Under Florida's 1996 intangible tax, what happened when Florida companies transferred receivables to an out-of-state partnership before January 1?

Plain-English summary

The Florida companies' receivables were taxable until they were transferred, but the transaction as structured produced no Florida intangible-tax liability after the out-of-state partnership took ownership.

The partnership's books, records, bank accounts, offices, and meetings were outside Florida, and it bore the economic risk of owning the receivables. A Florida corporation performed specified recordkeeping, reporting, payment-recording, and remittance services but could not perform other activities without the partnership's written permission.

The Department concluded that the partnership had no Florida taxable situs. It also said the two Florida companies had no tax liability on their 99% limited-partner and 1% general-partner interests. The receivables were to be distributed back to the partners at the opening of business on January 2.

What this means for you

Under the historical tax addressed by the ruling, ownership on the assessment date, where an entity operated, who bore economic risk, and the limits on a Florida servicer's authority all mattered. The result was expressly tied to the transaction as structured.

Common questions

Q: Were the receivables taxable before the transfer?
A: Yes. The Department said they remained subject to intangible tax until the Florida companies transferred them.

Q: Was the out-of-state partnership taxed on the receivables?
A: No. On the described facts, it had no taxable situs in Florida.

Q: Were the Florida companies taxed on their partnership interests?
A: No. The ruling concluded that neither company had tax liability for its stated partnership interest.

Q: Did the Florida corporation's servicing work create Florida situs?
A: Not under the limited service agreement described, which restricted its authority to specified administrative tasks unless the partnership gave written permission.

Citations and references

• Fla. Stat. § 199.052(1) — return filing for Florida-situs intangible property
• Fla. Stat. § 199.175 — taxable situs
• Fla. Stat. § 199.185(1)(c) — general-partner interest exemption
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-001

Original ruling text

Jan 12, 1996

Re: Technical Assistance Advisement No. 96(C)2-001
Intangible Tax - Taxable Situs
Sections 199.052 and 199.175, F.S.
XXX ("Holdings")
XXX ("Corporation")

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.

FACTS

The facts that you have provided to the department are as
follows:

The taxpayers are commercially domiciled in Florida. On
December 29, 1995, the taxpayers will form a Foreign
partnership. The partnership will not be registered with the
Securities and Exchange Commission (SEC), nor will it be
regulated by the SEC. Corporation will contribute all of its
accounts receivable to the Foreign partnership in exchange for a
99% limited partnership interest in the partnership. Holdings
will contribute certain intercompany receivables to the
partnership in exchange for a 1% general partnership interest.
The books, records, bank accounts and offices of the partnership
will be maintained in the other state. Partnership meetings will
be held in the other state. Economic risk of loss inherent in
owning receivables will rest with the partnership during the
time the partnership owns the receivables. At the time of the
transfer Corporation will enter into an agreement with the
partnership to provide services, which will be in effect for the
period in which the partnership owns the receivables. Pursuant
to the service agreement, Corporation will provide the following
services to the partnership:

a) Identifying all receivables contributed to the partnership
in its accounting records;
b) Ensuring that receivables that are contributed are in
compliance with any credit and collection policies of the
partnership or that the receivables are not in default
prior to contribution;
c) Maintaining the books and records necessary for the
collection of the contributed receivables;
d) Reporting activities, outstanding balances, and aging of
receivables to the partnership;
e) Recording cash payments on the receivables;
f) Remitting proceeds to the partnership;
g) Notifying the partnership of uncollected accounts.

Corporation will not have the authority to engage in any
activities other than those indicated above without the express
written permission of the partnership. At the opening of
business on January 2, 1996, the partnership will distribute out
to the partners the trade account receivables and intercompany
receivables of the partnership.

ISSUES

Based on the facts as stated above, four rulings have been
requested on the following issues:

1. Will Corporation be subject to the intangible tax on the
   receivables it contributes to the partnership prior to
   January 1, 1996?
2. To what extent, if any, will the partnership be subject to
   the intangible tax?
3. Will Corporation be subject to the intangible tax on its
   limited partnership interest in the partnership?
4. Will Holdings be subject to the intangible tax on its
   general partnership interest in the partnership?

LAW AND DISCUSSION

Section 199.052(1), F.S., requires that every person domiciled
in this state that owns, manages or controls intangible property

having a business situs in the state, must file an intangible
tax return. Section 199.175, F.S., states that intangible
property shall have a taxable situs in this state when it is
owned by a person domiciled in this state or it arose out of
business transacted in this state by employees, agents or
representatives of any kind from a location within this state or
with customers in this state. Section 199.185(1)(c), F.S.,
provides that the interest of a general partner in any
partnership is exempt from the intangible tax.

CONCLUSION

Until Taxpayers transfer the receivables, the receivables are
subject to the intangible tax. The partnership that will be
formed in foreign state will not be subject to Florida's
intangible tax, as it will have no taxable situs in Florida.
Taxpayers as partners of a partnership will have no tax
liability for their interest in the partnership. Therefore, the
transaction as structured will result in no intangible tax
liability for the foreign partnership, and the Taxpayers will
have no tax liability on the receivables after the receivables
are transferred to the foreign partnership.

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.

Sincerely,

Mary Ella Ingram
Tax Law Specialist
Tax Policy and Dispute Resolution

Ctrl No: 24337