Under Florida's 1996 intangible tax, were receivables sold before January 1 to an out-of-state subsidiary taxable?

Plain-English summary

Florida found no intangible-tax liability for receivables sold before January 1 to an out-of-state subsidiary with no Florida business situs.

The parent planned to sell receivables at 90% of book balance in exchange for an interest-bearing promissory note. The subsidiary had no Florida employees, agents, representatives, assets, commercial domicile, or business activity. Because the subsidiary owned the receivables on January 1, the receivables were not taxable, including those that originally had Florida business situs.

Selling some or all of the receivables back to the parent on or after January 2 did not change their January 1 treatment. The parent's listed bookkeeping, collection, remittance, reminder, reporting, and routine-customer-communication services were ministerial and did not create Florida situs. The Department cautioned that subsidiary activity performed from a Florida location would make the receivables taxable.

The Department also found no tax liability arising from the promissory note on the stated facts.

What this means for you

• The ruling measured ownership and situs on January 1.
• A later repurchase did not alter the assessment-date result.
• Routine servicing by the parent remained ministerial on these facts.
• Florida-based activity by the subsidiary would have changed the result.

Common questions

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

Q: Did it matter that some receivables originally had Florida business situs?
A: No, once the out-of-state subsidiary owned them under the stated facts.

Q: Did a sale back after January 1 change the result?
A: No.

Q: Did the parent's collection work create Florida situs?
A: No, because the listed work was ministerial.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052 — January 1 ownership, management, or control
• Fla. Stat. § 199.103 — January 1 valuation date
• Fla. Stat. § 199.175(2) — Florida business situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-029

Original ruling text

Mar 12, 1996

Re: Technical Assistance Advisement No. 96(C)2-029
Intangible Personal Property Tax/Intercompany Sale of
Accounts Receivable
XXX (Parent)
XXX (Subsidiary)

Dear :

Your letter of November 20, 1995 requesting a Technical
Assistance Advisement on the sale of receivables at year end has
been received by this office.

Facts

Parent is organized under the laws of the State of XXX and
commercially domiciled in XXX and has certain accounts
receivable which have taxable situs in the State of Florida as
defined in s. 199.175(2), F.S.

Subsidiary is organized under the laws of the State of XXX
and is commercially domiciled outside the State of Florida.
Subsidiary transacts no business in the State of Florida and has
no employees, agents, representatives or assets of any kind
located in Florida. Subsidiary has its own officers and
directors which perform their duties independently of Parent.

Prior to January 1, Parent will sell some or all of its
accounts receivable to Subsidiary. The receivables will be sold
at 90% of the balances reflected on the books and records of
Parent at the time of the sale. Parent will exchange said
accounts receivable for a promissory note from Subsidiary which
will bear simple interest at 7.5%. The accounts receivable
being sold will be identified by the name of the obligor and the
amount owed at the time of the sale. Parent will treat all
accounts receivable sold under this contract as having been sold
in its accounting records by making appropriate entries to
remove the accounts receivable sold and record the note

receivable from Subsidiary.

Parent will enter into a service agreement with Subsidiary
whereby Parent will perform, at the discretion of Subsidiary,
certain ministerial services. Parent will perform the following
ministerial activities on behalf of Subsidiary with respect to
the accounts receivable which Parent will sell to Subsidiary:

*

Maintaining the books and records necessary for the
collection of the accounts receivable sold.

*

Collecting the accounts receivable (receiving
payments) and accounting for same.

*

Remitting proceeds to the Subsidiary.

*

Sending routine form reminder notices to customers for
late payments.

*

Reporting activities, outstanding balances, and aging
of accounts receivable to Subsidiary on a periodic
basis (typically monthly).

*

Routine communications with the customer regarding
late payments.

Parent will be paid a fee for providing these services to
Subsidiary. Parent will not disclose to the obligee that it is
performing collection services on behalf of Subsidiary.

On or after January 2 of the following year, it is
anticipated that Subsidiary will sell back to Parent some or all
of the accounts receivable and the promissory note will be
satisfied.

Requested Ruling

Based on the transactions described above, you have
requested our technical advice regarding the following issues:

1. If Parent receives a promissory note from Subsidiary
   on the sale of the accounts receivable, will the
   promissory note be excludable from the Florida
   intangible tax base considering neither corporation is
   commercially domiciled in Florida and the note does
   not arise from business transacted in the State of

Florida?

Response:

Section 199.052, F.S., requires that an annual
intangible tax return must be filed with the
department 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. Based on the information provided, neither
Parent nor Subsidiary has a tax liability arising from
the sale of accounts receivable in exchange for a
promissory note.

2. Are the accounts receivable which are sold by Parent
   to Subsidiary and owned, controlled and managed by
   Subsidiary on January 1 subject to the Florida
   intangible personal property tax?

Response:

Receivables that are sold by Parent to Subsidiary and
owned by Subsidiary on January 1 have no liability for
Florida's intangible tax imposed under s. 199.032,
F.S., since Subsidiary neither has business situs nor
is commercially domiciled in Florida.

3. If the accounts receivable sold include accounts
   receivable which originally had Florida business
   situs, will such receivables be subject to the Florida
   intangible tax in the hands of Subsidiary?

Response:

No. (See response to Question 2)

4. If the accounts receivable are sold back to Parent
   after January 1, does this affect the tax treatment of
   the assets on January 1?

Response:

No. 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.

5. Do the activities listed above, which are services to
   be provided by Parent for Subsidiary, subject the
   assets to the intangible tax? If so, which of the
   activities would be deemed to exceed the ministerial
   functions or processing activities referred to in Sec.
   199.052(1), F.S.

Response:

No. If Parent performs the ministerial functions for
Subsidiary, no taxable situs would arise. If the
ministerial functions are performed by Subsidiary from
its location outside Florida, no intangible tax would
be due. However, if Subsidiary performs ministerial
functions from a location in Florida, the accounts
receivable would be subject to the intangible tax.

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,

Baldan E. Sulker
Senior Tax Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

BES/mh