Under Florida's 1996 intangible tax, were loans participated before January 1 to Delaware bank subsidiaries taxable?

Plain-English summary

Florida did not tax loan participations owned on January 1 by Delaware banking subsidiaries with no Florida taxable situs.

Florida regional banks sold participations at book value for promissory notes and continued servicing under agreements that gave them no discretion, management, or control. The Delaware subsidiaries retained the income, expense liability, ownership risk, control, and management.

The regional banks therefore did not owe tax on the transferred loans either. Their promissory notes were taxable because the banks were Florida-domiciled, but including the banks in the parent's consolidated intangible-tax return eliminated those notes from the taxable base.

What this means for you

• The Delaware subsidiaries' lack of Florida situs kept the loan interests outside the tax.
• Ministerial servicing did not restore ownership or control to the regional banks.
• The promissory notes were taxable before the consolidated-return elimination.

Common questions

Q: Were the Delaware subsidiaries' loan participations taxable?
A: No.

Q: Did the Florida regional banks owe tax on the transferred loans?
A: No.

Q: Were the promissory notes taxable?
A: Yes to the Florida banks, but the consolidated return eliminated them from the group's taxable base.

Citations and references

• Fla. Stat. § 199.052 — January 1 ownership, management, or control
• Fla. Stat. § 199.175 — Florida taxable situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-016

Original ruling text

Feb 13, 1996

Re: Technical Assistance Advisement 96(C)2-016
Intangible Tax - Property Subject To Tax
XXX (Parent)
XXX (Bank)

Dear :

This letter is in response to your request for a Technical
Assistance Advisement for the referenced corporations.

Statement of Facts

Parent is organized under the laws of a state other than
Florida and is domiciled in that state. Bank is directly owned
by Parent. Bank is organized under the laws of the State of
Florida. Bank owns several regional banks that are located in
Florida. Parent, Bank and the regional banks are part of a
federal consolidated group and file a consolidated Florida
intangible tax return.

Several of the regional banks own subsidiaries organized
under the laws of Delaware. Each of the Delaware subsidiaries
are commercially domiciled and maintain offices in Delaware. As
financial institutions, the regional banks originate loans of
various types. The loans originated by the regional banks may
be participated from the regional banks to the Delaware
subsidiaries. The loans to be participated may include, but are
not limited to, commercial loans not secured by real estate,
floor plan loans, installment loans, consumer loans,
acceptances, and the interest receivables and unearned interest
related to these loans (collectively referred to as "Loans").

The regional banks will sell a participation in all or a
portion of the Loans to their respective subsidiaries prior to
or as of the close of business on December 31 of each year. The
Loans will be participated at book value in exchange for a
promissory note. Each regional bank will contract with its

Delaware subsidiary to perform ministerial duties under the
terms of a Servicing Agreement. The regional banks will have no
discretionary authority, management or control with regard to
any of the Loans owned by a Delaware subsidiary. The regional
banks will continue to perform, at the discretion of the
Delaware subsidiaries, the terms of the Servicing Agreement. At
any time after January 1 of the following year, each Delaware
subsidiary may sell back to its regional bank the loans acquired
under the Master Participation Agreement in satisfaction of the
promissory note.

Statutory Provisions

Section 199.052, F.S., states that every person who, on
January 1 of each tax year, owns, manages or controls intangible
property having a taxable situs in this State is required to
file an intangible tax return. Section 199.175, F.S., provides
that every person that has a legal or commercial domicile in
this State on January 1 of the tax year has a taxable situs in
the this State. This section also provides a taxable situs for
intangible property, owned by a nondomiciliary, that results
from business conducted by employees, agents or representatives
of any kind in this State.

Issues

Based upon the documentation provided and the discussion
above the following issues have been raised:

1. Will the Loans participated to the Delaware subsidiaries
   before January 1 be subject to the Florida intangible tax?

2. Will the regional banks be subject to the Florida
   intangible tax on the Loans they participate to their
   Delaware subsidiaries prior to January 1 and which are
   owned by the Delaware Subsidiaries on January 1?

3. If the regional banks and the Delaware subsidiaries are
   included in the Parent's consolidated intangible tax
   return, will the promissory notes from the Delaware
   subsidiaries to the regional banks be excluded from the

taxable base on the Parent's consolidated intangible tax
return?

Discussion of Law

Issue 1. The Loans participated to the Delaware
subsidiaries from the regional banks are not subject to the
intangible tax in Florida. The Delaware subsidiaries have no
taxable situs in Florida. The services performed by the
regional banks on behalf of the Delaware Subsidiaries are
ministerial and do not rise to management or control.
Therefore, none of the Loans participated to the Delaware
subsidiaries are subject to Florida's intangible tax.

Issue 2. The regional banks do not have a tax liability for
the Loans they participate to the Delaware subsidiaries prior to
January 1. The regional banks will not own, manage or control
the Loans on January 1. All income, expense liability, risk of
ownership, control and management associated with the Loans is
retained by the Delaware subsidiaries. Therefore, the regional
banks will have no tax liability for the Loans participated to
the Delaware Subsidiaries.

Issue 3. The promissory notes acquired by the regional
banks are subject to the intangible tax since the regional banks
are domiciled in Florida. However, the filing of a consolidated
intangible tax return by Parent that includes the regional banks
would eliminate the promissory notes from the taxable base of
the Parent's consolidated tax return.

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