Who owed 1996 Florida intangible tax after a retailer transferred receivables to a new subsidiary for stock before January 1 and liquidated it January 2?

Plain-English summary

Florida concluded that neither the retailer nor its new subsidiary owed 1996 intangible tax on the transferred accounts receivable. The subsidiary owned the receivables on January 1, and the assets lacked Florida taxable situs on that measurement date.

The Florida retailer continued identifying accounts, maintaining records, reporting balances and aging, collecting and remitting proceeds, sending routine late-payment notices, and communicating about credit problems. The service agreement barred any activity beyond those listed duties without the subsidiary's written permission. The Department treated the described work as ministerial rather than management or control.

Two important caveats applied. If the subsidiary authorized the retailer to take action beyond ministerial functions, the retailer could become responsible for the receivables. And if the companies did not file a consolidated intangible-tax return, the retailer had to report its shares in the subsidiary and pay tax on that stock.

The subsidiary was liquidated back into the retailer on January 2. Even if federal income-tax rules treated the arrangement as a disregarded transitory transaction, the Department said its Florida intangible-tax answers did not change.

What this means for you

Retailers and finance companies

The January 1 owner, risk transfer, and actual servicing authority all mattered. A paper transfer with retained discretionary control would not match the approved facts.

Receivables-servicing teams

Routine recordkeeping, reporting, collection, remittance, and notices stayed ministerial only because the agreement tightly limited authority and required written permission for anything more.

Corporate tax departments

Do not stop after analyzing the receivables. Exchanging them for subsidiary stock created a separate intangible asset for the transferor, with its own consolidated-return consequence.

Common questions

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

Q: Did either company owe tax on the receivables?
A: No under the stated ownership, situs, and servicing facts.

Q: Did the retailer's collection work create control?
A: No. The listed duties were ministerial.

Q: What if the retailer received broader authority?
A: The ruling warned that nonministerial authority could make the retailer responsible for reporting and tax.

Q: Was the retailer's subsidiary stock taxable?
A: Yes if the companies did not file a consolidated intangible-tax return.

Q: Did federal treatment as a transitory transaction change Florida's answer?
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 transfer, risk, stock, January 1 ownership, servicing authority, liquidation, and return facts described.

Citations and references

• Fla. Stat. § 199.032 — annual intangible personal property tax
• Fla. Stat. § 199.052(1) — January 1 ownership, management, control, and ministerial functions
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-120

Original ruling text

Nov 12, 1996

Re: TAA 96(C)2-120
Intangible Personal Property Tax - Transfer of Accounts
Receivable
XXX, hereinafter referred to as "A";
XXX, hereinafter referred to as "B"

Dear :

Your letters of XX, XX, and XX, requested a Technical Assistance
Advisement on the effect of the transfer of accounts receivable
in exchange for stock, on the intangible personal property tax
liabilities of the transferor and transferee. This response to
your request constitutes a Technical Assistance Advisement under
Chapter 12-11, Florida Administrative Code, and is issued to you
under the authority of s. 213.22, Florida Statutes.

FACTS

Your letter of XX, states that "A" is a retailer domiciled in
Florida, which has many stores throughout the southeast. "A" has
accounts receivable generated in Florida as a result of offering
revolving lines of credit to its customers.

The letter of XX, further states that "A" is contemplating
creating a new subsidiary, "B." "B" will be a XXX corporation
and will have no operations, agents, representatives or
employees in Florida.

On December 31, 1995, "A" was to transfer all of its accounts
receivable to "B" in exchange for all of "B's" outstanding
stock. All risk of loss associated with the accounts receivable
was to be transferred to "B," as well. Under the service
agreement entered into by "A" and "B" pursuant to this
transaction, "A" was to provide the following services:

*

Identifying all receivables governed by this agreement in
its accounting records.

*

Ensuring these receivables are in compliance with "B's"
credit and collection policies, and are not in default
prior to transfer.

*

Maintaining any records necessary for the collection of the
receivables which were transferred.

*

Reporting activities, outstanding balances, and aging of
receivables to "B."

