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

Plain-English summary

Florida did not tax receivables sold before January 1 to an out-of-state operating subsidiary that had no Florida business situs.

The subsidiary would own the receivables on January 1, while the Florida-connected corporation performed ten listed bookkeeping, collection, reporting, remittance, and customer-communication tasks. The Department treated those tasks as ministerial. A transfer of the receivables back after January 1 did not change their treatment on the assessment date.

If the corporation went beyond ministerial work and actually managed or controlled the receivables in Florida, however, the subsidiary would become subject to intangible tax because the receivables would acquire Florida business situs.

The promissory note received by the corporation was itself taxable, but the cited consolidated-return rule allowed the affiliated group to eliminate the intercompany account. Selling the receivables at a discount rather than face value did not change the answers; the ruling said receivables were valued at face value on January 1 less a reasonable allowance for uncollectible accounts.

What this means for you

• January 1 ownership and situs controlled the receivables analysis.
• A post-January 1 transfer back did not change that assessment-date result.
• Ministerial servicing differed from management or control.
• The seller's intercompany note required a separate analysis and depended on consolidated-return treatment for elimination.

Common questions

Q: Were the subsidiary-owned receivables taxable?
A: No, because the subsidiary had no Florida taxable situs on the stated facts.

Q: Did selling them back after January 1 change the result?
A: No.

Q: What if the seller actually managed or controlled the receivables in Florida?
A: The ruling said that would give the receivables Florida business situs and subject the subsidiary to tax.

Q: Was the promissory note taxable?
A: Yes, but it could be eliminated as an intercompany account if the affiliated group filed the cited 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(5) — receivables valuation
• Fla. Stat. § 199.175(2) — Florida business situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-030

Original ruling text

Mar 15, 1996

Re: Technical Assistance Advisement No. 96(C)2-030
Intangible Tax - Taxable Situs
Sections 199.052(1), (10), and 199.75(2), F.S.
XXX (Corporation A)
XXX (Subsidiary)

Dear :

Your letter dated November 17, 1995, requesting a Technical
Assistance Advisement has been received by this office. I
apologize for the delay in responding.

FACTS

Corporation A does business within and without Florida and
has accounts receivable that are generated in Florida and other
states, as well as intercompany receivables. This is the first
year Corporation A will file a consolidated Florida Intangible
Tax Return.

Within the next month a foreign subsidiary (Subsidiary)
will be organized under the laws of a foreign state, and will be
commercially domiciled and maintain its principal office in a
foreign state. The Subsidiary will be an operating company
operating solely in foreign states, will have no business situs
in Florida and will not have any agents, employees, or
representatives of any kind in Florida other than Corporation A,
which may perform ministerial activities at the discretion of
the Subsidiary.

Prior to January 1, Corporation A is contemplating the
transfer of all or a part of its accounts receivable to the
subsidiary through a sale. The receivables will be sold at face
value, or at a discount, in exchange for a promissory note.

Corporation A and the Subsidiary will enter into a service
agreement whereby Corporation A will provide the following

services:

1) Identifying all transferred/sold receivables as
transferred/sold in its accounting records.
2) Ensuring that receivables that are transferred/sold
are in compliance with any credit and collection
policies of the Subsidiary or that the receivables are
not in default prior to transfer/purchase.
3) Maintaining the books and records necessary for the
collection of the sold receivables (i.e., accounting
records).
4) Reporting activities, outstanding balances, and aging
of receivables to the purchaser on a periodic basis
(typically monthly).
5) Collecting the receivables (receiving payment) and
accounting for same.
6) Remitting proceeds to the Subsidiary.
7) Routine communications with the customer regarding
late payments.
8) Routine communications with the customer regarding
credit problems.
9) Notifying the Subsidiary of uncollected accounts.
10) Sending routine form reminder notices to customers for
late payments.

The agreement will be based on arm's length terms and
conditions and Corporation A will be paid a fee for the services
provided. It is contemplated that Corporation A and the
Subsidiary will be included on a consolidated Florida Intangible
Tax Return.

