Under Florida's 1996 intangible tax, were Florida-customer loans sold before January 1 to a non-Florida affiliate taxable?

Plain-English summary

Florida did not tax loans to Florida customers after two non-Florida lenders sold them before January 1 to a non-Florida affiliate with no Florida business.

The sales were planned at approximately fair market value for market-rate promissory notes. The sellers continued to maintain records, receive and process payments, deposit collections, send routine delinquency notices, and answer routine borrower questions for a fee. They could not compromise or settle loans, refer them for outside collection, or take other unspecified action.

The Department treated those activities as ministerial. Discretionary decisions made by the buyer strictly outside Florida also did not create Florida situs. A contractual right to require repurchase after January 1—and an actual later repurchase—did not change the assessment-date result.

The promissory notes were also not taxable because they arose from business transacted outside Florida and were issued by non-Florida entities.

What this means for you

• Ownership and taxable situs on January 1 controlled.
• Routine loan servicing did not amount to management or control.
• A post-January 1 repurchase right did not alter the earlier assessment date.
• The notes had their own situs analysis and were not taxable on these facts.

Common questions

Q: Were the transferred loans and accrued interest taxable on January 1?
A: No.

Q: Did the sellers' servicing make the loans taxable?
A: No, as long as it stayed within the listed ministerial functions.

Q: Did the buyer's later repurchase demand change the January 1 result?
A: No.

Q: Were the promissory notes taxable?
A: No, because the ruling found they arose from business transacted outside Florida and lacked Florida situs.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1) — January 1 ownership, management, or control
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-028

Original ruling text

Mar 07, 1996

Re: TAA 96(C)2-028
Intangible Personal Property Tax - Taxable Situs - Sale of
Accounts Receivable
XXX, hereinafter referred to as "A";
XXX, hereinafter referred to as "B";
XXX, hereinafter referred to as "C"

Dear :

Your letter of XXX, requested a Technical Assistance Advisement
on the effect of sales of loans outstanding to Florida customers
on the intangible personal property tax liabilities of two
sellers and one purchaser. This response to your request
constitutes a Technical Assistance Advisement under Chapter
12-11, Florida Administrative Code, and is issued to you under
the authority of s. 213.22, Florida Statutes.

FACTS

Your letter states both "A" and "B" were incorporated in XXX,
are commercially domiciled in XXX, conduct business within and
without Florida, and have loans outstanding to Florida
customers. "A" and "B" file separate Florida intangible
personal property tax returns.

"C" was incorporated in XXX, is commercially domiciled in XXX,
and conducts no business in Florida. "C" does not presently,
and will not during the term of the proposed transaction, have
any agents, employees, or representatives in Florida other than
"A" and "B," who may perform certain activities at "C's"
direction.

"C" and "B" are wholly-owned subsidiaries of a non-Florida
corporation uninvolved in the proposed transactions. "A" is a
wholly-owned subsidiary of "C."

Prior to January 1, 1996, "A" and "B" intend to sell their

Florida situs loans to "C" at a price approximating fair market
value, in exchange for promissory notes bearing a market rate of
interest, in accordance with a contractual agreement. This
transaction is expected to reflect arm's length terms and
conditions.

Under the service agreement entered into by "A" and "C;" and "B"
and "C," pursuant to this transaction, "A" and "B" will service
the loans sold to "C" for a fee following the sale. The
services to be provided by "A" and "B" in accordance with the
contractual agreement are as follows:

*

Maintaining any records necessary for the collection of the
loans which were sold

*

Maintaining records relating to the loans which were sold
sufficiently to allow "C" to determine the status of each
loan

*

Receive, collect and process all payments made relative to
the loans which were sold

*

Deposit all collections related to the loans which were
sold, into accounts designated by "C" within two business
days following receipt

*

Sending routine notices to loan obligors to remind them of
delinquent payments, as directed by "C"

*

Responding to routine inquiries of loan obligors concerning
their loans.

Additionally, "A" and "B" would have no authority to:

*

Compromise or settle loans

*

Refer loans to outside collection agencies, attorneys, or
any other party for collection

*

Take any other action not specified by the agreement, in
the servicing of the loans

On or after January 2, 1996, "C" may require "A" and "B" to
repurchase some or all of the loans at fair market value. The
repurchase price may be paid by offsetting the unpaid principal
of the promissory notes originally issued in exchange for the
loans.

