Were receivables sold by a Florida corporation to an out-of-state affiliate before January 1 taxable when the seller performed only bookkeeping?

Plain-English summary

Florida found no 1996 intangible tax on receivables sold to the out-of-state affiliate before January 1.

The Florida corporation sold its receivables at face value for a market-interest promissory note. The buyer was legally and commercially domiciled outside Florida and conducted no Florida business. The seller retained only bookkeeping functions while the buyer bore all ownership risks and control.

Ministerial functions and processing were not management or control under section 199.052(1). The receivables therefore lacked Florida situs on January 1, and neither company had to report them for 1996. A transfer back after January 1 did not change that year's result, but receivables held by the Florida seller on a later January 1 likely would be reportable.

The note could be eliminated as an intercompany receivable on a qualifying consolidated return. The ruling also warned that owning Florida receivables would likely create corporate-income-tax nexus for the out-of-state buyer.

What this means for you

• The seller's post-sale role had to remain ministerial rather than managerial.
• January 1 ownership and control determined the annual intangible-tax result.
• Consolidated-return elimination applied to the intercompany note, not to an unrelated third-party asset.

Common questions

Q: Were the sold receivables taxable for 1996? A: No, under the stated ownership and ministerial-service facts.

Q: Could the promissory note be eliminated? A: Yes, as an intercompany receivable on the consolidated return.

Q: Did the ruling address future January 1 holdings? A: Yes. It warned that receivables then held by the Florida seller likely would be reportable.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-066

Original ruling text

Jun 21, 1996

Re: TAA 96(C)2-066
Intangible Personal Property Tax - 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 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 that "A" is an XXX corporation with its principal office in Florida. Prior to December 31, 1995, "A" sold its accounts receivable to "B" at face value, in exchange for a promissory note bearing a market rate of interest.

"B" is legally and commercially domiciled in XXX and conducts no business in Florida. The transactions addressed herein were executed at "B's" offices in XXX.

"A" will exercise no control over the receivables during the time they are owned by "B," but will perform bookkeeping functions relative to payments received from debtors in satisfaction of the receivables sold to "B." All ownership risks associated with the receivables will rest with "B." On or after January 2, 1996, "B" will transfer the receivables back to "A" in satisfaction of the promissory note. "A" and "B" expect to file a consolidated Florida intangible personal property tax return for the 1996 tax year.

QUESTIONS

1. Are the receivables, sold by "A" to "B," and owned by "B"
   on January 1, 1996, subject to the Florida intangible tax imposed by s. 199.032, F.S.?
2. May the promissory note received by "A" from "B" in
   exchange for the receivables, be eliminated as a consolidating elimination in preparing the consolidated Florida intangible personal property tax return?

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. To the extent that "A's" activities consist only of those
   which are considered "ministerial functions and processing activities," the receivables 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. Therefore, neither "A" nor "B" would be required to report these receivables on their 1996 intangible personal property tax return. However, if "A's" activities exceed ministerial functions or processing activities, the receivables could become subject to intangible personal property tax, creating a requirement for "A" to report them.

If some or all of the receivables are transferred back to "A" after January 1, 1996, the tax treatment for the current year will not be affected. However, if "A" still retains these receivables on January 1, 1997, it is likely that all criteria will be met to make them subject to intangible personal property tax reporting requirements. It would then be "A's" responsibility to report them.

Additionally, it should be noted that ownership of Florida receivables will most likely create nexus for "B" for Florida corporate income tax purposes, if nexus has not previously been established.

2. 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 note payable 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.: 24628