Under Florida's 1996 intangible tax, were receivables sold before January 1 to a non-Florida sister company taxable?

Plain-English summary

Florida did not tax receivables owned on January 1 by a sister company that was domiciled outside Florida and conducted no Florida business.

A Florida-operating subsidiary sold the receivables at face value in New York before January 1 in exchange for a promissory note. While the buyer owned them, the seller only collected payments, remitted proceeds, and maintained accounting records. It did not manage or control the receivables, such as by starting collection action against a defaulting customer.

Repurchasing the receivables after January 2 did not change the January 1 result. The buyer had no Florida agents, employees, representatives, or customer business, so it also had no Florida intangible-tax liability.

The promissory note could be eliminated from the parent's consolidated return if the parent and both subsidiaries met the statutory stock-ownership test for consolidated filing.

What this means for you

• January 1 ownership, management, control, and business situs drove the result.
• Ministerial collection and recordkeeping did not equal management or control.
• Consolidated elimination of the note depended on satisfying the ownership test.

Common questions

Q: Were the transferred receivables taxable on January 1? A: No.

Q: Did the non-Florida buyer owe Florida intangible tax? A: No.

Q: Did the seller's routine collection work change the result? A: No, because it remained ministerial.

Q: Was the intercompany note included in tax? A: The ruling said it would be eliminated from the consolidated return if the statutory ownership test was satisfied.

Citations and references

• Fla. Stat. § 199.052(1) — ministerial functions excluded from management or control
• Fla. Stat. § 199.052(10) — consolidated returns and intercompany receivables
• 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 96C2-027

Original ruling text

Mar 07, 1996

Re: Technical Assistance Advisement No. 96(C)2-027 Intangible Tax - Taxable Situs Sections 199.052 and 199.175, F.S. XXX ("Parent") XXX ("Subsidiary A") XXX ("Subsidiary B")

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 is a holding company for various entities which transact business in Florida. Parent files a consolidated Intangible Personal Property tax return with the State of Florida. Subsidiary A, a subsidiary of parent, transacts business in Florida. Subsidiary B, also a subsidiary of Parent, does not transact any business in Florida.

Subsidiary A and Subsidiary B have executed an intangible personal property transfer. Prior to January 1 of 1996, Subsidiary A sold accounts receivable to Subsidiary B in New York. The receivables were sold at face value in exchange for a promissory note. The transfer agreement and note were both executed and delivered in New York. During the time Subsidiary B owned the receivables, Subsidiary A merely performed ministerial duties with regards to the receivables. These duties included collecting the receivables and accounting for the same, remitting the proceeds to Subsidiary B, and maintaining the books and records necessary for the collection of the sold receivables (i.e., accounting records).

At no point while Subsidiary B held the receivables did

Subsidiary A exercise management or control over the receivables such as instituting collection against a defaulting customer. After January 2, 1996, Subsidiary A repurchased the receivables from Subsidiary B, in consideration for cancellation of the note receivable and a check for any account collections which were forwarded to Subsidiary B. Parent will file a consolidated 1996 Florida Intangible Personal Property Tax return and include Subsidiary A and Subsidiary B as part of the consolidated group.

ADVISEMENTS REQUESTED / CONCLUSIONS OF LAW

Based upon the scenario above, you have requested technical assistance on the following issues:

Question 1:

Will Subsidiary A be subject to the intangible tax on the receivables sold to Subsidiary B?

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 paragraph 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 Subsidiary A to Subsidiary B and owned by Subsidiary B 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:

Will Subsidiary B have a tax liability for the accounts receivable it purchased from Subsidiary A?

Response:

Subsidiary B is domiciled outside Florida, and has no employees, agents or representatives in this State transacting business with customers in this State out of which an intangible arises. Therefore, Subsidiary B has no liability for Florida's intangible tax.

Question 3:

Will the note receivable from Subsidiary B to Subsidiary A be subject to the intangible tax if it is included on the Parent's consolidated return?

Response:

Section 199.052(10), F.S., allows a parent company and its subsidiaries to file a consolidated intangible tax return. This section also provides that the stock investment in the included subsidiary corporations and all intercompany receivables of included corporations are excluded from taxation. So long as the stock ownership test for consolidated filing is satisfied for Subsidiary A, Subsidiary B and Parent, the note from Subsidiary B to Subsidiary A will be eliminated from the

consolidated return.

This response constitutes a Technical Assistance Advisement under section 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 section 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 section 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