QUESTIONS

1. Are the loans and accrued interest sold by "A" and "B" to
   "C," and owned by "C" on January 1, 1996, subject to the
   Florida intangible tax imposed by s. 199.032, F.S.?
2. Will ministerial functions performed by "A" and "B" on
   behalf of "C" relative to the loans transferred to "C,"
   cause the loans to be subject to Florida intangible tax?
3. Will discretionary functions performed by "C" from outside
   Florida cause the transferred loans to be subject to
   Florida intangible tax?
4. Will "C's" right to require repurchase by "A" and "B," of
   some or all of the loans at fair market value after January
   1, 1996, affect the imposition of intangible tax on the
   loans on January 1, 1996?
5. Will the actual exercise of "C's" right, addressed in
   question number four, affect the imposition of intangible
   tax on the loans on January 1, 1996?
6. Do the activities to be performed by "A" and "B" set forth
   above and in the service agreement constitute ministerial
   functions or processing activities pursuant to s. 199.052,
   F.S.?
7. Will the promissory notes issued prior to January 1, 1996,
   by "C" to "A" and "B" in exchange for the loans, be subject
   to Florida intangible tax?

DISCUSSION AND ANALYSIS OF LAW

Section 199.032, F.S., states in part:

An annual tax of 2 mills is hereby imposed on each dollar
of the just valuation of all intangible personal property
which has a taxable situs in this state,...

Subsection 199.052(1), F.S., states:

An annual intangible tax return must be filed with the
department by every corporation authorized to do business
in this state or doing business in this state and by every
person, regardless of domicile, who on January 1 owns,
controls, or manages intangible personal property which has

a taxable situs in this state. For purposes of this
chapter, "control" or "manage" does not include any
ministerial function or any processing activity. The
return shall be due on June 30 of each year. It shall list
separately the character, description, and just valuation
of all such property.

The intent of the statutes referenced above is to impose a tax
on all intangible personal property having a taxable situs in
Florida. An intangible personal property tax return is to be
filed by all corporations or persons owning, controlling or
managing intangible personal property with a taxable situs in
Florida. As stated in subsection 199.052(1), F.S., ministerial
functions and processing activities do not meet the criteria of
"managing" or "controlling" intangible personal property.

Accordingly, the answers to your specific questions follow:

1. The loans and accrued interest sold by "A" and "B" to "C,"
   and owned by "C" on January 1, 1996, are not subject to the
   tax imposed by s. 199.032, F.S., as a result of not having
   taxable situs in Florida on the assessment date provided by
   subsection 199.052(1), F.S.
2. As stated in subsection 199.052(1), F.S., the performance
   of ministerial functions by an entity will not cause
   intangible personal property which would not otherwise be
   subject to Florida intangible tax, to become subject to the
   tax. Therefore, as long as the loan servicing activities of
   "A" and "B" on behalf of "C" do not exceed those which
   would be considered ministerial functions, no intangible
   tax would be imposed on the transferred loans as a direct
   result of such activities.
3. To the extent "C" performs discretionary functions with
   regard to the transferred loans strictly from outside the
   state, and the loans continue not to have taxable situs in
   Florida, the loans will not be subject to Florida
   intangible tax, as stated in s. 199.032, F.S. If the loans
   are found to have taxable situs in Florida, the answer to
   this question will change.
4. "C's" right to require repurchase by "A" and "B" of some or
   all of the loans at fair market value after January 1,

1996, will not affect the imposition of intangible tax on
the loans on January 1, 1996, because, as stated in
subsection 199.052(1), F.S., the tax is imposed on
corporations and persons holding intangible personal
property having a taxable situs in Florida on January 1.
In this instance "A" and "B" did not manage or control the
property on January 1, 1996, nor under the facts presented,
did the property have taxable situs in Florida.

5. The actual exercise of "C's" right, addressed in the answer
   to question four will, again, not affect the imposition of
   intangible tax on the loans on January 1, 1996, for the
   same reasons stated in that answer.
6. The activities of "A" and "B" set forth above and in the
   service agreement, following the transfer of the loans to
   "C," appear to constitute ministerial functions as the term
   is used in subsection 199.052(1), F.S.
7. The promissory notes issued prior to January 1, 1996, by
   "C" to "A" and "B" in exchange for the loans, will not be
   subject to Florida intangible tax. These notes resulted
   from business transacted outside of Florida, were given by
   non-Florida entities in exchange for the loans, and
   accordingly, do not have taxable situs in Florida as
   required by s. 199.032, F.S.

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
based 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,

Suzanne C. Paul
Tax Policy and Dispute
Resolution

SCP/kk
Control No.: 24311