What was the Florida intangible-tax result when a Florida parent transferred receivables to an out-of-state subsidiary over January 1 and received an intercompany note?

Plain-English summary

Florida did not tax receivables that a Florida parent corporation transferred to its out-of-state subsidiary before January 1, and a consolidated return eliminated the intercompany note received in exchange.

The Florida parent transferred all Florida-customer receivables to a Delaware subsidiary at the close of December 31, 1995. The subsidiary, whose principal place of business was in Arizona, bore the economic risk of loss while it owned them. It returned the receivables when business opened January 2 and canceled the note issued to the parent.

Florida measured situs based on who owned, managed, or controlled the property on January 1. Because the parent did not do so on that date, the receivables were not taxable to it.

The promissory note was subject to intangible tax in principle. But the parent and subsidiary planned to file a timely Florida consolidated intangible-tax return, under which the note was eliminated as an intercompany account.

The subsidiary itself had no Florida operations or employees. It was organized outside Florida, maintained its principal office outside Florida, and its intangible assets did not arise from its own Florida business with customers. The Department therefore found no Florida situs for those assets.

What this means for you

Corporate tax departments

January 1 ownership, management, and control drove the receivables analysis. Preserve the transfer documents, risk allocation, timing, and records supporting who held the assets on that date.

Affiliated groups

The intercompany-note result depended on properly and timely filing a consolidated intangible-tax return. The ruling did not simply treat the note as nontaxable on a standalone basis.

Accountants and tax professionals

Analyze each asset and entity separately: the parent's receivables, the parent's note, and the subsidiary's own assets received different treatment for different reasons.

Common questions

Q: Were the transferred receivables taxed to the Florida parent? A: No. The parent did not own, manage, or control them on January 1.

Q: Was the note received from the subsidiary taxable? A: It was subject to tax in principle, but the timely consolidated return eliminated it as an intercompany account.

Q: Did the subsidiary's brief ownership period change the analysis? A: The ruling focused on its ownership and economic risk of loss on January 1, even though it returned the receivables on January 2.

Q: Did the subsidiary's assets have Florida situs? A: No. The subsidiary was organized and headquartered outside Florida, had no Florida operations or employees, and its assets did not arise from its own Florida business with customers.

Q: Can another corporate group rely on this TAA? A: Not automatically. The advisement says it binds the Department only for the specific transfer timing, ownership, risk, corporate-location, business-activity, and consolidated-return facts described.

Citations and references

• Fla. Stat. § 199.032 — annual intangible personal property tax
• Fla. Stat. § 199.052(10) — consolidated returns and intercompany accounts
• Fla. Stat. § 199.175 — Florida taxable situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-109

Original ruling text

Oct 10, 1996

Re: Technical Assistance Advisement No. 96(C)2-109 Intangible Tax; Taxable Situs XXX (Parent, Inc.) XXX (Subsidiary, Inc.)

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. (a Florida domiciled company) created a subsidiary (Subsidiary, Inc.) organized under the laws of Delaware with its principal place of business in Arizona. Subsidiary, Inc., has no operations or employees in Florida and does not conduct any business operations in Florida.

At the close of business on December 31, 1995, Parent, Inc., transferred all of its receivables from Florida customers to Subsidiary, Inc., in exchange for a promissory note. Economic risk of loss in owning the receivables rests with Subsidiary, Inc., during the time it owns the receivables. At the time of the transfer, Parent, Inc., entered into an agreement with the subsidiary to provide ministerial services relating to the receivables.

At the opening of business on January 2, 1996, Subsidiary, Inc., transferred the receivables back to Parent, Inc., and the note was cancelled. Parent, Inc., and Subsidiary, Inc., will join in the filing of a 1996 Florida consolidated intangible personal property tax return.

QUESTIONS

Based on the facts presented, you wanted to know the following:

1. Will Parent, Inc., be subject to the Florida intangible
   tax on the receivables it transfers to Subsidiary, Inc., prior to January 1, and/or on the note it receives from the subsidiary?
2. To what extent, will Subsidiary, Inc., be subject to the
   Florida intangible tax.

DISCUSSION AND ANALYSIS OF LAW

Section 199.032, F.S., imposes an annual tax on the just valuation of certain intangible personal property which has a taxable situs in this state. Section 199.175, F.S., provides that 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. Since the accounts receivable transferred to the subsidiary in exchange for a promissory note will not be owned, managed, or controlled by Parent, Inc., on January 1 of the tax year, the accounts receivable are not subject to the Florida intangible tax.

Affiliated groups of corporations may elect to file consolidated intangible tax returns. When properly filing a timely consolidated return, all 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. The note from Subsidiary, Inc., is subject to intangible tax. However, the filing of a consolidated tax return by Parent, Inc., and Subsidiary, Inc. will eliminate the note, as it represents an intercompany account under the provisions of Section 199.052(10), F.S.

Since Subsidiary, Inc., will be formed under the laws of a state other than Florida, will maintain its chief or principal office outside of Florida, and its intangible assets will not arise out of the conduct of business transacted in Florida with customers, its intangible assets will not be deemed to have acquired a taxable situs in the state. Accordingly, its intangible assets will not be subject to the intangible tax levied pursuant to

Section 199.032, F.S.

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,

Mary Ella Ingram
Tax Law Specialist
Tax Policy and Dispute Resolution

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