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

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