Did an Indiana parent or its consumer-finance subsidiaries owe 1996 Florida intangible tax on receivables sold to the parent before January 1 and returned January 2?

Plain-English summary

Florida concluded that neither the Indiana parent nor its three subsidiaries owed annual intangible tax or had to file a 1996 return for the transferred receivables.

The subsidiaries sold all trade receivables to the parent in arm's-length transactions at the close of business on December 30. The parent bore the economic risk, managed and controlled the assets from Indiana, and still owned them on January 1. It sold them back to the subsidiaries when business opened January 2.

One subsidiary was incorporated in Florida, but it did not own, manage, or control the receivables on January 1. Its continuing functions were only ministerial. The other two subsidiaries did business in Florida but were incorporated outside the state and likewise did not own, manage, or control the assets on the measurement date.

The parent was organized and headquartered outside Florida, had no Florida employees, agents, or representatives, and conducted no Florida business. The Department therefore found no independent Florida taxable situs for the parent's receivables.

What this means for you

Corporate groups transferring receivables

The Department looked for a real transfer of ownership, risk, management, and control—not merely paperwork timed around January 1. The ruling repeatedly relied on the arm's-length sales and the parent's substantive control in Indiana.

Servicing subsidiaries

Routine processing, accounting, and other ministerial functions did not amount to management or control under the ruling. Discretionary authority was not part of the approved facts.

Accountants and tax professionals

Test each entity separately on the January 1 measurement date. Florida incorporation, Florida customers, or Florida business activity did not create liability for an entity that did not then own, manage, or control the receivables under the specific analysis.

Common questions

Q: Who owned the receivables on January 1, 1996?
A: The Indiana parent.

Q: Who bore the economic risk of loss?
A: The parent while it owned the receivables.

Q: Did subsidiary processing and accounting create management or control?
A: No. The Department treated those functions as ministerial.

Q: Did the Florida-incorporated subsidiary owe tax?
A: No. It did not own, manage, or control the receivables on January 1.

Q: Did selling the receivables back on January 2 change the result?
A: No. The ruling analyzed ownership, management, and control on January 1.

Q: Can another finance group rely on this TAA?
A: Not automatically. The advisement states that it binds the Department only under the facts and circumstances described in the request, and different transfer, risk, servicing, business-situs, or later legal facts may change the result.

Citations and references

• Fla. Stat. § 199.052(1) — return requirement and ministerial functions
• Fla. Stat. § 199.175(1) — Florida domicile and taxable situs
• Fla. Stat. § 199.175(2), (2)(a) — two-part business-situs test for nondomiciliary entities
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-125

Original ruling text

Nov 19, 1996

Re: Technical Assistance Advisement No. 96(C)2-125
Intangible Tax - Taxable Situs - Accounts Receivable
Sections 199.052 & 199.175, F.S.
XXX ("Parent")
XXX ("Subsidiary A")
XXX ("Subsidiary B")
XXX ("Subsidiary C")

Dear :

The letter dated February 19, 1996, requesting a Technical
Assistance Advisement and the requested supporting information
in the letter dated April 26, 1996, have been received by this
office. The request deals with the taxation of a foreign
corporation and partnership.

ISSUE

Based upon the facts presented, technical advice is
requested on the following issues:

1) Are the subsidiaries described below subject to the Florida
annual intangible tax on January 1, 1996, on the
receivables transferred to Parent?
2) To what extent, if any, will Parent be subject to the
Florida annual intangible tax?

STATEMENT OF FACTS

The facts that you have provided to the Department are as
follows:

Parent is organized under the laws of the State of Indiana
and maintains its principal office in Indiana. Parent owns 100%
of the stock of Subsidiary A which is incorporated under the
laws of Delaware and has its principal and administrative
offices in Indiana. Parent also owns 100% of the stock of

Subsidiary B which is incorporated under the laws of Florida and
has principal and administrative offices in Indiana.

In addition, Subsidiary B owns 100% of the stock of
Subsidiary C which is incorporated under the laws of Delaware
and has principal and administrative offices in Indiana.

