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

Plain-English summary

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

The subsidiary maintained its principal office outside Florida and had no Florida sales, property, agents, employees, or representatives. The Florida-domiciled parent maintained records, accounted for lockbox payments, reported balances, and conducted routine customer communications for a fee.

The Department treated those activities as ministerial and processing functions whether performed inside or outside Florida. They did not give the parent management or control of the receivables. The intercompany promissory note was excluded when parent and subsidiary filed the same consolidated return.

What this means for you

• The buyer's January 1 ownership and lack of Florida situs controlled.
• Location did not change the result for genuinely ministerial work.
• Consolidated filing eliminated the intercompany note.

Common questions

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

Q: Did the parent's Florida servicing create taxable control?
A: No.

Q: Was the note taxable?
A: It was excluded on the shared consolidated return.

Citations and references

• 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 96C2-008

Original ruling text

Feb 06, 1996

Re: Technical Assistance Advisement No. 96(C)2-008
Intangible Tax - Taxable Situs
Sections 199.052 and 199.175, F.S.
XXX (Parent, Inc.)

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.

STATEMENT OF FACTS

Parent, Inc. (Parent) is incorporated in New Jersey 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 has formed a wholly owned subsidiary corporation (Newco)
under the laws of the state of Texas. 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 at the discretion of Newco.

Prior to January 1, 1996, Parent is contemplating the transfer
of all its accounts receivable to Newco. The transfer of
receivables to Newco will be accomplished through a sale of the
receivables, at face value, in exchange for an intercompany
promissory note bearing a market rate of interest and reflecting
arm's length terms and conditions.

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 on a periodic basis (typically
monthly);

*

account for the payment of the receivables which will be
sent to Newco's bank lock box;

*

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 and Newco will file 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 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 sold 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:

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 3:

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 on
January 1, 1996, would not be affected by whether the described
ministerial functions of Parent are conducted within or outside

Florida since these activities do not constitute the management
or control of an intangible asset for purposes of section
199.052, F.S.

Question 4:

If Parent receives a promissory note from Newco on the sale
of receivables, may the promissory note be eliminated from
its 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
when a consolidated return is filed any intercompany accounts of
an includable corporation owned by another includable
corporation shall be excluded from taxation. Consequently, and
to the extent that Parent and Newco are included on the same
consolidated return, then the subject promissory note between
those parties would be excluded from taxation since this item
constitutes an intercompany account for Florida intangible tax
purposes.

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