Did a Nevada investment subsidiary's intangible assets have Florida situs, and could intercompany accounts be excluded on a consolidated return?

Plain-English summary

The Florida Department of Revenue concluded that a planned Nevada investment subsidiary would not be subject to Florida intangible tax if all of its activities were conducted outside Florida and all decisions by its officers, employees, and directors were made outside the state.

The Florida parent and existing subsidiary planned to transfer investments to the Nevada corporation. That corporation would have Nevada office space, at least one Nevada-resident director, Nevada board meetings, and a Nevada-resident vice president/secretary accountable to the board, although its president would reside in Florida.

For the consolidated return, the parent's investment in subsidiaries remained an asset subject to Florida intangible tax. But qualifying intercompany accounts could be excluded if the parent and subsidiaries timely filed a Florida consolidated intangible-tax return. Filing the consolidated return did not by itself give Florida business situs to a corporation's intangible property.

What this means for you

Multistate corporate groups

Organizing an entity outside Florida was not the only condition. The ruling required its activities and decision-making to occur outside Florida as well.

Finance and tax teams

Distinguish an investment in a subsidiary from intercompany accounts. The ruling treated the investment as taxable while permitting elimination of intercompany accounts on a timely consolidated return.

Corporate officers and directors

The location of actual decisions mattered even though the planned subsidiary's president was a Florida resident.

Common questions

Q: Was Nevada incorporation alone enough to avoid Florida intangible tax? A: No. The ruling conditioned the result on all corporate activities and decisions occurring outside Florida.

Q: Did a Florida-resident president automatically create Florida situs? A: The ruling did not say so. Its conclusion instead required that all officer, employee, and board decisions be made outside Florida.

Q: Was the parent's investment in subsidiaries excluded from tax? A: No. The Department called that investment an asset subject to Florida intangible tax.

Q: What could be eliminated on a consolidated return? A: Qualifying intercompany accounts, if the consolidated return was timely filed.

Citations and references

• Fla. Stat. § 199.175(1) — Florida taxable situs and domicile
• Fla. Stat. § 199.052(10) — consolidated intangible-tax returns and elimination of qualifying intercompany accounts
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-151

Original ruling text

Dec 26, 1996

Re: Technical Assistance Advisement No. 96(C)2-151 Intangible Tax - Taxable Situs XXX (Corporation A) XXX (Corporation B) XXX (Corporation C)

Dear:

Your letter requesting a Technical Assistance Advisement has been received by this office. The request deals with the taxation of intangible property transferred to a corporation not legally domiciled in Florida.

FACTS PERTAINING TO ALL ISSUES

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

Corporation A is the owner of Corporation B. Both Corporation A and Corporation B are legally and commercially domiciled in Florida. Corporation A and Corporation B join in the filing of a Florida consolidated intangible tax return.

Corporation B has an investment portfolio which includes the stock of two publicly traded companies. Corporation B plans to form Corporation C, to hold certain of its investments, which company will be legally domiciled in Nevada. Corporation C will obtain office space in Nevada for use by its employees and board of directors.

The board of directors of Corporation C will have not less than three members, and at least one will be a Nevada resident. Board meetings will be held in Nevada. The president of Corporation C will be a Florida resident. The vice president/secretary of Corporation C will be a Nevada resident. The vice president/ secretary of Corporation C will be fully accountable to the board of directors and subject to termination

by it.

ISSUES

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

1. Will the intangible assets of Corporation C be subject to
   Florida intangible tax?
2. If Corporation C is included in Corporation A's
   consolidated intangible tax return, will Corporation A's "investment in subsidiaries" be excluded from the taxable base on its consolidated intangible tax return?

LAW AND DISCUSSION

For purposes of the annual tax imposed under chapter 199, 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(1), 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.

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

1. If all the activities of Corporation C are conducted, and
   if all decisions of its officers, employees, and board of directors are made outside the State of Florida, then Corporation C is not subject to the Florida intangible tax.

2. The investment in subsidiaries represents assets subject to the Florida intangible tax. However, all intercompany accounts can be excluded from taxation if Corporation A and its subsidiaries timely file a Florida consolidated 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,

Mary Ella Ingram
Tax Specialist
Tax Policy and Dispute Resolution