Did a year-end sale of receivables between out-of-state affiliates avoid Florida intangible tax, and was the resulting note eliminated on their consolidated return?

Plain-English summary

Florida agreed that neither affiliate owed intangible tax on the receivables for January 1 and that the related intercompany note was eliminated on the consolidated return.

An out-of-state affiliate with Florida nexus sold receivables at face value on December 29 to an out-of-state sister company without Florida nexus. The buyer gave a six-percent promissory note. The documents were executed and delivered in Pennsylvania, and the buyer owned the receivables over January 1.

The seller continued only ministerial collection and accounting work. It did not manage or control the receivables, such as deciding whether to pursue a defaulting customer. After January 2, it repurchased them for cancellation of the note, collected proceeds, and applicable interest.

The Department answered all three requested positions affirmatively: the seller did not own, manage, or control the receivables on January 1; the buyer had no Florida liability because the receivables lacked Florida business situs while it owned them; and the note was an intercompany receivable excluded from the affiliated group's consolidated return.

What this means for you

• January 1 ownership, management, and control were central to the seller's result.
• The buyer's lack of Florida nexus and the receivables' lack of Florida business situs were separate grounds for its result.
• Consolidated-return treatment eliminated the intercompany promissory note from the taxable base.

Common questions

Q: Did the original holder owe tax on the receivables?
A: No. It did not own, manage, or control them on January 1 under the stated arrangement.

Q: Did the purchasing affiliate owe tax?
A: No. It was domiciled outside Florida without Florida nexus, and the receivables lacked Florida business situs while it owned them.

Q: Was the promissory note taxable on the consolidated return?
A: No. The Department treated it as an excluded intercompany account.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1) — return requirement for owners, managers, or controllers of Florida-situs intangibles
• Fla. Stat. § 199.052(10) — consolidated intangible-tax returns and intercompany accounts
• 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 96C2-076

Original ruling text

Aug 26, 1996

Re: Technical Assistance Advisement 96(C)2-076
Intangible Tax - Sale of Receivables
XXX (Parent)
XXX (Brother)
XXX (Sister)

Dear :

Your letter of June 14, 1996, requesting a Technical
Assistance Advisement on the sale of receivables at year end has
been received by this office. The scenario presented for
consideration is summarized below:

FACTS

Parent files a consolidated Intangible tax return with the
State of Florida. Brother and Sister are subsidiaries of
Parent, and are both domiciled outside the State of Florida.
Brother is a foreign Holding company with Florida nexus. Sister
is a foreign company without Florida nexus.

On December 29, 1995, Brother sold accounts receivable to
Sister in Pennsylvania. The receivables were sold at face value
in exchange for a promissory note with interest accruing at six
percent per annum. The transfer agreement and the note were
both executed and delivered in Pennsylvania. During the time
Sister owned the receivables, Brother merely performed certain
ministerial duties with regards to the receivables. These
duties included collecting the receivables and accounting for
the same, remitting the proceeds to Sister, and maintaining the
books and records necessary for the collection of the sold
receivables (i.e., accounting records). At no point while
Sister held the receivables did Brother exercise management or
control over the receivables, such as instituting collection
against a defaulting customer.

After January 2, 1996, Brother repurchased the receivables

from Sister, in consideration for cancellation of the note
receivable and a check for any account collections which were
forwarded to Sister as well as any applicable interest.

REQUESTED ADVISEMENT

Based upon the facts presented above you have requested
technical assistance advisement on the following statements:

• We believe Brother has no intangible personal property
  tax liability on the above mentioned receivables. Pursuant
  to s. 199.52(1), F.S., every person who on January 1 owns,
  manages or controls intangible property which has a taxable
  situs in Florida, must file an Intangible tax return and
  pay the tax. This company did not own, manage or control
  the receivables as of January 1.

• We also believe Sister has no intangible property tax
  liability with regards to these receivables. Pursuant to
  s. 199.175, F.S., when the owner of taxable intangible
  property is domiciled outside the State of Florida, only
  those intangible which have a business situs in Florida are
  subject to tax. Pursuant to s. 199.175(2), F.S., the
  intangibles do not have business situs in Florida because
  they do not receive the benefit and protection of Florida
  laws and courts, nor were they derived from, arose out of,
  or issued in connection with business transacted in this
  state.

• Brother and Sister are included in Parent's consolidated
  Florida Intangible tax return. Accordingly, we believe the
  note receivable from Sister held by Brother will be
  excluded from the taxable base on the consolidated return
  since intercompany receivables are excluded from taxation.
  As the promissory note is an intercompany receivable, it
  should be eliminated.

DISCUSSION AND LAW

Subsection 199.052(1), F.S., requires that every person,
regardless of domicile in this state, that owns, manages or

controls intangible property having a business situs in the
state must file an intangible tax return. Section 199.175,
F.S., states that intangible property shall have a taxable situs
in this state when it is owned by a person domiciled in this
state or it arose out of business transacted in this state by
employees, agents or representatives of any kind from a location
within this state or with customers in this state.

For purposes of the annual tax imposed under s. 199.032,
F.S., intangible personal property shall have a taxable situs in
Florida 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 Florida 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
Florida 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 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.

Under the provisions of s. 199.052(10), F.S., affiliated
groups of corporations may elect to file consolidated intangible
tax returns for any year so long as the ownership test for
consolidated filing is satisfied. When filing a consolidated
return, intercompany accounts are excluded from taxation.

CONCLUSION

Based upon statutory provisions and the information
provided in your request, each of the three requested
advisements is answered in the affirmative.

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,

Moses O. Daramola
Senior Tax Specialist
Tax Policy & Dispute Resolution
Office of General Counsel

MOD/md