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