What intangible-tax consequences followed when Florida subsidiaries sold receivables to an out-of-state affiliate before January 1?

Plain-English summary

Florida separated the year-end transaction into three results: no tax on the sold receivables for the Florida subsidiaries, tax on their notes unless eliminated on a consolidated return, and no Florida situs for the out-of-state buyer.

The Florida-based subsidiaries transferred all trade receivables to a foreign-state affiliate before January 1 in exchange for promissory notes. The buyer bore the economic risk and had no Florida employees, agents, representatives, or business. The subsidiaries performed only the listed recordkeeping, collection, and communication services while the buyer owned the receivables.

Because the subsidiaries did not own, manage, or control the receivables on January 1, they were not taxed on those assets. Their promissory notes were taxable, but section 199.052(10) allowed qualifying intercompany accounts to be eliminated if the corporate group timely filed a consolidated Florida intangible-tax return. Filing that return did not itself create Florida situs for the buyer.

What this means for you

• The transferred receivables and the notes received in exchange were analyzed as different assets.
• Timely consolidated filing was necessary to eliminate the qualifying intercompany notes.
• The out-of-state buyer's lack of Florida business and personnel supported its no-situs result.

Common questions

Q: Did the Florida subsidiaries owe tax on the sold receivables?
A: No.

Q: Were the notes from the buyer taxable?
A: Yes, but qualifying intercompany notes could be excluded through a timely consolidated return.

Q: Did the out-of-state buyer have Florida taxable situs?
A: No, on the submitted facts.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(10) — consolidated returns and intercompany accounts
• Fla. Stat. § 199.175 — domicile and taxable situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-055

Original ruling text

May 14, 1996

Re: Technical Assistance Advisement No. 96(C)2-055
Intangible Tax - Taxable Situs
XXX ("Corporation A")
XXX ("Corporation B")
XXX (collectively the "Subsidiaries")
XXX ("Corporation C")

Dear :

The letter dated March 13, 1996, 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.

FACTS PERTAINING TO ALL ISSUES

The facts that you have provided to the department are as
follows:

Corporation A is a publicly held company incorporated in a
foreign state, and with its principal and administrative offices
in the same state. Corporation A owns 100% of the stock of
Corporation B, which is incorporated under the laws of and has
its principal and administrative offices in a foreign state.
Corporation B owns 100% of the stock of the Subsidiaries. Each
of the Subsidiaries is incorporated under the laws of a foreign
state and maintains its principal and administrative offices in
Florida.

In addition, Corporation B owns 100% of the stock of Corporation
C which is incorporated under the laws of and has its principal
and administrative offices in a foreign state. Corporation C
has no employees, agents or representatives of any kind in
Florida and conducts no business in Florida.

Corporation A is contemplating the following transaction:

The Subsidiaries will transfer all of their trade receivables to
Corporation C at the close of business on December 29, 1995, in
exchange for promissory notes from Corporation C. None of the
receivables are secured by real property. Economic risk of loss
inherent in owning the receivables will rest with Corporation C
during the time that Corporation C owns the receivables. At the
time of the transfer Corporation C will enter into an agreement
with each of the Subsidiaries to provide services relating to
the receivables. The agreement will be in effect for the period
in which Corporation C owns the receivables pursuant to the
Service Agreement. The Subsidiaries will provide the following
services to Corporation C:

a) Identifying all the receivables transferred to Corporation
C in its accounting records;
b) Ensuring that the receivables that are transferred are in
compliance with any credit and collection policies of
Corporation C or that the receivables are not in default
prior to transfer;
c) Maintaining the books and records necessary for the
collection of the transferred receivables;
d) Reporting activities, outstanding balances, and aging of
receivables to Corporation C;
e) Recording cash payments of interest and principal on the
receivables;
f) Remitting funds collected to Corporation C;
g) Routine communications with customers regarding payment and
credit problems;
h) Notifying Corporation C of uncollected accounts; and,
i) Sending routine billing and late payment notices to
customers.

The employees of the Subsidiaries will be responsible for only
routine communication with customers or creditors in accordance
with the activities enumerated in the Service Agreement. The
Subsidiaries will not have the authority to engage in any
activities other than those indicated above without the express
written permission of Corporation C.

At the opening of business on January 2, 1996, Corporation C
will transfer the receivables back to the Subsidiaries in

exchange for the cancellation of the notes. Corporation A,
Corporation B, Corporation C, and the Subsidiaries will file a
Florida consolidated intangible tax return for 1996.

ISSUES

Based on the facts as stated above, three rulings have been
requested on the following issues:

1. Will the Subsidiaries be subject to the Florida intangible
   tax on January 1, 1996, on the receivables transferred to
   Corporation C?
2. Will the Subsidiaries be subject to the Florida intangible
   tax on the notes received from Corporation C?
3. To what extent, if any, will Corporation C be subject to
   the Florida intangible tax?

LAW AND DISCUSSION

For purposes of the annual tax imposed under s. 199.032, F.S.,
intangible personal property shall have a taxable situs in this
state when it is owned, managed, or controlled by any person
domiciled in this state on January 1 of the tax year, as
provided in s. 199.175, F.S. "Any person domiciled in this
state" means: (a) any natural person who is a legal resident of
this state; (b) any bank or financial institution, company,
corporation, partnership, or other artificial entity organized
or created under the laws of this state, except a trust; or (c)
any person, including a trust, who has established a commercial
domicile in this state. A business or other artificial entity
acquires its commercial domicile in this state when it maintains
its chief or principal office in this state where executive or
management functions are performed or where the course of
business operations is determined.

Intangible personal property shall have a taxable situs in this
state when it is deemed to have a business situs in this state
and it is owned, managed, or controlled by a person transacting
business in this state, even though the owner may claim a
domicile elsewhere. Intangibles shall be deemed to have a
Florida business situs when they receive the benefit and

protection of Florida laws and courts and they are derived from,
arise out of, or are issued in connection with business
transacted in this state with a customer in this state.

Subsection 199.052(10), F.S., provides for the filing of a
consolidated intangible tax return, and the elimination of
intercompany accounts of qualifying members of the consolidated
group. The filing of a consolidated return will not in itself
provide a business situs for intangible personal property held
by a corporation.

CONCLUSION

1. The Subsidiaries will not be subject to the Florida
   intangible tax on the receivables on January 1, 1996, since
   they will not own, manage or control the receivables.
2. The notes represent assets subject to the Florida
   intangible tax to the Subsidiaries. However, the notes
   represent intercompany receivables and can be excluded from
   taxation if Corporation A and the Subsidiaries timely file
   a Florida consolidated tax return.
3. Corporation C will not have taxable situs in Florida, and
   therefore, will not be subject to the Florida intangible
   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,

Mary Ella Ingram
Tax Specialist
Tax Policy and Dispute Resolution

Ctrl No: 25026