Under Florida's 1996 intangible tax, were receivables contributed before January 1 to an out-of-state partnership taxable?

Plain-English summary

Receivables contributed before January 1 to the out-of-state general partnership were not subject to Florida intangible tax on the stated facts. The general partnership was domiciled outside Florida and had no Florida employees, agents, or representatives. A Florida debtor, by itself, did not give the receivable Florida tax situs, even when the receivable originally arose from Florida business activity.

Returning the receivables to the Florida limited partnership after January 1 did not change their treatment on the January 1 assessment date. The limited partnership's ownership interest in the general partnership was also exempt under the cited statute.

The servicing arrangement required caution. Bookkeeping, reporting, collecting payments, remitting proceeds, and routine late-payment notices were generally ministerial. Customer communications involving decisions, however, would cause the receivables to remain subject to Florida tax.

What this means for you

The ruling turned on who owned, managed, and controlled the receivables on January 1 and whether Florida servicing stayed ministerial. A nominal transfer would not protect receivables if the Florida business kept substantive collection decisions.

Common questions

Q: Were the out-of-state partnership's January 1 receivables taxable? A: No, under the stated domicile, ownership, management, and Florida-contact facts.

Q: Did original Florida business situs follow the receivables? A: No. A Florida debtor alone was not enough once the unrelated Florida connections described were absent.

Q: Did a distribution back after January 1 change the result? A: No.

Q: Could the Florida partnership service the receivables? A: Yes, if it stayed within ministerial tasks; decision-making customer communications would change the result.

Citations and references

• Fla. Stat. § 199.052(1) — return requirement for Florida-situs intangible property
• Fla. Stat. § 199.175 — domicile and business situs
• Fla. Stat. § 199.185(1)(c) — partnership interests
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-003

Original ruling text

Jan 17, 1996

Re: Technical Assistance Advisement 96(C)2-003 Intangible Tax - Property Subject to Tax - Accounts Receivable Sections 199.052 and 199.175, F.S. XXX (Limited Partnership)

Dear :

Your letter requesting a Technical Assistance Advisement has been referred to this office for response. Your request is based upon the following statements:

Limited Partnership is commercially domiciled in Florida and owns accounts receivable that arose from sales of products to customers both in and out of Florida. Limited Partnership will form a general partnership under the laws of a state other than Florida. The general partnership will be domiciled in the state of organization. The general partnership will be capitalized by a minimal cash contribution. The general partnership will have no employees, agents or representatives of any kind in Florida. On or before December 31 of each year Limited Partnership will transfer ownership of its accounts receivable to the general partnership as a contribution to capital. Appropriate entries will be made to remove the accounts receivable and record the equity investment in the general partnership on Limited Partnership's books. Management and control of the receivables will rest with the general partnership during the time that the general partnership owns the receivables. Shortly after January 2 of each year some or all of the accounts receivable will be transferred back to Limited Partnership as a partnership distribution.

Limited Partnership will enter into a service agreement with the general partnership whereby Limited Partnership will perform ministerial duties at the direction of the

general partnership. Limited Partnership will be paid a fee for performing this service. The service agreement could be terminated by either party upon notification to the other party. The ministerial duties will include the following:

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Maintaining the books and records necessary for the collection of the accounts receivable.

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Reporting activities, outstanding balances, and aging of Receivables to the general partnership on a periodic basis.

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Collecting the payments on the accounts receivable and accounting for the same.

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Remitting proceeds to the general partnership.

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Routine communications with the customers regarding late payments.

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Routine communications with customers regarding credit problems.

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Sending routine form reminder notices to customers for late payments.

Provisions of Law

Section 199.052(1), F.S., requires that every person who owns, manages or controls intangible personal property having a taxable situs in this state must file a return. Section 199.175, F.S., provides that taxable situs is established when a person is legally or commercially domiciled in Florida. Therefore, a person domiciled in Florida who owns, manages or controls intangible property is subject to tax on all their taxable intangible property. This section also requires that persons conducting business through employees, agents or representatives of any kind from their business location or at the customer's location in this state pay an intangible tax on the intangible property arising out of the business activity.

Requested Advisement

Based upon the transaction described above several questions have been posed with regard to the taxation of the accounts receivable and Limited Partnership. These questions

are:

1. Are the receivables which are transferred to the
   general partnership by Limited Partnership and owned, controlled and managed by the general partnership on January 1 subject to the Florida Intangible Personal Property Tax?
2. If the accounts receivable contributed to the general
   partnership include accounts receivable which originally had Florida business situs, will such receivables be subject to the Florida Intangible Personal Property Tax?
3. If the assets are transferred back to Limited
   Partnership after January 1 does this affect the tax treatment of the assets on January 1?
4. Will the investment in the general partnership be
   included in Limited Partnership's intangible tax base?
5. Do the activities listed above, which are services to
   be provided by Limited Partnership for the general partnership, subject the assets to the intangible tax? If so, which of the activities would be deemed to exceed the ministerial functions or processing activities contemplated in s. 199.052(1), F.S.

Response to Requested Advisement

Response to advisement 1. Every person that is domiciled in Florida on January 1 must pay an intangible tax on all their taxable intangible property. Based upon the information contained in your correspondence the general partnership is a non-Florida entity. Therefore, as the owner of the accounts receivable on January 1 the general partnership would have no intangible tax liability for the accounts receivable purchased from Limited Partnership.

Response to advisement 2. Intangible property which arose from business activity in Florida, owned by a person having no connection with Florida, other than a debtor present in the State, is not subject to Florida's intangible personal property tax. (Also see response to advisement 1.)

Response to advisement 3. If Limited Partnership purchases the accounts receivable or they are returned as a partnership distribution after January 1, it will not affect the taxability of the receivables on January 1.

Response to advisement 4. Limited Partnership's interest in the general partnership is not subject to Florida's intangible tax. (See s. 199.185(1)(c), F.S.)

Response to advisement 5. The activities described generally constitute ministerial functions. However, the communication with customers should be approached with caution. Communications between Limited Partnership and the customers, during the period the receivables are owned by the general partnership, should be limited to such things as reminder notices and notices of late payment. Other activities which involve decision making will cause the accounts receivable to remain subject to the intangible tax.

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,

J.V. Parramore. Jr.
Tax Law Specialist
Tax Policy and Dispute Resolution
Office of General Counsel
JVP/mh