Were automobile loans sold before January 1 to an out-of-state affiliate subject to Florida intangible tax when the Florida seller performed only servicing?

Plain-English summary

The Florida Department of Revenue concluded that automobile loans sold before January 1 to an out-of-state affiliate were not subject to Florida intangible tax. The affiliate owned the loans on the tax date, was domiciled outside Florida, and had no Florida property, business situs, employees, agents, or representatives.

The Florida subsidiary continued to service the loans, but only through ministerial duties specified by contract. It had no discretion, management, or control over the loans. Under section 199.052(1), those ministerial or processing functions did not count as managing or controlling the intangible property.

The seller received one promissory note at book value for the loans. That note was excluded from tax as an intercompany account to the extent the seller and out-of-state affiliate were both included in the parent's consolidated Florida intangible-tax return.

What this means for you

Auto-finance companies and loan sellers

For the transaction described, ownership and control on January 1 determined the loan portfolio's situs. The Florida seller transferred the loans before that date and retained only nondiscretionary servicing duties.

Loan servicers

Servicing did not create management or control because the agreement limited the Florida company to ministerial tasks performed at the out-of-state owner's discretion. Broader decision-making authority was not addressed and could change the analysis.

Corporate tax departments

The promissory-note result depended on consolidated-return inclusion. The ruling excluded the note only to the extent both corporations were includable and actually included on the parent's consolidated return.

Common questions

Q: Did the Florida subsidiary owe tax on the transferred loans?
A: No. It did not own, manage, or control the loans on January 1 after selling them to the out-of-state affiliate.

Q: Did the out-of-state affiliate owe Florida intangible tax?
A: No. It was domiciled outside Florida and had no Florida people or business activity from which the loans arose.

Q: Did the Florida company's servicing create taxable control?
A: No. The ruling treated its contractually limited duties as ministerial functions, not management or control.

Q: Was the promissory note taxable?
A: It was excluded as an intercompany account to the extent the seller and affiliate were included on the parent's consolidated Florida return.

Q: Could the affiliate sell the loans back after January 1?
A: The facts said it could transfer the loans back after January 1 in satisfaction of the note. The ruling's conclusions addressed ownership and situs 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 later legal changes or court interpretations may produce a different result.

Citations and references

• Fla. Stat. § 199.052(1) (ministerial functions and processing are not management or control)
• Fla. Stat. § 199.052(10) (intercompany accounts on a consolidated return)
• Fla. Stat. § 199.175, (2)(a) (Florida taxable situs and business transacted in Florida)
• Fla. Stat. § 213.22 (technical assistance advisements)
• Fla. Stat. ch. 119 (public records)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-132

Original ruling text

Dec 13, 1996

Re: Technical Assistance Advisement No. 96(C)2-132
Intangible Tax - Taxable Situs
Sections 199.052 and 199.175, F.S.
XXX (Parent)
ZZZ (Subsidiary)

Dear :

Your letter requesting a Technical Assistance Advisement dated
October 1, 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 and Subsidiary are incorporated in Florida and is
domiciled in Florida. The Subsidiary purchases retail
automobile contracts (the "Loans") from automobile dealers. The
Subsidiary will form a wholly-owned subsidiary ("Newco") under
the laws of the State of Nevada or another State other than
Florida. Newco will not have any sales, property or business
situs in Florida and will not have any agents, employees, or
representatives of any kind in Florida.

The Subsidiary may sell the Loans to Newco prior to or as of the
close of business on December 31 of each year pursuant to the
terms of an Assignment of Loans. All Loans will be sold at book
value in exchange for a single promissory note. The Subsidiary
will contract with Newco to perform ministerial duties under the
terms of a Servicing Agreement. The Subsidiary will have no
discretionary authority, management or control with regard to
any of the Loans owned by Newco. The Subsidiary will perform,
at the discretion of Newco, only the duties set forth in the
Servicing Agreement. At any time after January 1 of the
following year, Newco may sell to the Subsidiary the loans it
acquired under the terms of the Assignment of Loans in
satisfaction of the promissory note. Parent, Subsidiary and

Newco are part of a federal consolidated group and file a
consolidated Florida intangible tax return.

ADVISEMENTS REQUESTED / CONCLUSIONS OF LAW

Based upon the scenario above, you have requested technical
assistance on the following issues:

Question 1:

Will the Subsidiary have an intangible tax liability for the
Loans it sold to Newco prior to January 1?

Response:

The taxable status of this issue is governed by the "taxable
situs" provisions of sections 199.052 and 199.175, F.S., which
generally provide that the tax shall be paid on any intangible
personal property that falls within the following two
categories:

i) Any and all non-exempt intangible property that is
owned, managed, or controlled by any person domiciled in
this state as of January 1 of the tax year. For purposes
of this provision of law, "manage" or "control" is defined
under subsection 199.052(1), F.S., as to not include any
ministerial function or processing activity.

ii) Any and all non-exempt intangible property that is
derived from, arises out of, or is issued in connection
with business transacted in this state and which is owned,
managed, or controlled by any person, regardless of
domicile, that transacts business in this state. For
purposes of this provision of law "business transacted in
this state" is defined under paragraph 199.175(2)(a), F.S.,
to be the regular conduct of business with customers in
this state from a business location or through agents,
employees, or representative of any kind within this state.

Therefore, it is the department's determination based on the
facts before us, that the Loans which are sold by Subsidiary to

Newco and owned by Newco on January 1 would not be subject to
the Florida intangible tax since they were not owned, managed,
or controlled by a person domiciled in this state, or by any
person transacting business in this state.

Question 2:

Will Newco have a tax liability for the Loans it purchased from
Subsidiary?

Response:

Newco is domiciled outside Florida, and has no employees, agents
or representatives in this State transacting business with
customers in this State out of which an intangible arises.
Therefore, Newco has no liability for Florida's intangible tax.

Question 3:

Will the promissory note acquired by Subsidiary in exchange for
the assignment of the Loans be subject to the intangible tax if
it is included on the Parent's consolidated return?

Response:

The taxable status of this issue is governed by the provisions
of subsection 199.052(10), F.S., which generally provides that
when a consolidated return is filed any intercompany accounts of
an includable corporation owned by another includable
corporation shall be excluded from taxation. Consequently, and
to the extent that Subsidiary and Newco are included on Parent_s
consolidated return, then the subject promissory note would be
excluded from taxation as an intercompany account.

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
Office of General Counsel