Under Florida's 1996 intangible tax, were receivables contributed before January 1 to two Illinois subsidiaries taxable?

Plain-English summary

Florida did not tax receivables contributed before January 1 to two Illinois subsidiaries with no Florida business situs.

The subsidiaries held the receivables on January 1 and planned to distribute them back to the parent as dividends about one week later. That post-January 1 return did not alter who owned, managed, or controlled them on the assessment date.

The parent's recordkeeping, payment accounting, reporting, and routine customer communications were ministerial and processing activities, whether performed inside or outside Florida. The stock received for the capital contributions was excluded when the parent and both subsidiaries satisfied the affiliated-group ownership tests and filed the same consolidated return.

What this means for you

• January 1 ownership controlled despite a planned near-term dividend return.
• Ministerial servicing did not create management or control.
• Stock exclusion depended on the affiliated-group tests and common consolidated filing.

Common questions

Q: Were the Illinois subsidiaries' receivables taxable?
A: No.

Q: Did returning them a week after January 1 change the result?
A: No.

Q: Was the subsidiaries' stock taxable to the parent?
A: No, when all three corporations qualified and filed together.

Citations and references

• Fla. Stat. § 199.023(8) — affiliated group ownership tests
• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1), (10) — ministerial functions and consolidated returns
• Fla. Stat. § 199.175(2)(a) — business transacted in Florida
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-006

Original ruling text

Feb 06, 1996

Re: Technical Assistance Advisement No. 96(C)2-006
Intangible Tax - Taxable Situs
Sections 199.052 and 199.175, F.S.
XXX (Parent, Inc.)

Dear

Your letter requesting a Technical Assistance Advisement dated
has been received by this office. The request deals with the
taxation of intangible property transferred to a non-Florida

entity.

STATEMENT OF FACTS

Parent, Inc. (Parent) is incorporated in Delaware and is
domiciled in Florida. Parent generates sales within and without
Florida and has accounts receivables that are generated in and

out of Florida.

Parent will form two wholly owned subsidiaries (Newco #1 and
Newco #2) under the laws of the state of Illinois. Newco #1 and
Newco #2 will be commercially domiciled and maintain their
principle office outside of Florida. Newco #1 and Newco #2 will
have no sales, property or business situs in Florida and will

not have any agents, employees, or representatives of any kind
in Florida. Parent will perform ministerial activities

(described below) at the discretion of Newco #1 and Newco #2.

Prior to January 1, 1996, Parent is contemplating the transfer

of all its accounts receivable to Newco #1 and Newco #2. The
receivables will be transferred from Parent as a contribution to
capital of Newco #1 & Newco #2. Approximately one week after
January 1, Newco #1 & Newco #2 may distribute the receivables to

Parent as dividends.

Parent and Newco #1 and Newco #2 will enter into a service

agreement whereby Parent will provide the following services:

• maintain the books and records necessary for the collection
  of the receivables;

• report activities, outstanding balances, and aging of
  receivables to Newco #1 and Newco #2 on a periodic basis
  (typically monthly);

• account for the payment of the receivables which will be
  sent to the bank account of Corporation A, a wholly owned
  subsidiary of Parent. The bank is located outside of
  Florida. The funds will be remitted to Newco #1 and Newco

2 shortly thereafter.

• perform routine communications with the customer regarding
  late payments and credit problems, and,

• notify Newco #1 and Newco #2 of uncollected accounts by

monthly transmittal of status report.

The agreement will be based on arm's length terms and conditions
and Parent will be paid a fee for providing these services.
Parent, Newco #1, and Newco #2 will be included in the filing of

a consolidated Florida intangible personal property tax return.

ADVISEMENTS REQUESTED / CONCLUSIONS OF LAW

Based upon the scenario above, you have requested technical

assistance on the following issues:

Question 1:

Are the receivables which are sold by Parent to Newco #1
and New #2 and owned by Newco #1 and Newco #2 on January 1
subject to the intangible tax levied pursuant to section

199.032, F.S.?

Response:

The taxable status of this issue is governed by the "taxable
situs" provisions of sections 199.052 and 199.175, F.S., which
generally provide that the tax shall be paid on any intangible
personal property that falls within the following two

categories:

i) Any and all non-exempt intangible property that is
owned, managed, or controlled by any person domiciled in
this state as of January 1 of the tax year. For purposes

of this provision of law, "manage" or "control" is defined
under section 199.052(1), F.S., as to not include any

ministerial function or processing activity.

ii) Any and all non-exempt intangible property that is
derived from, arises out of, or is issued in connection

with business transacted in this state and which is owned,
managed, or controlled by any person, regardless of
domicile, that transacts business in this state. For
purposes of this provision of law "business transacted in
this state" is defined under paragraph 199.175(2)(a), F.S.,
to be the regular conduct of business with customers in
this state from a business location or through agents,

employees, or representative of any kind within this state.

