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

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