Under Florida's 1996 intangible tax, did a seller's later Florida domicile make receivables previously sold to an out-of-state subsidiary taxable?

Plain-English summary

Florida did not tax receivables owned on January 1 by an out-of-state subsidiary that had no Florida business situs.

The seller transacted business in Florida but was initially domiciled elsewhere and expected that a mid-1996 spin-off might later give it a Florida commercial domicile. Before January 1, it planned to sell receivables at a discount for a market-rate promissory note on arm's-length terms. The buyer would remain outside Florida with no Florida business situs.

The seller could maintain records, collect and remit payments, report balances, and conduct routine customer communications for a fee, but could not settle accounts or send them for outside collection. The Department treated those activities as ministerial. Neither the seller's later Florida domicile nor a sale back after January 1 changed the assessment-date result.

The intercompany promissory note was eliminated from the intangible-tax base through the applicable consolidated return.

What this means for you

• The buyer's January 1 domicile, situs, ownership, and control drove the receivables result.
• A later change in the seller's commercial domicile did not retax the buyer-owned receivables.
• Servicing had to stay ministerial.
• The note's exclusion depended on consolidated-return treatment.

Common questions

Q: Were the buyer-owned receivables taxable on January 1? A: No.

Q: Did the seller's later Florida commercial domicile change that result? A: No.

Q: Did routine collection work create Florida situs? A: No, because the listed duties were ministerial.

Q: What happened to the purchase-money note? A: It was eliminated as an intercompany account on the consolidated return.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1), (10) — control and consolidated returns
• Fla. Stat. § 199.175 — Florida taxable situs
• 26 U.S.C. § 355 — spin-off referenced in the facts
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-025

Original ruling text

Mar 01, 1996

Re: Technical Assistance Advisement 96(C)2-025 Intangible Personal Property Tax - Sale of Accounts Receivable XXX (Corporation)

XXX (Seller)
XXX (Purchaser)

Dear:

Your letter of December 21, 1995, requesting a Technical Assistance Advisement on the sale of receivables at year end has been received by this office. The scenario presented for

consideration is summarized below:

FACTS

Seller is incorporated and commercially domiciled outside the State; however, it does transact business in Florida. Pursuant to a spin-off under IRC Section 355 scheduled to occur around June 30, 1996, the Purchaser and Seller will become wholly owned subsidiaries of another corporate parent. While it is likely that Seller may attain a commercial domicile in Florida subsequent to the spin-off, Purchaser would, however, continue to be domiciled outside Florida with no business situs

in the State.

Purchaser, a newly formed subsidiary of the Seller, is domiciled in a state other than Florida and is not qualified to do business in Florida nor has a business situs in the State. Purchaser does not currently, and will not for the duration of the proposed transaction, have any employees, agents, or representatives of any kind in this State, other than the Seller who may perform ministerial activities (both in Florida and out-

of-state) at the discretion of Purchaser.

Purchaser and Seller are currently wholly-owned

subsidiaries of Corporation. Corporation is a non-Florida

corporation and will not be involved in the proposed

transaction.

Prior to January 1, Seller is contemplating the sale of all or a part of its accounts receivable to Purchaser. The receivables will be sold at a discounted value in exchange for a promissory note which will bear a market rate of interest and

will otherwise reflect arm's-length terms and conditions.

Purchaser will enter into a service agreement with Seller

whereby the latter will provide the following services:

• Identifying the receivables which are sold, as such,
  in their accounting records.

• Ensuring that the sold receivables are in compliance
  with any credit and collection policies of the Purchaser or that the receivables are not in default prior to purchase.

• Maintaining the books and records necessary for the
  collection of the sold receivables (i.e., accounting records).

• Reporting activities, outstanding balances, and aging
  of receivables to the Purchaser on a periodic basis (typically monthly).

• Collecting the receivables (receiving payments) and
  accounting for same.

• Remitting proceeds to Purchaser.

• Routine communications with the customer regarding
  late payments.

• Routine communications with the customer regarding
  credit problems.

• Notifying the Purchaser of uncollected accounts.

• Sending routine form reminder notices to customers for

late payments.

The agreement will be based on arm's-length terms and conditions and Seller will be paid a fee for providing the services listed above. The Seller shall be restricted to the ministerial type functions outlined above and will not have authority to: (1) compromise or settle any account; or (2) refer

any account to an outside collection agency, attorney or other

person for collection. Only Purchaser shall be responsible for

performing such restricted activities.

Corporation will file a Florida consolidated intangible tax return which will include both Purchaser and Seller for the current year. However, effective January 1, 1997, Purchaser and Seller would join in a consolidated Florida intangible tax

return with the new parent.

DISCUSSION AND LAW

Section 199.052(1), F.S., requires that every person domiciled in this state that owns, manages or controls intangible property having a business situs in the state, must file an intangible tax return. Section 199.175, F.S., states that intangible property shall have a taxable situs in this state when it is owned by a person domiciled in this state or it arose out of business transacted in this state by employees, agents or representatives of any kind from a location within

this state or with customers in this state.

For purposes of the annual tax imposed under s. 199.032, F.S., intangible personal property shall have a taxable situs in Florida 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 Florida 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 Florida 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 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.

REQUESTED ADVISEMENT

Based upon the scenario presented above you have requested

technical advice on the following statements:

1. The receivables sold by Seller to Purchaser prior to
   January 1, 1996, and owned by Purchaser on January 1, 1996, are not subject to the intangible personal property tax levied pursuant to s. 199.032, F.S., since Purchaser has neither a business situs nor is commercially domiciled in Florida.

2. Should Seller obtain a commercial domicile in Florida
   during 1996, the receivables sold by Seller to Purchaser prior to January 1, 1996, or other receivables sold prior to January 1 of a subsequent year and owned by Purchaser on January 1 of any year, would not be subject to the intangible personal property tax levied pursuant to section 199.032, F.S., since the Purchaser would at no time have a business situs or be commercially domiciled in Florida.

3. The performance of ministerial functions by the Seller
   on behalf of the Purchaser will not establish a taxable situs in Florida for the sold receivables. Similarly, no tax with respect to the sold receivables will be due if the ministerial functions are performed by the Purchaser from its location outside Florida.

4. The sale of receivables back to the Seller after
   January 1, 1996, will not affect the tax treatment of the receivables on January 1, 1996, prior to the transfer.

5. The sale back of some or all of the receivables that
   may be "put" back to the Seller after January 1 will not change the tax treatment of the receivables on January 1 for the reason set forth in 3, above.

6. The activities of the Seller as outlined above,
   constitute ministerial functions or processing activities permissible under s. 199.052, F.S.

7. The promissory notes held by the Seller received from

the Purchaser on the sale of the receivables would be eliminated from the taxable intangible base as an intercompany account by the filing of a consolidated return in conformity with section 199.052(10), F.S.

CONCLUSION

Based upon statutory provisions and the information provided in your request, each of the seven requested

advisements is answered in the affirmative.

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,
Moses O. Daramola
Senior Tax Specialist
Tax Policy & Dispute Resolution

Office of General Counsel

MOD/md