Did receivables transferred by a Florida parent to an out-of-state subsidiary retain Florida intangible-tax situs when the parent performed only collection support?

Plain-English summary

Florida found no intangible-tax situs for receivables owned by the out-of-state subsidiary as long as the Florida parent's work remained ministerial.

Before January 1, the Florida parent transferred receivables to a separately managed subsidiary domiciled outside Florida. The subsidiary had no Florida sales, property, agents, employees, or representatives. It gave the parent an arm's-length, market-interest promissory note.

For a fee, the parent would maintain collection records, check compliance before transfer, report balances and aging, account for payments sent to the subsidiary, communicate routinely about late payments, and report uncollected accounts. The Department classified those tasks as ministerial or processing functions rather than management or control.

The result did not change depending on whether the parent performed those limited functions in or outside Florida. The note itself was an intangible asset of the Florida parent, but it could be excluded as an intercompany receivable if the companies timely filed a qualifying consolidated Florida return.

What this means for you

• The parent's activities could not exceed the specifically listed collection-support functions.
• Separate domicile, management, officers, directors, and the subsidiary's lack of Florida activity supported the no-situs conclusion.
• Filing a consolidated return did not itself create situs, but it could eliminate the intercompany note from taxation.

Common questions

Q: Were the subsidiary's receivables taxable in Florida? A: No, while the facts and the parent's limited activities remained as described.

Q: Did it matter where the parent performed the ministerial work? A: No.

Q: Was the subsidiary's promissory note taxable to the parent? A: It was an intangible asset of the parent, but a timely consolidated return could exclude it as an intercompany receivable.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052 — return requirements, ministerial functions, and consolidated returns
• Fla. Stat. § 199.175 — taxable situs of intangible property
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-075

Original ruling text

Aug 12, 1996

Re: Technical Assistance Advisement No. 96(C)2-075 Intangible Tax - Taxable Situs XXX ("Parent, Inc.") XXX ("Subsidiary Corp.")

Dear :

Your letter requesting a Technical Assistance Advisement has been received by this office. The request deals with the taxation of intangible property transferred to a non-Florida entity.

FACTS

Parent, Inc., is incorporated in Florida and owns accounts receivable. Parent has a subsidiary corporation organized outside of Florida. Subsidiary, Corp., is commercially domiciled, and maintains its principal office, outside of Florida. Subsidiary will have no sales or property in Florida and will not have any agents, employees, or representative of any kind in Florida. The corporations will have separate officers and directors.

Prior to January 1, 1996, Parent transferred its accounts receivable to Subsidiary in exchange for a promissory note bearing a market rate of interest and reflecting arm's length terms and conditions. Parent will perform the following activities for the Subsidiary for which it will receive a fee:

1. maintain the books and records necessary for the collection
   of the receivables;
2. ensure that the receivables are in compliance with the
   credit and collection policies of Subsidiary and the receivables are not in default prior to transfer;
3. report activities, outstanding balances, and aging of
   receivables to Subsidiary on a periodic basis;
4. account for the payment of the receivables which will be

sent to Subsidiary;

5. perform routine communications with the customer regarding
   late payments and credit problems; and,
6. notify Subsidiary of uncollected accounts by transmittal of
   a status report.

Parent and Subsidiary will file a consolidated Florida intangible personal property tax return.

ISSUES

1. Are the receivables which are sold by Parent to Subsidiary
   and owned by Subsidiary on January 1 subject to the Florida intangible tax?

2. Do the stated activities of Parent constitute ministerial
   functions or processing activities under s. 199.052, F.S.

3. Does it make a difference whether Parent performs the
   ministerial functions within Florida or outside of Florida?
4. If Parent receives a promissory note from Subsidiary on the
   sale of the receivables, may the promissory note be eliminated from its taxable intangibles through the filing of a consolidated intangible personal property tax return?

LAW AND DISCUSSION

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

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

Subsection 199.052(10), F.S., provides for the filing of a consolidated intangible tax return, and the elimination of intercompany accounts of qualifying members of the consolidated group. The filing of a consolidated return will not in itself provide a business situs for intangible personal property held by a corporation.

CONCLUSION

1. The Parent will not be subject to the Florida intangible
   tax on the receivables on January 1, 1996, so long as the activities of the Parent do not exceed the outlined activities. Subsidiary's intangibles will not have taxable situs in Florida, and therefore, will not be subject to the Florida intangible tax.
2. The outlined activities of Parent constitute ministerial
   functions or processing activities under s. 199.052, F.S.
3. It makes no difference whether Parent performs the
   ministerial functions within Florida or outside of Florida.
4. The note represents an asset subject to the Florida
   intangible tax to the Parent. However, the note represents an intercompany receivable and can be excluded from taxation if Parent and Subsidiary timely file a Florida consolidated tax 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 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,

Maryella Ingram
Tax Law Specialist
Tax Policy & Dispute Resolution