*

Collecting and accounting for the receivables.

*

Remitting and accounting for proceeds to "B."

*

Communicating with customers regarding late payments.

*

Communicating with customers regarding credit problems.

*

Notifying "B" of uncollected accounts.

*

Sending standard notices to customers to remind them of
late payments.

*

Maintaining copies of records.

In the absence of "B's" express written permission, "A" had no
authority, other than that granted in the service agreement, to
engage in activities relative to the transferred receivables.
In exchange for providing these services, "B" was to pay "A" a
fee.

Your letter further states that on January 2, 1996, "B" was to
be liquidated into "A," in a transaction qualifying as a s. 351,
I.R.C., transaction.

In your letter of XX, you state that the transactions outlined
in your letter of XX, did, in fact, take place. The receivables
were transferred on December 30, 1995, and the liquidation of
"B" into "A" occurred on January 2, 1996. The letter of XX,
also states that the value assigned to the transferred
receivables for purposes of this transaction was book value.

QUESTIONS

1. Is "A" responsible for payment of intangible tax for 1996,
   on the accounts receivable it transferred to "B" on
   December 31, 1995?
2. Is "B" responsible for payment of intangible tax for 1996,
   on the accounts receivable transferred to it by "A" on
   December 31, 1995?

3. If the Internal Revenue Code and Regulations treat this as
a transitory transaction which would be disregarded for
federal income tax purposes, would the answers to questions
one and two change?

DISCUSSION AND ANALYSIS OF LAW

Section 199.032, F.S., states in part:

An annual tax of 2 mills is hereby imposed on each dollar
of the just valuation of all intangible personal property
which has a taxable situs in this state,....

Subsection 199.052(1), F.S., states:

An annual intangible tax return must be filed with the
department by every corporation authorized to do business
in this state or doing business in this state and by every
person, regardless of domicile, who on January 1 owns,
controls, or manages intangible personal property which has
a taxable situs in this state. For purposes of this
chapter, "control" or "manage" does not include any
ministerial function or any processing activity. The
return shall be due on June 30 of each year. It shall list
separately the character, description, and just valuation
of all such property.

The intent of the statutes referenced above is to impose a tax
on all intangible personal property having a taxable situs in
Florida. An intangible personal property tax return is to be
filed by all corporations or persons owning, controlling or
managing intangible personal property with a taxable situs in
Florida. As stated in subsection 199.052(1), F.S., ministerial
functions and processing activities do not meet the criteria of
"managing" or "controlling" intangible personal property.

Accordingly, the answers to your specific questions follow:

1. Based on the information provided in your letters, the
   receivables transferred by "A" to "B," and owned by "B" on
   January 1, 1996, were not subject to the tax imposed by s.

199.032, F.S., as a result of not having taxable situs in
Florida on the assessment date provided by subsection
199.052(1), F.S. Therefore, "A" would not be responsible
for reporting the receivables, and paying intangible tax on
them for 1996. However, if "B" authorized "A" to take any
action relative to the transferred receivables which
exceeded ministerial functions, as that term is
contemplated by the statute, "A" may have become
responsible for reporting, and paying intangible tax on the
receivables.

Additionally, if "A" and "B" did not file a consolidated
intangible tax return for 1996, "A" will be required to
report its shares of stock in "B," and pay intangible tax
on them.

2. "B" would not be responsible for reporting and paying
   intangible tax on the receivables transferred from "A"
   because, as stated in subsection 199.052(1), F.S., the tax
   is imposed on corporations and persons holding intangible
   personal property having a taxable situs in Florida on
   January 1. Under the facts presented, the receivables did
   not have taxable situs in Florida on January 1, and would
   therefore not be subject to intangible tax for 1996.
3. The answers to questions one and two above, would not
   change as a result of the Internal Revenue Code and
   Regulations treating this transaction as a transitory
   transaction which would be disregarded for federal income
   tax purposes.

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
based 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,

Suzanne C. Paul
Tax Policy and Dispute
Resolution

SCP/kk
Control No.: 25762