Were Florida-customer receivables sold to an out-of-state affiliate before January 1 taxable when the Florida seller retained limited servicing duties?

Plain-English summary

Florida found no 1996 intangible tax on the receivables owned by the out-of-state affiliate over January 1.

The Florida finance company sold all receivables, including security interests, to an out-of-state affiliate at approximately fair market value for a market-interest note. The affiliate had no Florida office, personnel, business, or prior nexus.

The seller continued servicing for a fee: maintaining files, processing and depositing payments, sending routine delinquency notices, answering routine questions, and reporting collections, balances, aging, and fees. It could not compromise or settle receivables, refer them to collectors or attorneys, or take action outside the agreement without sending the matter to the buyer.

Those limited functions did not create Florida management or control. The receivables were not taxable for 1996, and the affiliate note could be eliminated on the consolidated return. The Department declined to promise the same result for all future transactions and warned that owning Florida receivables would likely create corporate-income-tax nexus for the buyer.

What this means for you

• Servicing remained ministerial because decision authority stayed with the out-of-state owner.
• January 1 ownership and control drove the annual tax result.
• Future deals required their own factual review; the ruling was not a blanket recurring approval.

Common questions

Q: Did routine payment processing create taxable situs?
A: No, while the seller lacked authority to compromise, settle, refer, or otherwise control collection decisions.

Q: Could the intercompany note be eliminated?
A: Yes, on the qualifying consolidated return.

Q: Did Florida guarantee the same result for later transactions?
A: No.

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 96C2-067

Original ruling text

Jun 21, 1996

Re: TAA 96(C)2-067
Intangible Personal Property Tax - Taxable Situs - 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 from Florida
customers 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 "A" was incorporated in XXX, is commercially
domiciled and maintains its principal office in Florida, and
conducts business within and without Florida. By providing
loans, "A" enables customers in Florida and throughout the
United States to purchase or lease equipment from its affiliates
and other companies. "A" is a wholly owned subsidiary of a XXX
corporation, with which it, "B," and several other affiliates
file a consolidated Florida intangible personal property tax
return.

"B" is commercially domiciled and maintains its principal office
outside of Florida. "B" transacts no business in Florida, and
has not established nexus with Florida. "B" does not presently,
and will not during the term of the proposed transaction, have
any agents, employees, or representatives in Florida other than
"A," which may perform certain activities at "B's" direction.

On December 29, 1995, "A" sold all of its receivables to "B" at
a price approximating fair market value, in exchange for a

promissory note bearing a market rate of interest, in accordance
with a contractual agreement. This transaction was intended to
reflect arm's length terms and conditions. "A" assigned its
security interests in the equipment affected by the sale of
receivables to "B" along with the receivables.

Under the service agreement entered into by "A" and "B" pursuant
to this transaction, "A" will service the receivables sold to
"B" for a fee following the sale. The services to be provided
by "A" in accordance with the contractual agreement are as
follows:

*

Sufficiently maintain any records necessary for the
collection of the receivables which were sold, and to allow
"B" to determine the status of each receivable

*

Receive, collect and process all payments made relative to
the receivables which were sold

*

Send routine notices to receivables obligors to remind them
of delinquent payments

*

Respond to routine inquiries of receivables obligors
concerning their receivables

*

Deposit all collections related to the receivables which
were sold, into accounts designated by "B" within two
business days following receipt.

Pursuant to the contractual agreement, "A" will retain
possession of the files for the receivables sold to "B." "A's"
duties on behalf of "B" as file custodian follow:

*

Retain the receivables files on behalf of "B"

*

Maintain the receivables files at "A's" offices or other
offices "B" designates in writing

*

Maintain a current inventory listing, and make periodic
physical inspections of the receivables files in "A's"
possession

*

Attend to all details associated with custody of the
receivables files on behalf of "B."

"A" is also required to provide a report to "B" stating:

*

Amounts collected in payment of the receivables during the

immediately preceding month
*

The principal balance of the receivables at the end of the
immediately preceding month

*

An aging of the receivables as of the immediately preceding
month

*

The collection fee payable to "A" each month

*

Any other information related to the receivables "B" may
reasonably request is to be provided on a timely basis.

Additionally, "A" would have no authority to:

*

Compromise or settle receivables

*

Refer receivables to outside collection agencies,
attorneys, or any other party for collection

*

Take any other action not specified by the agreement, in
the servicing of the receivables

*

Take any action not permitted by the servicing agreement,
but must refer such action to "B."

On January 2, 1996, "A" repurchased the receivables from "B."
The repurchase price consisted of the reassignment and
cancellation of the note originally exchanged for the
receivables, and $20,000 which included payment for the
management fee due "A," interest earned by "B," and interest
earned on the note by "A."

QUESTIONS

1. Under the facts presented, are the accounts receivable
   which were sold by "A" to "B" on December 29, 1995, subject
   to Florida's intangible personal property tax imposed by s.
   199.032, F.S., for the 1996 tax year?
2. Under the facts presented, will the note issued December
   29, 1995, by "B" to "A" in exchange for the accounts
   receivable, be subject to Florida's intangible personal
   property tax imposed by s. 199.032, F.S., for the 1996 tax
   year?
3. Will a transaction undertaken in future years which is
   substantially the same as that described above, receive the
   same tax treatment?

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. Under the facts presented the accounts receivable sold by
   "A" to "B" on December 29, 1995, 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.

If "A" still retains these accounts receivable on January
1, 1997, having repurchased them from "B" on January 2,
1996, it is likely that all criteria will be met to make
them subject to intangible personal property tax reporting
requirements for the 1997 tax year.

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.

3. As stated in the following paragraph, Technical Assistance
   Advisements are issued to specific taxpayers on specific
   facts and circumstances. They are therefore binding on the
   Department only for the taxpayer to whom they are issued,

and restricted to the facts presented in the request for
Technical Assistance Advisement. Accordingly, it would be
inappropriate to say that all similar transactions which
take place in the future will receive the same tax
treatment as the transaction addressed in this Technical
Assistance Advisement.

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.: 24756