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

Plain-English summary

Florida did not tax receivables owned, managed, and controlled by the out-of-state subsidiary on January 1, 1996.

The Florida-domiciled parent planned to sell its receivables before January 1 at fair market value for a market-rate promissory note. The subsidiary conducted no Florida business and would sell the receivables back on January 2 or later. The parent would perform only ministerial activities for the subsidiary.

The Department said the January 2 sale back did not change the January 1 ownership and control analysis, even for receivables that originally had Florida business situs. The parent's ministerial services did not make the receivables taxable. The ruling also cited the consolidated-return rule excluding intercompany accounts when the parent and subsidiary filed together.

What this means for you

• January 1 ownership, management, and control determined the stated result.
• A later sale back did not retroactively change the assessment-date facts.
• Ministerial servicing did not create taxable control.
• The intercompany note depended on both corporations being included on the consolidated return.

Common questions

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

Q: Did a January 2 sale back change the January 1 result?
A: No.

Q: Did the parent's servicing make the receivables taxable?
A: No, because the ruling characterized it as ministerial.

Q: What about the promissory note issued for the receivables?
A: The ruling cited the consolidated-return exclusion for intercompany accounts.

Citations and references

• Fla. Stat. § 199.032(1) — annual intangible tax
• Fla. Stat. § 199.052(1), (10) — January 1 control test and consolidated returns
• Fla. Stat. § 199.175(1) — taxable situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-038

Original ruling text

Apr 01, 1996

Re: Technical Assistance Advisement No. 96(C)2-038
Intangible Tax- Sale of Receivables in exchange for a Note
XXX (Taxpayer)

XXX (Subsidiary)

Dear:

Your request for a Technical Assistance Advisement
concerning the intangible tax in relation to a sale of accounts
receivable in exchange for a promissory note has been reviewed

and is addressed in the following paragraphs.

Statement of the Facts

The Taxpayer's business was organized under the laws of
Delaware and is commercially domiciled in Florida. The Taxpayer
will form a wholly-owned subsidiary which will reside outside
the State of Florida. The Subsidiary will conduct no business
in Florida. The Subsidiary will file a consolidated Florida

intangible personal property tax return with the Taxpayer.

Prior to January 1, the Taxpayer will sell its accounts
receivable to its out-of-state Subsidiary. The receivables will
be sold at the fair market value in exchange for a promissory
note bearing a market rate of interest. The books and records
will appropriately reflect the sale of the receivables and the
execution of the note. The Taxpayer will perform ministerial
activities on behalf of the Subsidiary with respect to the
receivables. On January 2 of the following year, the Subsidiary
anticipates selling the receivables back to the Taxpayer, at

which time the promissory note will be satisfied.

Requested Advisement

You request the Department's advice regarding the following

isSues:

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

2. If the accounts receivable sold include accounts
   receivable which originally had Florida business
   situs, will such receivables be subject to the Florida
   intangible tax?

3. If the assets are transferred back to the Taxpayer
   after January 1, does this affect the tax treatment of
   the assets on January 1?

4. If the Taxpayer receives a promissory note from the
   Subsidiary on the sale of the accounts receivable, may
   the promissory note be eliminated from its intangible
   tax base through the filing of a consolidated
   intangible personal property tax return?

5. Do the activities listed above, which are services to
   be provided by the Taxpayer for the 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 s. 199.052(1), F.S.?

Provisions of the Law

In accordance with Sections 199.032(1), and 199.052(1),
F.S., intangible personal property which has a taxable situs in
this State as of January 1 of each year is subject to the
intangible tax. Section 199.175(1), F.S., defines taxable situs
as being owned, managed, or controlled by a person or business
domiciled in this State on January 1 of the tax year. For
purposes of the intangible tax, s. 199.052(1), F.S., provides
that "management or control" does not include ministerial

functions.
When a consolidated intangible tax return is filed, Section
199.052(10), F.S., provides that the intercompany accounts of

the includable corporation are not subject to tax.

Conclusion

Since the Taxpayer does not own or control the intangible
personal property on January 1 of the year, such property would
not have a taxable situs in this State for intangible personal
property tax purposes. The sale back to the Taxpayer on January
2 or thereafter would not affect the tax treatment of the
accounts receivable on January 1. The Subsidiary has no
commercial or business domicile in this state. Therefore, the
assets are not owned, controlled, or managed within this State
as of January 1. In such case there would be no liability for
the tax. The ministerial functions provided by the Taxpayer to
the Subsidiary regarding the particular receivables would not

make the receivables subject to 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,

Celestine Grantham
Senior Tax Specialist
Tax Policy and Dispute Resolution

Office of General Counsel

CG/mh