Parent and Subsidiaries A, B, and C are engaged in consumer
financial services. Parent is a holding company, which has no
employees, agents or representatives of any kind in Florida and
conducts no business in Florida. Subsidiaries A, B, and C are
engaged primarily in the area of consumer finance and credit
insurance business in various states to include Florida.

Parent and its subsidiaries have entered into the following
transactions:

Subsidiaries A, B, and C sold all of their trade
receivables in an arm's-length transaction to Parent at the
close of business on December 30, 1995. Economic risk of loss
inherent in owning the receivables was with Parent during the
time that Parent owned the receivables. At the time of the
transfer, Parent entered into an agreement with each of its
subsidiaries to provide services relating to the receivables.
At the opening of business on January 2, 1996, Parent sold the
receivables back to Subsidiaries A, B, and C, again in an arm'slength transaction.

During the period that Parent owns the intangible property,
Parent will manage and control the intangible property from its
office in Indiana. Subsidiaries A, B, and C will perform
certain processing, accounting and other ministerial functions
with respect to Parent's intangible property at their respective
offices.

DISCUSSION OF LAW

Section 199.052, Florida Statutes (1995), requires a return
be filed by every corporation authorized to do business in this
State or doing business in this State and by every resident,
regardless of domicile, who on January 1 owns, controls, or

manages intangible personal property which has a taxable situs
in this State.

In the present situation only Subsidiary B is domiciled in
Florida. According to subsection 199.175(1), Florida Statutes
(1995), intangible assets have a taxable situs in this State
when they are owned, managed or controlled by a person domiciled
in Florida on January 1 of that year. Although Subsidiary B is
domiciled in Florida by virtue of its Florida incorporation, it
did not own intangible assets on January 1, 1996, as a result of
the arm-length sale of those assets to Parent on December 30,
1995. Further, Subsidiary B did not manage or control these
assets on January 1, 1996, as such term is contemplated in
subsection 199.052(1), Florida Statutes (1995); rather, its
responsibilities were ministerial in nature.

Neither the Corporation nor Subsidiaries A and C are
domiciled in Florida. When a corporation is not domiciled in
Florida, subsection 199.175(2), Florida Statutes (1995),
provides a two part test to determine the taxable situs of
intangible personal property. Specifically, the intangible
personal property has a taxable situs in this State when it (1)
is deemed to have a business situs in this State and (2) is
owned, managed, or controlled by a corporation or partnership
transacting business in this State.

Paragraph 199.175(2)(a), Florida Statutes (1995), provides:

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 the business
transacted in this state with a customer in this state.
For purposes of this paragraph:

1. Business is transacted in this state when any
   occupation, profession, or commercial activity, including
   financing, leasing, selling, or servicing activities, is
   regularly conducted with customers in this state from an
   office, plant, home, or any other business location in this
   state.
2. Business is transacted in this state when any

occupation, profession, or commercial activity, including
financing, leasing, selling, or servicing activities, is
regularly conducted with customers in this state by or
through agents, employees, or representatives of any kind
in this state, whether or not such persons are vested with
discretionary authority.

CONCLUSION

Parent, is not domicile in Florida, does not conduct
business here and does not own, manage or control assets that
otherwise have a taxable situs in Florida. Thus, it is not
required to file a 1996 Florida intangible tax return on
intangible assets acquired from Subsidiaries A, B, and C.

Although Subsidiary B is domicile in Florida and conducts
business here, it did not on January 1, 1996, own, manage or
control intangible assets. Therefore, Subsidiary B did not have
intangible assets for which a 1996 Florida intangible tax return
would have been due. Subsidiaries A and C are incorporated
outside of Florida, and have no offices or employees in Florida.
They conduct business in this State, but did not own, manage or
control intangible assets that otherwise had a taxable situs in
Florida on January 1, 1996. Accordingly, Subsidiaries A and C
are not subject to Florida's annual intangible tax and are not
required to file a 1996 intangible tax return.

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,

Paul J. Munyon
Tax Law Specialist