On or after January 2 of the following year, it is
anticipated that the Subsidiary will transfer some or all of its
receivables back to Corporation A. If the receivables have been
sold to the Subsidiary in exchange for a promissory note, the
transfer back would be in satisfaction of the note.

REQUESTED ADVISEMENT

1) Are the receivables which are sold by Corporation A to
the Subsidiary and owned by the Subsidiary subject to

the intangible tax levied pursuant to Section 199.032,
F.S.?
2) Does the fact that the receivables may be transferred
back to Corporation A after January 1 affect the tax
treatment of the receivables on January 1 prior to the
re-transfer?
3) If some or all of the receivables are transferred back
to Corporation A after January 1, will this subsequent
event change the tax treatment?
4) Do the activities of Corporation A constitute
ministerial functions or processing activities under
Section 199.032, F.S.? If not, which activities would
exceed ministerial functions or processing activities?
5) If Corporation A's activities exceed ministerial
functions or processing activities, which entity would
report the receivables (Corporation A which would be
deemed to manage or control the receivables, or the
Subsidiary, which owns the receivables)?
6) If Corporation A receives a promissory note from the
Subsidiary on the sale of the receivables, may the
promissory note be eliminated from its taxable
intangibles through the filing of a consolidated
Florida Intangible Tax Return?
7) If the receivables are sold at a discount in exchange
for a promissory note, instead of the receivables
being sold at face value in exchange for a promissory
note, would your response to questions 1-7 change?

DISCUSSION AND LAW

Responding to Question #1, once the receivables are
purchased by the Subsidiary from Corporation A, they will not be
subject to Florida Intangible Tax. Section 199.52(1), F.S.,
requires that every person who on January 1 owns, manages or
controls intangible property which has a taxable situs in this
state, file an intangible tax return and pay the tax. When the
owner of taxable intangible property is domiciled outside the
State of Florida, only those intangibles which have a business
situs in Florida are subject to tax as provided in s. 199.175,
F.S. Since the Subsidiary will have no tax situs in Florida,
none of the receivables purchased by Subsidiary from Corporation

A are subject to intangible tax in Florida. As to Question #2,
the fact that the receivables are transferred back to
Corporation A after January 1 does not affect the tax treatment
of the receivables on January 1 prior to the re-transfer, as
long as they are not an Account Receivable of Corporation A on
January 1 of the next year. In response to Question #3, the tax
treatment would not change if some or all of the receivables are
transferred back to Corporation A after January 1.

In answer to Question #4, the activities of Corporation A
constitute ministerial functions or processing activities under
s. 199.032, F.S. Duties exceeding "ministerial" functions
include controlling or managing intangible personal property in
this state. In response to Question #5, if Corporation A's
activities did exceed ministerial functions or processing
activities (such as the management and control of the
receivables), this would subject the Subsidiary to Intangible
tax in Florida, since the receivables would have a business
situs in this State. Under s. 199.175(2), F.S., intangible
personal property has a taxable situs in Florida when it is
deemed to have a business situs in Florida and is owned, managed
or controlled by a person transacting business in this state,
even though the owner may claim a domicile elsewhere.

Referencing Question #6, the promissory note acquired by
Corporation A from the Subsidiary is subject to Intangible tax.
However, Section 199.052(10), F.S., allows an affiliated group
to elect to file a consolidated return and eliminate
intercompany accounts. Therefore, if a consolidated return is
filed, the elimination of the intercompany account for the
promissory note would exclude the note from Intangible tax.

As to Question #7, there is no difference as to whether the
receivables are sold at a discount or face value in exchange for
the promissory note, since the receivables are to be valued for
Intangible purposes based on the face value as of January 1 of
each year, less a reasonable allowance for uncollectible
accounts. (See Section 199.103(5), 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
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,

Joy Eldred, C.P.A.
Tax Law Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

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