Were Florida-customer receivables taxable after a Florida business sold them to an out-of-state subsidiary before January 1?

Plain-English summary

Florida found no taxable situs for customer receivables that a Florida business sold to its out-of-state subsidiary before January 1.

The seller transferred all receivables at approximately fair market value for an arm's-length, market-interest promissory note. The subsidiary was commercially domiciled outside Florida, conducted no Florida business, and had no Florida personnel other than the seller performing activities at its direction.

The Department said the receivables lacked Florida situs on January 1. Servicing by the seller would not change that conclusion, whether performed inside or outside Florida, as long as the work remained ministerial. If the seller's activities exceeded ministerial functions, the result could change. The intercompany note also appeared to qualify for elimination under generally accepted accounting principles on the companies' consolidated return.

What this means for you

• Receivables from Florida customers did not automatically have Florida situs on these facts.
• The seller's retained servicing had to remain ministerial.
• The note result depended on the intercompany elimination rules for a consolidated return.

Common questions

Q: Were the sold receivables taxable on January 1?
A: No.

Q: Did the seller's servicing create Florida situs?
A: No, as long as it remained ministerial, regardless of where the work occurred.

Q: Could the buyer's note be eliminated?
A: The Department said it appeared to meet the criteria for elimination on the consolidated return.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1) — ministerial functions and filing
• Fla. Stat. § 199.052(10) — consolidated returns and intercompany accounts
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-054

Original ruling text

May 03, 1996

Re: TAA 96(C)2-054
Intangible Personal Property Tax - Taxable Situs - Sale of
Accounts Receivable
XXX, hereinafter referred to as "A";
XXX, hereinafter referred to as "B"

Dear :

Your letter of XXX, requested a Technical Assistance Advisement
on the effect of sales of accounts receivable from Florida
customers on the intangible personal property tax liabilities of
the seller and purchaser. This response to your request
constitutes a Technical Assistance Advisement under Chapter
12-11, Florida Administrative Code, and is issued to you under
the authority of s. 213.22, Florida Statutes.

FACTS

Your letter states "A" was incorporated in XXX, is partially
domiciled in Florida, and conducts business within and without
Florida.

"B" was incorporated in XXX, is commercially domiciled outside
of Florida, conducts no business in Florida, and is a whollyowned subsidiary of "A." "B" does not presently, and will not
during the term of the proposed transaction, have any agents,
employees, or representatives in Florida other than "A," who may
perform certain activities at "B's" direction.

On December 29, 1995, "A" sold all of its receivables to "B" at
a price approximating fair market value, in exchange for a
promissory note bearing a market rate of interest, in accordance
with a contractual agreement. This transaction reflected arm's
length terms and conditions.

"A" and "B" intend to file a consolidated Florida intangible
personal property tax return for the 1996 tax year.

QUESTIONS

1. Are the receivables generated by sales to Florida
   customers, which were sold by "A" to "B," and owned by "B"
   on January 1, 1996, subject to Florida's intangible
   personal property tax?
2. Does "A's" performance of ministerial functions within
   Florida or without Florida affect the taxability of the
   receivables which were sold, for the purposes of Florida's
   intangible personal property tax?
3. Will the promissory note issued December 29, 1995, by "B"
   to "A" in exchange for the receivables, be subject to
   Florida's intangible personal property tax?

DISCUSSION AND ANALYSIS OF LAW

Section 199.032, F.S., states in part:

An annual tax of 2 mills is hereby imposed on each dollar
of the just valuation of all intangible personal property
which has a taxable situs in this state,...

Subsection 199.052(1), F.S., states:

An annual intangible tax return must be filed with the
department by every corporation authorized to do business
in this state or doing business in this state and 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. For purposes of this
chapter, "control" or "manage" does not include any
ministerial function or any processing activity. The
return shall be due on June 30 of each year. It shall list
separately the character, description, and just valuation
of all such property.

Subsection 199.052(10), F.S., states:

An affiliated group of corporations may elect to make a
consolidated return for any year.... Where a consolidated

return is made, intercompany accounts, including the
capital stock of an includable corporation, other than the
parent, owned by another includable corporation, shall not
be subject to annual taxation. However, capital stock and
other intercompany accounts of a nonqualified member of the
affiliated group shall be subject to annual tax. Each
consolidated return shall be accompanied by documentation
identifying all intercompany accounts and containing such
other information as the department shall require.

The intent of the statutes referenced above is to impose a tax
on all intangible personal property having a taxable situs in
Florida. An intangible personal property tax return is to be
filed by all corporations or persons owning, controlling or
managing intangible personal property with a taxable situs in
Florida. As stated in subsection 199.052(1), F.S., ministerial
functions and processing activities do not meet the criteria of
"managing" or "controlling" intangible personal property.
Additionally, s. 199.052(10), F.S., authorizes corporations to
file consolidated intangible personal property tax returns, and
provides for the elimination of intercompany accounts consistent
with Generally Accepted Accounting Principles (GAAP).

Accordingly, the answers to your specific questions follow:

1. From the information provided in your letter, the
   receivables generated by sales to Florida customers, which
   were sold by "A" to "B," and owned by "B" on January 1,
   1996, are not subject to the tax imposed by s. 199.032,
   F.S., as a result of not having taxable situs in Florida on
   the assessment date provided by subsection 199.052(1), F.S.

As stated in subsection 199.052(1), F.S., the performance
of ministerial functions by an entity will not cause
intangible personal property which would not otherwise be
subject to Florida's intangible tax, to become subject to
the tax. Therefore, as long as the receivables servicing
activities of "A" on behalf of "B" do not exceed those
which would be considered ministerial functions, the
receivables sold by "A" to "B" would not have taxable situs
in Florida, nor would intangible tax be imposed on them as

a direct result of such activities.

2. The fact that "A" performs ministerial functions on behalf
   of "B," related to the receivables which were sold has no
   bearing on the taxability of the receivables, regardless of
   where such ministerial functions are performed. Again,
   however, if "A's" activities exceed those considered to be
   ministerial functions, such activities may cause the
   receivables to become subject to Florida's intangible
   personal property tax.

3. Subsection 199.052(10), F.S., provides for the filing of
   consolidated intangible personal property tax returns by
   corporations, and further provides for those consolidating
   eliminations normally allowed by GAAP. Because
   intercompany receivables are one category of consolidating
   elimination allowed by GAAP, the promissory note given to
   "A" by "B" in exchange for "A's" accounts receivable,
   appears to meet the criteria for elimination in the
   consolidated return.

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
based 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,

Suzanne C. Paul
Tax Policy and Dispute
Resolution

SCP/kk
Control No.: 24503