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

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