Under Florida's 1996 intangible tax, were receivables contributed before January 1 to a Delaware subsidiary taxable?

Plain-English summary

Florida did not tax receivables contributed before January 1 to a Delaware subsidiary with no Florida business situs.

The subsidiary held the receivables on January 1 and could return them about one week later as dividends or in exchange for its stock. That later transfer did not change ownership, management, or control 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 subsidiary stock received for the contribution was excluded when parent and subsidiary met the affiliated-group tests and filed together.

What this means for you

• January 1 ownership controlled despite a planned short holding period.
• Ministerial servicing did not create management or control.
• Stock exclusion depended on affiliated-group status and consolidated filing.

Common questions

Q: Were the Delaware subsidiary's receivables taxable?
A: No.

Q: Did returning them a week later change the result?
A: No.

Q: Was the subsidiary stock taxable?
A: No, when parent and subsidiary 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 96C2-007

Original ruling text

Feb 06, 1996

Re: Technical Assistance Advisement No. 96(C)2-007
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, a subsidiary of C-Corp, 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 a wholly owned subsidiary (Newco) under the
laws of the state of Delaware. Newco will be commercially
domiciled and maintain its principle office outside of Florida.
Newco 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.

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 in exchange for Newco stock. Approximately one
week after January 1, Newco may distribute the receivables to
Parent as dividends or in exchange for Parent's Newco stock.

Parent and Newco 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 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 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 contributed by Parent to
Newco and owned by Newco 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 subparagraph 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 contributed by
Parent to Newco and owned by Newco 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 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 and Newco 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
would not be subject to the 1996 annual tax to the extent that
Parent and Newco 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 in a
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
as dividends back to Parent for Newco 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 as dividends back to Parent for the stock of Newco
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 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,

George D. Turner
Senior Tax Specialist
Tax Policy & Dispute Resolution

GDT