Did intangibles and a promissory note between two out-of-state affiliates acquire Florida situs when one performed directed processing work?

Plain-English summary

Florida found no taxable situs for the transferred intangibles or the related promissory note.

Both the parent and affiliate were organized and principally based outside Florida. The parent transferred commercial-finance intangibles to the affiliate at face value for an arm's-length, market-interest note. The affiliate managed and controlled the assets from its own out-of-state office.

The parent performed only booking, recordkeeping, collection, and other processing functions at the affiliate's direction and without independent judgment. Those tasks did not amount to management or control, so they did not create Florida situs for the affiliate's assets.

The parent owed no Florida intangible tax on assets transferred before year end. The note also lacked Florida situs because it was owned by a non-Florida corporation and arose from business conducted outside Florida.

What this means for you

• Both entities' out-of-state domicile and the affiliate's retained control supported the result.
• The parent's services had to remain ministerial and directed.
• Unlike consolidated-group rulings, these companies did not rely on an intercompany elimination.

Common questions

Q: Were the affiliate-owned intangibles taxable in Florida?
A: No.

Q: Did the parent's collection work create situs?
A: No, because it was ministerial and required no independent judgment.

Q: Was the promissory note taxable?
A: No.

Citations and references

• Fla. Stat. § 199.023(3) — person definition
• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1) — ministerial functions and filing
• Fla. Stat. § 199.175(1) — taxable situs by domicile
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-065

Original ruling text

Jun 13, 1996

Re: Technical Assistance Advisement No. 96(C)2-065
Intangible Tax - Taxable Situs - Accounts Receivable
Sections 199.052 & 199.175, F.S.
XXX (Parent)
XXX (Affiliate)

Dear :

Your letter requesting a Technical Assistance Advisement
has been referred to this office for response. Your specific
request concerns the taxation of intangible property sold by
Parent to Affiliate in exchange for a promissory note.

Statement of Facts

Parent is organized under the laws of the State of XXX and
maintains its principal office in XX. Affiliate is a
corporation organized under the laws of a State other than
Florida and maintains its principal office in XXX. Parent is
engaged in all aspects of the commercial finance business and
lends primarily on a secured basis to middle market borrowers.
In the course on engaging in business, Parent acquires
intangible property from customers in Florida and customers in
other states. On or before the end of the calendar year Parent
will transfer its intangible assets to Affiliate. The
intangibles will be transferred at face value for a promissory
note that will bear a market rate of interest and will otherwise
reflect arm's length terms and conditions.

During the period that Affiliate owns the intangible
property, Affiliate will manage and control the intangible
property from its office in XX. Parent will perform certain
processing, accounting and other ministerial functions with
respect to Affiliate's intangible property at its office in XXX.
These functions will be limited to booking, record-keeping and
collection functions performed at Affiliate's direction.
Parent's collection activities will be taken only as directed by

Affiliate. Parent will not act as agent or representative of
Affiliate with regard to the intangible property. On or after
January 2 of the next calendar year Affiliate will transfer the
intangible property back to Parent in satisfaction of its
promissory note to Parent. Parent and Affiliate will not file a
consolidated Florida Intangible tax return as both companies are
domiciled outside Florida.

Issues

Based upon the scenario above, technical advice is
requested on the following issues:

1. Are the intangibles purchased by Affiliate subject to
   the Florida intangible tax?
2. Will Parent be subject to intangible tax on the
   receivables it transfers to Affiliate prior to January
   1?
3. Will the promissory note from Affiliate to Parent that
   is made and executed outside Florida be subject to
   Florida intangible tax?

Provisions and Discussion of Law

Chapter 199, F.S., provides for the levy of intangible
personal property taxes at the rate of 2 mills. The statutes
require that the tax levied by s. 199.032, F.S., be paid by June
30th of each year. An intangible tax return must be filed with
the Department of Revenue by every person authorized to do
business in this state or doing business in this state,
regardless of domicile, who on January 1 owned, controlled or
managed intangible personal property that had a Florida taxable
situs. (See s. 199.052(1), F.S.) The term "person" includes
any individual, firm, partnership, joint adventure, or
corporation. (See s. 199.023(3), F.S.) Section 199.175(1),
F.S., provides that intangible property shall have a taxable
situs in this state when it is owned, managed, or controlled by
any person domiciled in this state.

With respect to the first basis for situs, as outlined in
s. 199.175(1), F.S. (i.e., Florida domicile), Affiliate has its

principal place of business outside Florida. It follows that
the intangible property of the Affiliate may be taxed only if
Affiliate has a taxable situs in Florida. The ministerial and
processing functions performed by Parent would not constitute
the control or management of the intangible property of
Affiliate. Section 199.052(1), F.S., provides that control or
management does not include any ministerial function or any
processing activity. All of the functions described above as
performed by Parent constitute ministerial functions and
processing activity. Therefore, Affiliate's intangibles do not
have a taxable situs in Florida based on the activities of
Parent.

With respect to Parent's sale of intangible property, it
will owe no Florida intangible tax on the intangible property it
transferred to Affiliate prior to year end. Further, Parent's
activities relating to the intangibles while those intangibles
are owned by Affiliate, will solely be ministerial. The
activities of Parent will be limited to activities undertaken at
Affiliate's direction that require no independent judgment.
Therefore, Parent's activities will cause no taxable situs for
the intangible property of Affiliate.

With respect to the promissory note received by Parent from
Affiliate, in consideration for the intangible property, the
promissory note will not be subject to the Florida intangible
tax. Both Parent and Affiliate are non-domiciliary
corporations. The promissory note received by Parent from
Affiliate arose from business conducted outside Florida.
Therefore, the note owned by a non-domiciliary, and arising from
non-Florida business activity, has no taxable situs 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,

J.V. Parramore, Jr.
Tax Law Specialist
Technical Assistance

JVP/mh