Were receivables sold before January 1 by a Florida parent to an independent Colorado subsidiary taxable when the parent continued routine servicing?

Plain-English summary

Florida concluded that the receivables owned by the Colorado subsidiary on January 1, 1996 were not subject to Florida intangible tax. The Florida parent did not own, manage, or control them on the measurement date.

The subsidiary was organized and commercially domiciled in Colorado, had independent officers and directors, and had no Florida business, authorization, employees, agents, representatives, or assets. It held ownership, management, control, and risk while the receivables were in the subsidiary.

The parent continued routine recordkeeping, payment collection and remittance, balance and aging reports, and standard late-payment or credit communications. The Department treated those listed duties as ministerial, not management or control. Selling the assets back after January 1 did not alter their status on the measurement date.

A timely consolidated intangible-tax return could eliminate qualifying intercompany receivables and investments, including the parent's note and subsidiary investment. Filing that return did not itself give the foreign subsidiary's otherwise nontaxable assets Florida business situs.

What this means for you

Corporate groups transferring receivables

Ownership and operational independence must be real on January 1. The ruling relied on the subsidiary's separate management and absence of Florida business or personnel.

Receivables servicers

Routine collection and reporting stayed ministerial here. Broader discretionary authority over credit or asset management was not approved.

Corporate tax departments

Consolidated filing can eliminate qualifying intercompany accounts and investments without automatically pulling a foreign member's assets into Florida situs.

Common questions

Q: Who owned the receivables on January 1, 1996?
A: The Colorado subsidiary.

Q: Did the Florida parent's servicing create control?
A: No. The listed services were ministerial.

Q: Did receivables originally arising from Florida business remain taxable?
A: No under the subsidiary's ownership, no-Florida-business, and situs facts.

Q: Did selling the receivables back after January 1 change the answer?
A: No.

Q: What did a timely consolidated return eliminate?
A: Qualifying intercompany receivables and investments, including the note and subsidiary stock described in the request.

Q: Did consolidated filing create Florida situs for the subsidiary's other assets?
A: No.

Q: Can another corporate group rely on this TAA?
A: Not automatically. The advisement states that it binds the Department only on the independence, domicile, business activity, servicing, ownership, January 1, and filing facts described.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-112

Original ruling text

Oct 25, 1996

Re: Technical Assistance Advisement No. 96(C)2-112
Intangible Tax - Taxable Situs
Sections 199.052 and 199.175, F.S.
XXX (Parent)
XXX (Subsidiary)

Dear :

Your letter requesting a Technical Assistance Advisement dated
August 27, 1996, has been received by this office. The request
deals with the taxation of intangible property transferred to a
non-Florida entity.

STATEMENT OF FACTS

Parent is organized in the State of Florida and is commercially
domiciled in Florida. Parent is a contract manufacturer of
circuit boards and has accounts receivable (Receivables) which
had a taxable situs in the State of Florida as defined in s.
199.175(1) and 199.175(2), F.S. Furthermore, Parent also owns a
subsidiary which is neither doing business nor is authorized to
do business in Florida and has no assets with a taxable situs in
Florida.

Subsidiary, a wholly-owned subsidiary of Parent, is organized
under the laws of the State of Colorado and is commercially
domiciled in said state. Subsidiary transacts no business in
the State of Florida and has no employees, agents,
representatives or assets of any kind located in Florida.
Subsidiary has its own officers and directors which perform
their duties independently of Parent.

On December 29, 1995, Parent sold some or all of its Receivables
to Subsidiary in exchange for a note receivable from Subsidiary.
On January 6, 1996, Subsidiary sold back to Parent some or all
of the receivables, and the promissory note was satisfied.
Ownership, management and control of the Receivables rested with

the Subsidiary during the time Subsidiary owned the Receivables.

Parent entered into a service agreement with Subsidiary whereby
Parent would perform, at the discretion of Subsidiary, some or
all of the following services on the assets sold to Subsidiary:

*

Maintain the books and records necessary for the
collection of the receivables sold.

*

Receive payments and account for same.

*

Remit payments to the Subsidiary.

*

Report activities, outstanding balances, and aging of
receivables to Subsidiary on a periodic basis.

*

Routine communications with the obligor regarding late
payments.

*

Routine communications with the obligor regarding
credit problems.

*

Sending routine form reminder notices to obligor for
late payments.

Parent was paid a fee for providing these services to
Subsidiary.

ISSUES

Based on the facts as stated above, rulings have been requested
on the following issues:

1. Are the receivables which are owned by Subsidiary on
   January 1, 1996, subject to the Florida intangible
   personal property tax?
2. If the receivables sold included assets which
   originally had Florida business situs, will such
   receivables be subject to the Florida intangible tax?
3. If Parent received a promissory note from Subsidiary
   on the sale of the accounts receivable, may the
   promissory note be eliminated from its intangible tax
   base through the filing of a consolidated intangible
   personal property tax return with Subsidiary?
4. May Parent's investment in Subsidiary be eliminated
   from its intangible tax base through the filing of a

consolidated intangible personal property tax return
with Subsidiary?

5. Will the intangible assets of Subsidiary be subject to
   the Florida intangible personal property tax if
   Subsidiary neither transacts business nor is
   authorized to do business in Florida and it files a
   consolidated return with Parent?
6. When the assets were sold back to Parent after January
   1, did this affect the tax treatment of the assets on
   January 1?
7. Do the activities listed above, which were services to
   be provided by Parent for Subsidiary, subject the
   assets to the intangible tax?

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

The Parent will not be subject to the Florida intangible tax on
the receivables that it sold to Subsidiary, since on January 1,
1996, it did not own, manage or control the receivables. The
service activities listed are ministerial functions and do not
constitute management and control of the receivables. The
Florida intangible tax is based on the taxable assets owned on
January 1 of each year. If the subsidiary transacts no business
in Florida, has no employees, agents, or representatives in
Florida, its intangible assets would not be subject to the
Florida intangible tax.

Intercompany receivables and investments are eliminated from a
timely filed consolidated intangible tax return. The filing of
a consolidated return does not subject assets of a foreign
corporation to intangible tax, if the assets would not otherwise
be subject to tax if a separate return was filed.

This response constitutes a Technical Assistance Advisement
under section 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 section 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 section 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,

George D. Turner
Senior Tax Specialist
Tax Policy & Dispute Resolution

GDT/