Therefore, it is the department's determination based on the

facts before us, that the receivables which are sold by Parent

to Newco #1 and Newco #2 and owned by Newco #1 and Newco #2 on
January 1 would not be subject to the 1996 Florida intangible

tax since, as of January 1 of that year, they were not owned,

managed, or controlled by a person domiciled in this state, or

by any person transacting business in this state.

Question 2:

If Parent receives capital stock from Newco #1 and Newco #2
from the transfer of the receivables, will the stock be
eliminated from Parent's taxable intangibles through the

filing of a consolidated intangible personal property tax

return?

Response:

The taxable status of this issue is governed by the provisions
of subsection 199.052(10), F.S., which generally provides that
an "affiliated group of corporations" may elect to file a
consolidated return and exclude from taxation any capital stock,

other than the parent's, which is owned by another corporation

included on the return. For purposes of this provision of law

an "affiliated group of corporations" is generally defined as a
chain of corporations that satisfies both of the 80% stock
ownership tests as provided for under subsection 199.023(8),

F.S.

Thus, since Parent, Newco #1, and Newco #2, do in fact
constitute an affiliated group for purposes of section

199.023(8), F.S., we therefore conclude that the capital stock
which Parent received from Newco #1 and Newco #2 would not be
subject to the 1996 annual tax to the extent that each of the

three entities are included on the same consolidated return.

Question 3:

What is a definition of "ministerial functions", and do the
above outlined activities of Parent constitute ministerial
functions or processing activities under section 199.052,

F.S.?

Response:

Insofar as there is no statutory definition for the term

"ministerial" under Chapter 199, F.S., the department must
therefore turn to the fundamentals of statutory construction to
ascertain the meaning of this particular term as it applies to

section 199.052, F.S. In this regard, the court in the matter

of Simmons v. Schimmel, 476 So.2d 1342, 1344 (Fla. 1985), stated

it to be an axiom of statutory construction that when a statute
does not specifically define words of common usage, such words
are to be construed in accordance with their plain and ordinary
meaning. Consequently, the department has turned to Black's Law
Dictionary (6th Edition) in order to ascertain the ordinary and
plain meaning of the term "ministerial" which it defines as

"that which involves obedience to instructions, but demands no
special discretion, judgment, or skill" and an act "which a

person or board performs under a given state of facts ina
prescribed manner in obedience to the mandate of legal authority
without regard to or the exercise of his or their own judgment
upon the propriety of the act being done." Thus, based on this

particular definition of the term "ministerial", we therefore

conclude that the described activities of Parent would in fact
constitute ministerial functions for purposes of section

199.052, F.S.

Regarding the question as to whether the described activities of
Parent would constitute a "processing activity" for purposes of
section 199.052, F.S., and in the absence of both a statutory

and plain and ordinary meaning for this term, the department
therefore is required to rely on the doctrine of statutory

construction known as ejusdem generis as announced in the matter

of Hannah v. Sunrise, 94 So.2d 597 (Fla. 1957). This doctrine

of statutory construction provides that where the enumeration of
specific things is followed by a more general word or phrase,

then in such cases the general word or phrase is construed to
refer to a thing of the same kind or species as is included

within the preceding limiting or confining terms. Thus, based

on this particular doctrine of statutory construction, it is our
opinion that the terms "any ministerial function" and "and any
processing activities" should be construed to be synonymous, and
we therefore conclude that the described activities of Parent
would also constitute "processing activities" for purposes of

section 199.052, F.S.

Question 4:

Does it make a difference whether Parent performs these

ministerial functions within or outside of Florida?

Response:

No, the taxable status of the receivables owned by Newco #1 and
Newco #2 on January 1, 1996, would not be affected by whether
the described ministerial functions of Parent are conducted

within or outside Florida inasmuch as these activities do not
constitute the management or control of an intangible asset for

purposes of section 199.052, F.S.

Question 5:

Will a distribution of the receivables to Parent from Newco

1 and Newco #2 as dividends back to Parent for Newco #1

and Newco #2 stock one week after January 1 cause the
receivables to be subject to the intangible tax pursuant to

section 199.032, F.S.?

Response:

No, a post January 1 distribution of the receivables to Parent

from Newco #1 and Newco #2 as dividends back to Parent for the
stock of Newco #1 and Newco #2 would not cause the receivables
to be subject to the 1996 annual tax since this transaction

would not alter the fact that the receivables were not owned,
managed, or controlled by a person domiciled in this state, or

by a person transacting business in this state as of January 1

of that year.

This response constitutes a Technical Assistance Advisement
under section 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 section 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 section 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,
George D. Turner

Senior Tax Specialist

Tax Policy & Dispute Resolution

GDT