Under Florida's 1996 intangible tax, how were receivables transferred by a Florida subsidiary to its out-of-state parent treated?

Plain-English summary

The out-of-state parent's purchased receivables were subject to Florida's intangible tax only to the extent the customers owing the debts were domiciled in Florida. The parent managed and controlled the receivables outside Florida, while the Florida subsidiary performed only bookkeeping, record-keeping, and collection functions at the parent's direction. The Department said those ministerial functions did not amount to control or management of the parent's receivables.

The Florida subsidiary transferred the receivables before January 1, so it was not liable for intangible tax on them on the stated facts. The promissory note it received from the parent was also not taxable because the note would be eliminated as an intercompany account on the consolidated intangible-tax return.

What this means for you

Under the historical tax addressed by this ruling, the January 1 owner, the debtor's domicile, and where the receivables were managed or controlled drove the result. Limited servicing work in Florida did not by itself make the parent-owned receivables managed or controlled here.

Common questions

Q: Were all receivables owned by the out-of-state parent exempt?
A: No. Receivables owed by customers domiciled in Florida remained subject to Florida intangible tax.

Q: Was the Florida subsidiary taxed on receivables transferred before January 1?
A: No, under the described transfer and assessment-date facts.

Q: Did the Florida subsidiary's collection work create management or control?
A: No. The ruling characterized the listed bookkeeping, record-keeping, and collection work as ministerial.

Q: Was the parent's promissory note taxable on the consolidated return?
A: No. The note was eliminated as an intercompany account on that return.

Citations and references

• Fla. Stat. § 199.023(3) — definition of person
• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1) — January 1 filing and taxable-situs rule
• Fla. Stat. § 199.175(1) — taxable situs based on domicile, management, or control
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-002

Original ruling text

Jan 23, 1996

Re: Technical Assistance Advisement No. 96(C)2-002
Intangible Tax - Taxable Situs - Accounts Receivable
Sections 199.052 & 199.175, F.S.
XXX (Parent)
XXX (Subsidiary)

Dear :

This is in response to your request for a technical
assistance advisement. Your specific request concerns the
taxation of accounts receivable sold by Subsidiary to Parent in
exchange for a promissory note.

Statement of Facts

Parent is organized under the laws of a state other than
Florida and maintains its principal office outside the State of
Florida. Subsidiary is a corporation organized under the laws
of the State of Florida and maintains its principal office in
Florida. Subsidiary's primary business involves the sale and
marketing of the products manufactured by Parent to customers
located in the Caribbean region and in Latin America. In the
course of business, Subsidiary establishes credit lines for some
of its customers. On or before December 31, 1995, Subsidiary
will transfer the receivables resulting from the credit lines to
Parent. The receivables will be sold at face value for a
promissory note that will bear a market rate of interest and
will otherwise reflect arms length terms and conditions.

During the period that Parent will own the receivables, it
will manage and control the receivables outside Florida.
However, Subsidiary will perform ministerial services with
respect to the transferred receivables from its Florida
location. Subsidiary's role will be limited to bookkeeping,
record-keeping and collection functions performed at Parent's
direction.

On or after January 2, 1996, Parent will transfer the
receivables back to Subsidiary in satisfaction of its promissory
note to Subsidiary.

Issues

1. To what extent are the receivables purchased by Parent
   subject to the Florida intangible tax?
2. Will Subsidiary be subject to intangible tax on the
   receivables it transfers to Parent prior to January 1,
   1996?
3. If Subsidiary and Parent file a consolidated
   intangible tax return, will the note from Parent to
   Subsidiary be included as a taxable item on the
   consolidated return?

Discussion and Law

Chapter 199, F.S., provides for the levy of intangible
personal property taxes at the rate of 2 mills. The statutes
require that the tax imposed under s. 199.032, F.S., be paid by
June 30 of each year. An intangible tax return must be filed
with the Department of Revenue by every person authorized to do
business in this state or doing business in this state,
regardless of domicile, who on January 1, owned, controlled, or
managed intangible personal property that had a Florida taxable
situs. (See s. 199.052(1), F.S.) The term "person" includes any
individual, firm, partnership, joint venture, or corporation.
(See s. 199.023(3), F.S.) Section 199.175(1), Florida Statutes,
provides that intangible property shall have a taxable situs in
this state when it is owned, managed, or controlled by any
person domiciled in this state.

With respect to the first basis for situs, as outlined in
s. 199.175(1), F.S., i.e., Florida domicile, Parent has its
principal place of business outside of Florida. It follows that
the intangible property of Parent may be taxed only if Parent
has taxable situs in Florida. The ministerial and processing
functions performed by Subsidiary would not constitute control
or management of the accounts receivable of Parent.

Requested Rulings

1. The receivables purchased by Parent prior to January
   1, 1996, will be subject to Florida intangible tax
   only to the extent that the debt represents
   receivables owed by a customer who is domiciled in
   Florida.
2. Subsidiary will not be liable for Florida intangible
   tax on the receivables that are transferred to Parent
   prior to January 2, 1996.
3. The promissory note received by Subsidiary from Parent
   in consideration for the receivables will not be
   subject to intangible tax because the debt represented
   by the note will be eliminated as an intercompany
   account in the consolidated return.

Conclusion

Based upon statutory provisions and the information
provided in your request, the three requested rulings are
answered in the affirmative.

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. 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,

Nadine C. Posey
Senior Tax Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

NCP/mh