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