Did an out-of-state company create Florida tax nexus by buying auto sales contracts through a Florida-based employee?

Plain-English summary

Florida found nexus for an out-of-state company that bought discounted automobile sales contracts from Florida dealerships and collected payments over the contracts' remaining lives.

The company employed a Florida resident who visited dealerships, distributed company materials, gathered information, and cultivated dealer relationships. Contract negotiations and approvals occurred outside Florida, and the employee lacked approval authority, but those limitations did not prevent nexus.

For corporate income tax, the company was a sales finance company and therefore a financial organization. Payments on contracts arising from Florida automobile sales were Florida-source receipts, and Public Law 86-272 did not protect the company because it was not selling tangible personal property.

For the intangible tax analyzed in the 1999 TAA, the contracts had a Florida business situs because the company regularly conducted financing activity through its Florida employee and the contracts arose from Florida dealership business. The ruling applied the accounts-receivable exemption only to the extent provided by the law described in the document.

What this means for you

Finance companies and contract purchasers

An employee can create nexus even without authority to approve transactions. Relationship-building, information gathering, and other regular in-state activity may be enough when the business is not protected solicitation of tangible-goods sales.

Corporate tax departments

Classify the business before applying nexus protections. Florida treated this taxpayer as a financial organization and sourced receipts under the specialized financial-organization rules.

Common questions

Did it matter that approvals occurred outside Florida? No. The company still conducted business and earned Florida-source income through the contracts and its employee's activities.

Did Public Law 86-272 protect the company? No. The TAA said the company did not sell tangible personal property.

Why were the contracts assigned a Florida business situs? They arose from Florida dealership transactions and were connected to commercial activity regularly conducted through a Florida employee.

Citations and references

• Fla. Stat. §§ 220.02(1), 220.11(1)
• Fla. Stat. § 220.15(5)(c)5., (6)
• Fla. Stat. §§ 199.032, 199.175(2)
• Fla. Stat. § 199.185
• Fla. Stat. § 199.303(2)
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99C1-002

Original ruling text

SUMMARY

A corporation located outside of Florida purchases sales
contracts from Florida automobile dealerships through the
activities of its employee who resides in Florida. The
corporation has nexus for both Florida corporate income tax
and Florida intangible tax purposes.

Jun 03, 1999

Re: Technical Assistance Advisement 99(C)1-002
Corporate Income Tax - Nexus
Corporate Intangible Tax - Nexus
Section 220.02, 199.175 F.S.
XXX, hereinafter referred to as "A"

Dear :

Your letter of XXX, requested a Technical Assistance Advisement
concerning whether or not the business activities engaged in by
the taxpayer referenced above create nexus for Florida corporate
income tax and Florida intangible tax purposes. 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

"A" is a XXX corporation, whose only office is in XXX. "A"
purchases sales contracts from used car dealerships located in
XXX, at a discount, and collects the payments throughout the
remaining life of the sales contracts it purchases.

"A" hired a salesman in XXX, who traveled to Florida to solicit
business on "A's" behalf, and presently employs a salesman who
resides in XXX, to visit Florida dealerships, give out "A's"
business cards and brochures, gather information from the
dealerships, and take individuals involved in the dealerships to

lunch. Negotiations with dealerships and approval of sales
contract purchases take place in XXX. The salesman does not
approve sales contract purchases.

If the purchaser of a car for which "A" owns the sales contract
defaults on a payment, "A" repossesses the car through a Florida
agency, but does not seek deficiencies from the purchaser.

ISSUE I

Is "A" subject to Florida corporate income tax?

DISCUSSION AND ANALYSIS OF LAW

Subsection 220.02(1), F.S., states, in part:

It is the intent of the Legislature in enacting this code
to impose a tax upon all corporations, organizations,
associations, and other artificial entities which derive
from this state or from any other jurisdiction permanent
and inherent attributes not inherent in or available to
natural persons, such as perpetual life, transferable
ownership represented by shares or certificates, and
limited liability for all owners.... It is the intent of
the Legislature to subject such corporations and other
entities to taxation hereunder for the privilege of
conducting business, deriving income, or existing within
this state....

Paragraph 220.03(1)(m), F.S., states:

SPECIFIC TERMS.--When used in this code, and when not
otherwise distinctly expressed or manifestly incompatible
with the intent thereof, the following terms shall have the
following meanings:

"Includes" or "including", when used in a definition
contained in this code, shall not be deemed to exclude
other things otherwise within the meaning of the term
defined.

