Were receivables sold at year-end by Florida entities to an out-of-state affiliate subject to Florida intangible tax when the sellers continued collection services?

Plain-English summary

Florida concluded that the receivables would not be subject to annual intangible tax if they were actually sold to the Texas affiliate before January 1 and the Florida entities no longer owned, managed, or controlled them on that date.

The Florida sellers continued to maintain collection records, report balances and aging, collect and remit proceeds, and communicate routinely with customers about late payments and credit issues. The Department classified those activities as ministerial functions. It said the result did not change depending on whether the services were performed inside or outside Florida.

The Texas affiliate paid for the receivables with two interest-bearing promissory notes. Those intercompany notes were excluded from the Florida entities' tax base if the corporate group met the ownership test and filed a consolidated intangible-tax return. A later transfer of the receivables back to the Florida entities in cancellation of the notes did not change the January 1 tax treatment.

What this means for you

Corporate groups selling receivables

The ruling required an actual completed sale before the January 1 measurement date. The Florida sellers could not retain ownership, management, or control of the receivables while claiming the out-of-state affiliate owned them.

Credit and collections teams

The specified recordkeeping, reporting, collection, remittance, and routine customer-contact duties were ministerial. The ruling did not approve broader discretionary authority over credit or the receivables.

Corporate tax departments

The intercompany-note exclusion was separate from the receivables result. It depended on satisfying the ownership test and filing a consolidated Florida intangible-tax return that included the relevant corporations.

Common questions

Q: Were the receivables taxable after the proposed year-end sale?
A: No, if the sale actually occurred on December 31 and the Florida entities did not own, manage, or control the receivables on January 1.

Q: Did continuing collection services make the receivables taxable?
A: No. The Department treated every listed service as ministerial.

Q: Did it matter whether those services were performed in Florida?
A: No. The Department expressly said their location did not change the result.

Q: Were the promissory notes taxable?
A: They were excluded as intercompany receivables if the ownership test for consolidated filing was met and the corporations were included in the consolidated return.

Q: Did transferring the receivables back after January 1 change the tax result?
A: No. Section 199.103 measured the annual tax by the property's value on January 1.

Q: Can another corporate 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 later legal changes or judicial interpretations may produce a different result.

Citations and references

• Fla. Stat. § 199.032 — annual intangible personal property tax
• Fla. Stat. § 199.175 — Florida taxable situs and business situs
• Fla. Stat. § 199.052(1) — filing requirement and ministerial functions
• Fla. Stat. § 199.052(10) — consolidated returns and intercompany accounts
• Fla. Stat. § 199.103 — January 1 valuation date
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-127

Original ruling text

Dec 06, 1996

Re: Technical Assistance Advisement 96(C)2-127
Intangible Personal Property Tax - Sale of Receivables
XXX (Parent Corporation)
XXX (Subsidiary Corporation A)
XXX (Subsidiary Corporation B)
XXX (Florida Subsidiary)
XXX (Texas Subsidiary)

Dear:
Your letter of January 25, 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 Corporation is the ultimate parent of a multicorporate affiliated group. Subsidiary Corporation A and
Subsidiary Corporation B are wholly owned subsidiaries of Parent
Corporation. Florida Subsidiary and Texas Subsidiary are wholly
owned subsidiaries of Subsidiary Corporation A.

Florida Subsidiary is a Georgia corporation domiciled in
Florida and generates all its sales in Florida. Subsidiary
Corporation B is a Florida corporation and generates its sales
both within and without Florida.

Texas Subsidiary is a Delaware corporation domiciled in
Texas. Texas Subsidiary has no sales, property, or business
situs in Florida and does not have any agents, employees, or
representatives of any kind in Florida.

On December 20, 1995, an agreement was executed which
specified that Florida Subsidiary and Subsidiary Corporation B
were to transfer all of their accounts receivable to Texas
Subsidiary on December 31, 1995, at 5:00 PM. The transfer of
receivables to Texas Subsidiary was to be accomplished through a

sale at face value of such receivables, in exchange for two
promissory notes bearing a market rate of interest (6%), and
reflect arm's length terms and conditions.

Florida Subsidiary and Subsidiary Corporation B entered
into a service agreement with Texas Subsidiary to provide the
following services for the latter:

*

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

*

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

*

Collect and remit proceeds to Texas Subsidiary;

*

Perform routine communications with the customer
regarding late payments and credit problems.

DISCUSSION AND LAW

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. Further, intangible personal
property has taxable situs in this state when it is deemed to
have business situs in Florida and it is owned, managed, or
controlled by a person transacting business in this state, even
though the owner may claim domicile elsewhere. Intangibles
shall be deemed to have business situs in Florida 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(1), F.S., requires that every person
domiciled in this state that owns, manages or controls
intangible property having a business situs in the state, must
file an intangible tax return. Section 199.175, F.S., states
that intangible property shall have a taxable situs in this
state when it is owned by a person domiciled in this state or it
arose out of business transacted in this state by employees,
agents or representatives of any kind from a location within

this state or with customers in this state.

Under the provisions of s. 199.052(10), F.S., affiliated
groups of corporations may elect to file consolidated intangible
tax returns for any year. When filing a consolidated return,
intercompany accounts are excluded from taxation.

REQUESTED ADVISEMENT AND RESPONSES

• 1. Are the receivables which are sold by Florida
     Subsidiary and Subsidiary Corporation B to Texas Subsidiary and
     owned by latter on January 1 subject to the intangible tax
     levied pursuant to Section 199.032, F.S.?

Response: Pursuant to Section 199.032, F.S., if the subject
Receivables were actually sold as proposed on December 31,
1995, to Texas Subsidiary and were not owned, managed, or
controlled by the Florida entity on January 1, 1996, then
the Receivables would not be subject to the Florida
intangible personal property tax.

• 2. Does it make a difference whether Florida Subsidiary
     and Subsidiary Corporation B perform the ministerial functions
     within Florida or outside of Florida?

Response: No, it does not.

• 3. Do the activities of Florida Subsidiary and Subsidiary
     Corporation B, as outlined above, constitute ministerial
     functions or processing activities under s. 199.052, F.S.? If
     not, which activities would be deemed to exceed ministerial
     functions or processing activities.

Response: The activities described in your letter
constitute ministerial functions. Therefore, the
receivables are not subject to Florida intangible personal
property tax.

• 4. Are the two promissory notes from Texas Subsidiary on
     the sale of the receivables, eliminated from Florida Subsidiary
     and Subsidiary Corporation B's taxable intangible tax base

through the filing of a consolidated intangible personal
property tax return?

Response: Section 199.052(10), F.S., allows a parent
company and its subsidiaries to file a consolidated
intangible tax return and all intercompany receivables of
included corporations are excluded from taxation. So long
as the ownership test for consolidated filing is satisfied,
the notes from Texas Subsidiary to Florida Subsidiary and
Subsidiary Corporation B will be eliminated from the
consolidated return.

• 5. Does the fact that the receivables may be transferred
     back to Florida Subsidiary and Subsidiary Corporation B in
     cancellation of their promissory notes after January 1, 1996,
     affect the tax treatment of the receivables in January prior to
     the transfer?

Response: No. Section 199.103, F.S., provides that all
intangible personal property shall be subject to the annual
tax at its just valuation as of January 1 each year.

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 General Counsel

MOD/md