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

Plain-English summary

Florida did not tax receivables that a Florida staffing group sold before January 1 to its Massachusetts subsidiary.

The buyer maintained its commercial domicile and principal office outside Florida, had no Florida business situs, and had no Florida agents, employees, or representatives other than the sellers performing ministerial work. The receivables could be sold at face value, a premium, or a discount for a market-rate note on arm's-length terms.

The sellers' recordkeeping, collection, remittance, reporting, and routine customer communications did not create Florida situs. A sale back on or after January 2 did not change the January 1 tax treatment. The intercompany notes were eliminated through the group's consolidated return.

What this means for you

• January 1 ownership and situs controlled.
• Face-value, premium, and discounted sales received the same answer on the stated terms.
• The Florida entities' servicing remained ministerial.
• Consolidated filing eliminated the intercompany notes.

Common questions

Q: Were the Massachusetts subsidiary's receivables taxable on January 1?
A: No.

Q: Did a later transfer back change the result?
A: No.

Q: Did the sale price matter?
A: Not among face value, a premium, or a discount under the stated arm's-length terms.

Q: Were the purchase-money notes taxable?
A: The ruling said they were eliminated as intercompany accounts 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. § 199.103 — January 1 valuation date
• Fla. Stat. § 199.175 — Florida taxable situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-026

Original ruling text

Mar 01, 1996

Re: Technical Assistance Advisement 96(C)2-026
Intangible Tax - Sale of Receivables
XXX (Parent)
XXX (Subsidiary A)
XXX (Subsidiary B)
XXX (Subsidiary C)
XXX (Subsidiary D)
XXX (Massachusetts Subsid.)

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

Parent is incorporated and commercially domiciled in the
State of Florida. Parent, together with its six wholly owned
subsidiaries, provides personnel staffing services to customers
in Florida, Georgia, Massachusetts, Illinois, Texas and
Pennsylvania. Subsidiaries A, B, C and D are Florida
incorporated entities, which together with the parent will be
denoted as "Florida Entities" or the "Sellers".

The affiliated group includes Massachusetts Subsidiary
organized under the laws of a foreign state, which maintains
both commercial domicile and principal office outside Florida.
Massachusetts Subsidiary has no business situs in Florida and
will not have any agents, employees, or representatives of any
kind in Florida other than the Parent, which may perform
ministerial activities at the discretion of the Massachusetts
Subsidiary. The affiliated group presently joins in the filing
of a consolidated Florida Intangible return with its
subsidiaries

Prior to January 1, the Florida Entities/Sellers are
contemplating the sale of all or a part of their accounts
receivable to the Massachusetts Subsidiary. The receivables
will be sold either at face, premium, or 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.

The Massachusetts Subsidiary will enter into a service
agreement with Sellers to 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 Massachusetts
Subsidiary 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 (The Massachusetts

Subsidiary).
*

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 the Sellers will be paid a fee for providing the
services listed above. The affiliated group will continue to
file a Florida consolidated intangible tax return.

On or after January 2 of the following year, it is
anticipated that Massachusetts Subsidiary will transfer some or

all of its receivables back to Florida Entities/Sellers. If the
receivables were sold in exchange for a promissory note, the
transfer back will be in satisfaction of the note.

DISCUSSION AND LAW

Subsection 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 the Florida Entities to the
   Massachusetts Subsidiary prior to January 1, 1996, and owned by
   Massachusetts Subsidiary on January 1, 1996, are not subject to
   the intangible personal property tax levied pursuant to s.
   199.032, F.S., since Massachusetts Subsidiary has neither a
   business situs nor is commercially domiciled in Florida.
2. The performance of ministerial functions by the
   Sellers on behalf of the Massachusetts Subsidiary 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
   Massachusetts Subsidiary from its location outside Florida.
3. The sale of receivables back to the Florida Entities
   after January 1, 1996, will not affect the tax treatment of the
   receivables as stated in 1., above. Section 199.103, F.S.,
   provides that all intangible personal property shall be subject
   to the annual tax at its just valuation as of January 1 of each
   year.
4. The sale back of some or all of the receivables that
   may be "put" back to the Florida Entities after January 1 will
   not change the tax treatment of the receivables on January 1 for
   the reason set forth in 3, above.
5. The activities of the Florida Entities as outlined
   above, constitute ministerial functions or processing activities
   permissible under s. 199.032, F.S.
6. The promissory notes held by the Florida Entities
   received from the Massachusetts Subsidiary 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.
7. The responses to questions 1 - 6 would not change if
   the receivables are sold at a premium or discounted value rather
   than face value in exchange for a promissory note.

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