Were consumer loans taxable after an out-of-state bank sold them to an out-of-state subsidiary before January 1?

Plain-English summary

Florida found no 1996 intangible tax on consumer loans that an out-of-state bank transferred to its out-of-state subsidiary before January 1.

The bank conducted business in Florida and generated loans both inside and outside the state. Before year end, it transferred all consumer loans to its wholly owned non-Florida subsidiary for an arm's-length, market-interest note. The subsidiary had no Florida employees, agents, or representatives.

The Department said the loans lacked Florida taxable situs on January 1 because the non-Florida subsidiary owned them. It also characterized the bank's described processing work for the subsidiary as ministerial. Finally, if the bank and subsidiary filed a consolidated intangible-tax return together, section 199.052(10) eliminated the intercompany note from taxable intangibles.

What this means for you

• Ownership on January 1 controlled the ruling's loan-situs result.
• The bank's servicing had to remain ministerial under the described arrangement.
• Eliminating the note depended on including both corporations in a consolidated return.

Common questions

Q: Were the loans subject to 1996 Florida intangible tax?
A: No. A non-Florida entity owned them on January 1.

Q: Did the bank's servicing create management or control?
A: No. The Department treated the described functions and processing activities as ministerial.

Q: Was the subsidiary's note taxable?
A: It could be eliminated as an intercompany account if the bank and subsidiary were included in the same consolidated return.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-064

Original ruling text

May 31, 1996

Re: Technical Assistance Advisement No. TAA 96(C)2-064
Intangible Tax - Property Subject to Tax
Sections 199.052 and 199.175, F.S.
XXX (Bank)
XXX (Subsidiary)

Dear :

Your request for a Technical Assistance Advisement has been
received and examined by this office. The specific request
deals with the taxation of accounts receivable sold by a parent
corporation to its non-Florida subsidiary. The request is based
upon the following scenario:

Bank is a financial institution incorporated outside of
Florida and conducts business in Florida. Loans are
generated, by Bank, both in and out of Florida. Bank has a
wholly owned subsidiary (Subsidiary) that is also
incorporated outside Florida. Subsidiary is commercially
domiciled and maintains its principal office outside of
Florida. Prior to December 31, 1995, Bank transferred all
of its consumer loans to Subsidiary in exchange for a note.
The exchange was at book value for a note, bearing a market
rate of interest and reflecting an arms length transaction.
Subsidiary has no employees, agents or representatives of
any kind in Florida. Bank will perform ministerial
functions on behalf of and at the discretion of Subsidiary.

On XXX, Bank repurchased the loans from Subsidiary.
Consideration for the repurchase was the forgiveness of the
promissory note. Bank and Subsidiary will file a
consolidated Intangible tax return for the 1996 tax year.

Discussion of Law

For the 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
a person domiciled in this state on January 1 of the tax year.
Section 199.175, F.S., states that "any person domiciled in this
state" means (a) any natural person who is a legal resident of
the state; (b) any bank or financial institution, company,
corporation, partnership, or other entity organized or created
under Florida law, 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 a
commercial domicile in Florida when it maintains its chief or
principal place of business in this state where executive or
management functions are performed or where the course of
business operations is determined.

Intangible property shall have a taxable situs in this
state when it is owned, managed, or controlled by a person
transacting business in this state, even though the owner may
claim a domicile elsewhere. Intangible property shall be deemed
to have a Florida business situs and receive the benefit and
protection of Florida laws when it is derived from, arises out
of, or is issued in connection with business transacted in
Florida with customers in Florida.

Ruling Requested

1. Are the loans that were sold by Bank to Subsidiary and
   subsequently repurchased by Bank from Subsidiary
   subject to the 1996 intangible tax?

Response: The loans have no taxable situs in Florida
on January 1, 1996 as they are owned by a non-Florida
entity.

2. Do the activities of Bank, as described, constitute
   ministerial functions or activities under s. 199.052,
   F.S.?

Response: As described, the functions and processing
activities performed by Bank are ministerial.

3. Regarding Bank's receipt of the promissory note from

subsidiary on the sale of the loans, may the
promissory note be eliminated from the taxable
intangibles through the filing of a consolidated
intangible tax return?

Response: Yes. Under the provisions of s. 199.052(10),
F.S., all intercompany accounts are eliminated for all
companies included in the consolidated group of
corporations.

Conclusion

Based upon the information provided and the provisions of
Ch. 199, F.S., the loans sold by Bank to Subsidiary will not be
subject to the intangible tax for 1996. Further, should Bank
file a consolidated return and include Subsidiary within the
consolidated group of corporations the note from Subsidiary to
Bank will be eliminated from taxation.

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,

J.V. Parramore. Jr.
Tax Law Specialist
Tax Policy and Dispute Resolution
Office of General Counsel

JVP/mh