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