How did Florida intangible tax apply when Florida affiliates sold receivables to a foreign subsidiary before January 1 for intercompany notes?

Plain-English summary

Florida found no intangible-tax liability on receivables that two Florida affiliates sold to a foreign subsidiary before January 1, while the notes received in exchange could be eliminated on a qualifying consolidated return.

The two affiliates sold Florida-situs trade and note receivables at face value on December 29, 1995, receiving market-interest promissory notes. During the foreign subsidiary's ownership, it bore the economic risk of loss. The Florida companies performed only bookkeeping, recordkeeping, and collection work at the subsidiary's discretion, without judgment or control over the assets.

The subsidiary transferred the receivables back January 2 and canceled the notes and accrued interest. Because the affiliates did not own, manage, or control the receivables on January 1, the Department found no tax liability for those assets.

If the group satisfied the 80% ownership test for consolidated filing, section 199.052(10) eliminated the foreign subsidiary's notes as intercompany receivables. The subsidiary also had no Florida liability because it was domiciled outside Florida and had no Florida employees, agents, representatives, or customer business from which the intangibles arose.

What this means for you

Corporate tax departments

Year-end ownership and actual control mattered. Preserve the assignment, note, servicing, risk-of-loss, reassignment, and January 1 records.

Affiliated groups

The note exclusion depended on satisfying the consolidated-return stock-ownership test. The ruling did not treat the notes as automatically exempt outside that filing structure.

Accountants and tax professionals

Separate the seller's asset position, the notes received in exchange, and the buyer's situs. Ministerial servicing alone did not amount to discretion or control on these facts.

Common questions

Q: Were the sold receivables taxed to the Florida affiliates?
A: No. They did not own, manage, or control them on January 1.

Q: Who bore the economic risk while the subsidiary owned the receivables?
A: The foreign subsidiary.

Q: Did collection and bookkeeping by the Florida affiliates create control?
A: No on these facts. Their work was ministerial and performed at the subsidiary's discretion.

Q: How were the intercompany notes treated?
A: They were eliminated from a consolidated return if the statutory stock-ownership test was satisfied.

Q: Did the foreign subsidiary owe Florida intangible tax?
A: No. It lacked the Florida contacts and customer business described in the ruling.

Q: Can another group rely on this TAA?
A: Not automatically. The advisement says it binds the Department only for the stated transfer, servicing, risk, corporate-contact, ownership, and consolidated-filing facts.

Citations and references

• Fla. Stat. § 199.052, including § 199.052(10) — filing obligations and consolidated-return treatment of intercompany receivables
• Fla. Stat. § 199.175 — Florida taxable situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-104

Original ruling text

Sep 19, 1996

Re: Technical Assistance Advisement No. 96(C)2-104
Intangible Tax - Taxable Situs - Accounts Receivable
Sections 199.052 & 199.175, F.S.
XXX (Parent Company)
XXX (Corporation A)
XXX (Corporation B)
XXX (Foreign Subsidiary)

Dear :

Your letter of June 4, 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 Company is the parent corporation of a U.S.
consolidated group which includes over 100 members, two of which
do business in Florida. Corporation A and Corporation B
(hereinafter referred to as "the Affiliates") are the two
affiliated members that do business in Florida. Both entities
are incorporated and commercially domiciled in Florida.

Prior to January 1, 1996, each Affiliate held at least one
of the following types of Florida situs intangible property:

• Non-earning Trade Receivables
• Notes Receivable

Pursuant to an Assignment Agreement and Promissory Note, each
Affiliate sold its receivables at face value to Foreign
Subsidiary in exchange for one or more separate promissory notes
bearing market rates of interest. The Foreign Subsidiary has no
contact with Florida. The sale took place on December 29, 1995.

During the time the intangible property was owned by the

Foreign Subsidiary, Florida Corporation A and Florida
Corporation B, under the terms of the Servicing Agreement,
exercised neither any discretion nor judgement as to the quality
or control of the receivables. Their role was limited to
bookkeeping and recordkeeping functions, including any
collection activities at Foreign Subsidiary's discretion. The
economic risk of loss inherent in owning the intangible property
rested with the Foreign Subsidiary during the time it owned such
receivables.

Pursuant to a Reassignment Agreement, on January 2, 1996,
Foreign Subsidiary transferred back to Florida Corporation A and
Florida Corporation B the intangible property acquired in the
above-described transaction, in cancellation of all exchanged
Promissory Notes, including the satisfaction of all accrued
interest.

Finally, Parent Company and its 80-percent affiliated
members will file a consolidated Florida intangible tax return
for the tax year.

REQUESTED RULINGS

Based upon the scenario described above, you have requested
technical assistance on the following issues:

1. Will Florida Corporation A and Florida Corporation B
   (the Affiliates), be subject to intangible tax on the
   intangible property they transfer to Foreign
   Subsidiary, prior to January 1, 1996?

Response:

Section 199.052, F.S., requires that every person owning
intangible property having a taxable situs in this State must
file an intangible tax return and report all intangible property
that it owns, manages or controls. Based on the information
provided, neither Florida Corporation A nor Florida Corporation
B has a tax liability arising from the accounts receivable sold
to Foreign Subsidiary.

2. If the Affiliates file a consolidated intangible tax
return, will the notes from Foreign Subsidiary to each
affiliate be included as items on the consolidated
return?

Response:

Section 199.052(10), F.S., allows a parent company and its
subsidiaries to file a consolidated intangible tax return. This
section also provides that the stock investment in the included
subsidiary corporations and all intercompany receivables of
included corporations are excluded from taxation. So long as
the stock ownership test for consolidated filing is satisfied,
the notes from Foreign Subsidiary to the Affiliates will be
eliminated from the consolidated return.

3. To what extent are the receivables purchased by
   Foreign Subsidiary subject to intangible tax?

Response:

Foreign Subsidiary is domiciled outside Florida, and has no
employees, agents or representatives in this State transacting
business with customers in this State out of which an intangible
arises. Therefore, Foreign Subsidiary has no liability for
Florida's intangible tax.

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 the General Counsel

MOD/md