "A" is a manufacturing company located
in Florida which engages in limited manufacturing in XXX through
a contract manufacturer. "A" has an employee who divides his
time between the manufacturing plants located in XXX and in
Florida, and resided in XXX prior to XXX. The employee is
responsible for managing quality control, correction of problems
in the manufacturing process, and supervising "A's" employees in
XXX, as well as monitoring purchasing, receiving, and shipping
activities. The employee also supervises "A's" leased employees
who work at the manufacturing plant in XXX. Additionally, these
employees are responsible for generating monthly reports
detailing purchases and usage of raw materials, and goods
manufactured and shipped. These employees occupy office space
which is dedicated only to "A."

Your letter further states that "A's" purchases from XXX, which
are stored separately from the plant's other goods, are
controlled by "A," which bears risk of loss of these goods.
Additionally, only "A's" employees may release its goods from
the plant in XXX. Products sold by "A" are shipped directly from
the plant in XXX to customers, or are shipped to "A," in
Florida, prior to shipping them to customers.

Aside from interstate sales and the activities discussed above,
"A" conducts no business outside of Florida.

QUESTION

Are "A's" activities in XXX sufficient to cause it to be
considered to be "doing business" there, thus qualifying it to
apportion its income within and without Florida?

DISCUSSION AND ANALYSIS OF LAW

Subsection 220.15(1), F.S., states in pertinent part:

Except as provided in ss. 220.151 and 220.152, adjusted
federal income as defined in s. 220.13 shall be apportioned
to this state by taxpayers doing business within and
without this state....

Rule 12C-1.015(1), F.A.C., states in pertinent part:

For taxable years beginning on or after January 1, 1991,
corporations will apportion their adjusted federal income
in accordance with s. 220.15, F.S., only if they are doing
business within and without Florida. A taxpayer will be
considered doing business within and without this state if
it has income from business activity which is taxable both
within and without Florida.

Black's Law Dictionary, Fifth Edition, defines "doing business"
as follows:

Within statutes on service of process on foreign
corporations, means equivalent to carrying on, conducting
or managing business. A foreign corporation is "doing
business", making it amenable to process within state, if
it does business therein in such a manner as to warrant the
inference that it is present there. Or that it has
subjected itself to the jurisdiction and laws in which the
service is made....

As stated in the statute and rule referenced above, a
corporation must be doing business within and without Florida in
order to qualify to apportion its income for Florida corporate
income tax purposes. Based on the information presented in your
letter, it appears that "A" is "doing business" in XXX, as that
term is used in the statute. Accordingly, "A" would be allowed
to apportion its income for Florida corporate income tax
purposes, provided that income was included in "A's" United
States corporate income tax return.

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.: 26506