Under Florida's 1996 intangible tax, did receivables sold to an out-of-state subsidiary retain Florida situs when the parent performed routine servicing?

Plain-English summary

Florida found that receivables sold to the out-of-state subsidiary before January 1, 1996 were not subject to the state's intangible tax on the stated facts.

The subsidiary had no Florida sales, property, business situs, agents, employees, or representatives. The Florida parent sold the receivables at face value for a market-rate intercompany note and then maintained records, reported balances and aging, accounted for payments, handled routine customer communications, and reported uncollected accounts for a fee.

The Department classified those tasks as ministerial because they followed instructions and required no special discretion, judgment, or skill. They did not become management or control merely because the parent performed them in Florida. The intercompany promissory note was also excluded from tax when the parent and subsidiary were included on the same consolidated Florida intangible-tax return.

What this means for you

• Routine servicing did not create taxable control of the receivables.
• Where the routine work occurred did not change that classification.
• The result depended on the subsidiary's ownership and out-of-state business facts.
• Consolidated-return treatment separately excluded the intercompany note.

Common questions

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

Q: What counted as ministerial work?
A: Record maintenance, periodic reporting, payment accounting, routine customer communications, and status reports on uncollected accounts.

Q: Did doing that work in Florida create taxable control?
A: No.

Q: Was the intercompany promissory note taxable?
A: No, if both corporations were included on the same consolidated return.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1), (10) — control test and consolidated returns
• Fla. Stat. § 199.175(2)(a) — Florida business situs
• Simmons v. Schimmel, 476 So. 2d 1342 (Fla. 1985)
• Hannah v. Sunrise, 94 So. 2d 597 (Fla. 1957)
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-048

Original ruling text

Apr 16, 1996

Re: Technical Assistance Advisement No. 96(C)2-048
Intangible Tax - Taxable Situs
Sections 199.052 and 199.175, F.S.
XXX ("Parent")

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 incorporated in Florida and is domiciled in Florida.
Parent generates sales within and without Florida, and has
accounts receivables that are generated in and out of Florida.

Parent has a wholly owned subsidiary corporation (XXX) organized
under the laws of the state of XXX. XXX is commercially
domiciled and maintains its principal office outside of Florida.
XXX has no sales, property or business situs in Florida and does
not have any agents, employees, or representatives of any kind
in Florida. Parent will perform ministerial activities
(described below) at the discretion of XXX.

Prior to January 1, 1996, Parent transferred its accounts
receivable to XXX. The transfer of the receivables to XXX was
accomplished through a sale of the receivables, at face value,
in exchange for an intercompany promissory note bearing a market
rate of interest and reflecting arm's length terms and
conditions.

Parent and XXX entered into a service agreement whereby Parent
will provide the following services:

*

maintain the books and records necessary for the collection

of the receivables;
*

report activities, outstanding balances, and aging of
receivables to XXX on a periodic basis (typically monthly);

*

account for the payment of the receivables which will be
sent to XXX;

*

perform routine communications with the customer regarding
late payments and credit problems; and,

*

notify XXX of uncollected accounts by transmittal of status
report.

The agreement will be based on arm's length terms and conditions
and Parent will be paid a fee for providing these services.

Parent and XXX will file a consolidated Florida intangible
personal property tax return.

ADVISEMENTS REQUESTED / CONCLUSIONS OF LAW

Based upon the scenario above, you have requested technical
assistance on the following issues:

Question 1:

Are the receivables which are sold by Parent to XXX and owned by
XXX on January 1, subject to the intangible tax levied pursuant
to s. 199.032, F.S.?

Response:

The taxable status of this issue is governed by the "taxable
situs" provisions of ss. 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 s. 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 s. 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 representatives 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 Parent
to XXX and owned by XXX 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:

What is a definition of "ministerial functions", and do the
above outlined activities of Parent constitute ministerial
functions or processing activities under s. 199.052, F.S.?

Response:

Insofar as there is no statutory definition for the term
"ministerial" under Chapter 199, F.S., the department must
therefore turn to the fundamentals of statutory construction to
ascertain the meaning of this particular term as it applies to
s. 199.052, F.S. In this regard, the court in the matter of
Simmons v. Schimmel, 476 So. 2d 1342, 1344 (Fla. 1985) stated it
to be an axiom of statutory construction that when a statute
does not specifically define words of common usage, such words
are to be construed in accordance with their plain and ordinary
meaning. Consequently, in order to ascertain the ordinary and
plain meaning of the term "ministerial", the department has
turned to Black's Law Dictionary (6th Edition), which defines it

as "that which involves obedience to instructions, but demands
no special discretion, judgment, or skill" and an act "which a
person or board performs under a given state of facts in a
prescribed manner in obedience to the mandate of legal authority
without regard to or the exercise of his or their own judgment
upon the propriety of the act being done." Thus, based on this
particular definition of the term "ministerial", we therefore
conclude that the described activities of Parent would in fact
constitute ministerial functions for purposes of s. 199.052,
F.S.

Regarding the question as to whether the described activities of
Parent would constitute a "processing activity" for purposes of
s. 199.052, F.S., and in the absence of both a statutory and
plain or ordinary meaning for this term, the department
therefore is required to rely on the doctrine of statutory
construction known as ejusdem generis as announced in the matter
of Hannah v. Sunrise, 94 So.2d 597 (Fla. 1957). This doctrine
of statutory construction provides that where the enumeration of
specific things is followed by a more general word or phrase,
then in such cases the general word or phrase is construed to
refer to a thing of the same kind or species as is included
within the preceding limiting or confining terms. Thus, based
on this particular doctrine of statutory construction, it is our
opinion that the terms "any ministerial function" and "and any
processing activities" should be construed to be synonymous, and
therefore we conclude that the described activities of Parent
would also constitute "processing activities" for purposes of s.
199.052, F.S.

Question 3:

Does it make a difference whether Parent performs such
ministerial functions within or outside of Florida?

Response:

No, the taxable status of the receivables owned by XXX on
January 1, 1996, would not be affected by whether the described
ministerial functions of Parent are conducted within or outside
Florida since these activities do not constitute the management

or control of an intangible asset for purposes of s. 199.052,
F.S.

Question 4:

If Parent receives a promissory note from XXX on the sale of
receivables, may the promissory note be eliminated from its
taxable intangibles through the filing of a consolidated
intangible personal property tax return?

Response:

The taxable status of this issue is governed by the provisions
of s. 199.052(10), F.S., which generally provides that when a
consolidated return is filed any intercompany accounts of an
includable corporation owned by another includable corporation
shall be excluded from taxation. Consequently, and to the
extent that Parent and XXX are included on the same consolidated
return, then the subject promissory note between those parties
would be excluded from taxation since this item would constitute
an intercompany account for Florida intangible tax purposes.

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,

George D. Turner
Senior Tax Specialist
Tax Policy & Dispute Resolution

GDT