Under Florida's 1996 intangible tax, were receivables sold before January 1 to an out-of-state subsidiary taxable?

Plain-English summary

Florida did not tax receivables owned on January 1 by a wholly owned out-of-state subsidiary with no Florida business presence.

The Florida parent sold the receivables before December 31 for a promissory note, and the subsidiary owned, managed, and controlled them until selling them back on or after January 2. The parent maintained records, received and remitted payments, reported balances, and sent routine late-payment communications for a fee. The Department treated those services as ministerial rather than management or control.

The result covered receivables that originally had Florida business situs. A timely consolidated return eliminated the intercompany receivable and the parent's investment in the subsidiary. Filing that return did not, by itself, give the subsidiary's otherwise non-Florida assets Florida situs.

What this means for you

• January 1 ownership, management, and control drove the receivables result.
• Routine servicing did not shift control back to the parent.
• Consolidated filing eliminated qualifying intercompany items without itself creating Florida situs.

Common questions

Q: Did the parent owe tax on the receivables sold before January 1?
A: No.

Q: Did it matter that some receivables originally had Florida business situs?
A: No, on the stated facts.

Q: Were the note and subsidiary investment eliminated?
A: Yes, on a timely consolidated return.

Q: Did consolidated filing make the subsidiary's assets taxable?
A: No, if those assets would not have been taxable on a separate return.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(10) — consolidated returns and intercompany eliminations
• Fla. Stat. § 199.175 — Florida taxable situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-023

Original ruling text

Mar 01, 1996

Re: Technical Assistance Advisement No. 96(C)2-023
Intangible Tax - Taxable Situs
XXX ("Parent")
XXX ("Subsidiary")

Dear :

Your recent 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.

FACTS PERTAINING TO ALL ISSUES

The facts that you have provided to the department are as

follows:

Parent is a Florida domiciled corporation. Parent owns accounts
receivable. Parent also wholly owns a subsidiary corporation
which is neither doing business nor is authorized to do business

in Florida and has no assets with a taxable situs in Florida.

Parent sold some or all of its receivables to Subsidiary before
December 31, 1995, in exchange for a note receivable from
Subsidiary. On or after January 2, 1996, Subsidiary sold back
to Parent some or all of the receivables and the promissory note
was Satisfied. Ownership, management, and control of the
receivables rested with Subsidiary during the time Subsidiary

owned the receivables.

Parent agreed to provide the following services to Subsidiary,

at the discretion of Subsidiary, for which it was paid a fee:

a) Maintain the books and records necessary for the collection
of the receivables sold.
b) Receive payments and account for same.

c) Remit payments to the Subsidiary.

d) Report activities, outstanding balances, and aging of
receivables to Subsidiary on a periodic basis.

e) Routine communications with the obligor regarding late
payments.

f) Routine communications with the obligor regarding credit
problems.

g) Sending routine form reminder notices to obligor for late

payments.

ISSUES

Based on the facts as stated above, rulings have been requested

on the following issues:

1. Are the receivables which are owned by Subsidiary on
   January 1, 1996, subject to the Florida intangible personal
   property tax?

2. If the receivables sold included assets which originally
   had Florida business situs, will such receivables be
   subject to the Florida intangible tax?

3. If Parent received a promissory note from Subsidiary on the
   sale of the accounts receivable, may the promissory note be
   eliminated from its intangible tax base through the filing
   of a consolidated intangible personal property tax return
   with Subsidiary?

4. May Parent's investment in Subsidiary be eliminated from
   its intangible tax base through the filing of a
   consolidated intangible personal property tax return with
   Subsidiary?

5. Will the intangible assets of Subsidiary be subject to the
   Florida intangible personal property tax if Subsidiary
   neither transacts business nor is authorized to do business
   in Florida and it files a consolidated return with Parent?

6. When the assets were sold back to Parent after January 1,
   did this affect the tax treatment of the assets on January
   1?

7. Do the activities listed above, which were services to be
   provided by Parent for Subsidiary, subject the assets to

the intangible tax?

LAW AND DISCUSSION

For purposes of the annual tax imposed under s. 199.032, F.S.,
intangible personal property shall have a taxable situs in this
state when it is owned, managed, or controlled by any person
domiciled in this state on January 1 of the tax year, as

provided in s. 199.175, F.S. "Any person domiciled in this
state" means: (a) any natural person who is a legal resident of
this state; (b) any bank or financial institution, company,
corporation, partnership, or other artificial entity organized

or created under the laws of this state, except a trust; or (c)
any person, including a trust, who has established a commercial
domicile in this state. A business or other artificial entity
acquires its commercial domicile in this state when it maintains
its chief or principal office in this state where executive or
management functions are performed or where the course of

business operations is determined.

Intangible personal property shall have a taxable situs in this
state when it is deemed to have a business situs in this state
and it is owned, managed, or controlled by a person transacting
business in this state, even though the owner may claim a
domicile elsewhere. Intangibles shall be deemed to have a
Florida business situs when they receive the benefit and
protection of Florida laws and courts and they are derived from,
arise out of, or are issued in connection with business

transacted in this state with a customer in this state.

Subsection 199.052(10), F.S., provides for the filing of a
consolidated intangible tax return, and the elimination of
intercompany accounts of qualifying members of the consolidated
group. The filing of a consolidated return will not in itself

provide a business situs for intangible personal property held

by a corporation.

CONCLUSION

The Parent will not be subject to the Florida intangible tax on
the receivables that it sold to Subsidiary, since on January 1,
1996, it did not own, manage or control the receivables. The
service activities listed are ministerial functions and do not

constitute management and control of the receivables. The

Florida intangible tax is based on the taxable assets owned on
January 1 of each year. If the subsidiary transacts no business
in Florida, has no employees, agents, or representatives in
Florida, its intangible assets would not be subject to the

Florida intangible tax.

Intercompany receivables and investments are eliminated from a
timely filed consolidated intangible tax return. The filing of

a consolidated return does not subject assets of a foreign
corporation to intangible tax, if the assets would not otherwise

be subject to tax if a separate return was filed.

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,

Mary Ella Ingram

Tax Law Specialist

Tax Policy and Dispute Resolution

Ctrl No: 24734