Under Florida's 1996 intangible tax, were receivables sold before January 1 by three affiliates to a Delaware subsidiary taxable?

Plain-English summary

Florida did not tax receivables that a parent and two subsidiaries sold before January 1 to a new Delaware subsidiary.

The buyer maintained its principal office outside Florida and had no Florida sales, property, agents, employees, representatives, or business situs. The sellers retained recordkeeping, payment accounting, reporting, and routine customer communications under arm's-length service agreements.

The Department treated those duties as ministerial and processing functions, whether performed inside or outside Florida, so they did not amount to management or control. The intercompany promissory notes were excluded when all parties were included on the same consolidated return.

What this means for you

• January 1 ownership and the buyer's lack of Florida situs controlled.
• Routine, nondiscretionary servicing did not create management or control.
• The notes depended on common consolidated-return inclusion.

Common questions

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

Q: Did Florida-based servicing change the result? A: No, because the listed work was ministerial.

Q: Were the promissory notes taxable? A: They were excluded as intercompany accounts 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 96C2-013

Original ruling text

Feb 07, 1996

Re: Technical Assistance Advisement No. 96(C)2-013 Intangible Tax - Taxable Situs Sections 199.052 and 199.175, F.S. XXX (Parent, Inc.) XXX (Subsidiary 1) XXX (Subsidiary 2)

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 Florida and is domiciled in Florida. Parent generates sales within and without Florida, and has accounts receivables that are generated in and out of Florida.

Subsidiary 1, a subsidiary of Parent, is incorporated in Florida and is domiciled in Massachusetts. Subsidiary 1 generates sales within and without Florida, and has accounts receivable that are generated in and out of Florida.

Subsidiary 2, a subsidiary of Parent, is incorporated in Florida and is domiciled in Florida. Subsidiary 2 generates sales within and without Florida, and has accounts receivable that are generated in and out of Florida.

Parent will form a wholly owned subsidiary corporation (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, Subsidiary 1,

and Subsidiary 2 will perform ministerial activities at the discretion of Newco.

Prior to January 1, 1996, Parent, Subsidiary 1, and Subsidiary 2 are contemplating the transfer of all their accounts receivable to Newco. The transfer of THE receivables to Newco will be accomplished through a sale of the receivables, at face value, in exchange for an intercompany promissory note from each company bearing a market rate of interest and reflecting arm's length terms and conditions.

Parent, Subsidiary 1, and Subsidiary 2 will enter into a service agreement with Newco whereby Parent, Subsidiary 1, and Subsidiary 2 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, Subsidiary 1, and Subsidiary 2 will each be paid a fee for providing these services. Parent, Subsidiary 1, and Subsidiary 2, 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, Subsidiary 1,

and Subsidiary 2 to Newco and owned by Newco on January 1 subject to the intangible tax levied pursuant to s. 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 subsection 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 subsection 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, Subsidiary 1, and Subsidiary 2 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, Subsidiary 1, and Subsidiary 2 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 defines it 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, Subsidiary 1, and Subsidiary 2 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, Subsidiary 1, and Subsidiary 2 would constitute a "processing activity" for purposes of section 199.052, F.S., and in the absence of both a statutory and plain or 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 therefore we conclude that the described activities of Parent, Subsidiary 1, and Subsidiary 2 would also constitute "processing activities" for purposes of section 199.052, F.S.

Question 3:

Does it make a difference whether Parent, Subsidiary 1, and Subsidiary 2 perform such 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, Subsidiary 1, and Subsidiary 2 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, Subsidiary 1, and Subsidiary 2 receive 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, Subsidiary 1, and Subsidiary 2, 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 would constitute 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