Subsection 220.11(1), F.S., states:

A tax measured by net income is hereby imposed on every
taxpayer for each taxable year commencing on or after
January 1, 1972, and for each taxable year which begins
before and ends after January 1, 1972, for the privilege of
conducting business, earning or receiving income in this
state, or being a resident or citizen of this state.

Subsection 220.15(5), F.S., states, in part:

The sales factor is a fraction the numerator of which is
the total sales of the taxpayer in this state during the
taxable year or period and the denominator of which is the
total sales of the taxpayer everywhere during the taxable
year or period....

(c) Sales of a financial organization, including, but not
limited to, banking and savings institutions, investment
companies, real estate investment trusts, and brokerage
companies, occur in this state if derived from:...

5. Interest, fees, commissions, or other charges or gains
   from loans secured by mortgages, deeds of trust, or other
   liens upon real or tangible personal property located in
   this state or from installment sale agreements originally
   executed by a taxpayer or the taxpayer's agent to sell real
   or tangible personal property located in this state;...

Subsection 220.15(6), F.S., states:

The term "financial organization", as used in this section,
includes any bank, trust company, savings bank, industrial
bank, land bank, safe-deposit company, private banker,
savings and loan association, credit union, cooperative
bank, small loan company, sales finance company, or
investment company.

As stated in subsection 220.02(1), F.S., referenced above, the
Florida Legislature intended to impose Florida corporate income
tax on corporations which conduct business, derive income, or

exist in Florida. Subsection 220.11(1), F.S., imposes the tax
on corporations availing themselves of those privileges.

Additionally, Rule 12C-1.011, F.A.C., lists some of the
activities a corporation may engage in which, in and of
themselves, will specifically, or specifically will not create
nexus. However, the activities listed are not all-inclusive,
nor are they intended to be.

As noted in your letter, Rule 12C-1.011(1)(l), F.A.C., provides
that corporations which have employees in Florida who engage in
activities other than solicitation of sales, will have nexus for
Florida corporate income tax purposes. This rule applies to
corporations whose sole business activity is sales of tangible
personal property, as these are the types of corporations to
which the protection of Public Law 86-272 extends. Corporations
which engage in activities other than sales of tangible personal
property in Florida are excluded from the protection of Public
Law 86-272, and are subject to corporate income tax regardless
of whether their employees engage in activities other than
solicitation of sales. Since "A" does not sell tangible personal
property, neither Rule 12C-1.011(1)(l), F.A.C., nor Public Law
86-272, protect it from the imposition of Florida corporate
income tax.

Subsection 220.15(6), F.S., states that the term "financial
organization" includes the types of entities listed therein.
The definition of entities qualifying as financial organizations
is expanded by paragraph 220.15(5)(c), F.S., which uses the
language, "including, but not limited to," clearly indicating
that the types of entities listed in that paragraph, even in
addition to those listed in subsection 220.15(6), F.S., do not
exhaust the types of entities which qualify as financial
organizations, for the purposes of Chapter 220, F.S., as
provided by paragraph 220.03(1)(m), F.S.

As the list of entities which the statute specifies meet the
definition of a financial organization is not all-inclusive,
there are many other types of entities which qualify as
financial organizations. Therefore, in circumstances where an
entity is not of a type specifically listed in subsection

220.15(6), F.S., or paragraph 220.15(5)(c), F.S., we must look
to the activities engaged in by an entity to determine if it
meets the definition of a financial organization, and should
apportion its income on that basis.

Your letter states that "A's" activities are those of a "sales
finance company". Therefore, pursuant to subsection 220.15(6),
F.S., "A" would be classified as a financial organization for
Florida corporate income tax purposes, and should apportion its
income using the three factor formula directed by s. 220.15,
F.S., for financial organizations.

Paragraph 220.15(5)(a), F.S., defines "sales" as "all gross
receipts of the taxpayer". Regardless of the term applied to
income received from holding the sales contracts "A" purchases,
the loans associated with them are secured by liens on tangible
personal property, some of which is located in Florida, or was
located in Florida at the time the contracts were executed. To
the extent that "A" is receiving payments on sales contracts
executed for sales of automobiles in Florida, "A" is considered
to be conducting business in, and deriving income from Florida,
as contemplated by subsection 220.02(1), F.S., and is subject to
Florida corporate income tax pursuant to subsection 220.11(1),
F.S. Additionally, the income from sales contracts executed for
sales of automobiles in Florida, is treated as Florida sales, as
directed by subparagraph 220.15(5)(c)5., F.S., since "A" is
classified as a financial organization for Florida corporate
income tax purposes.

Therefore, based on the information contained in your letter,
"A" is subject to Florida corporate income tax, and should
apportion its income using the three factor formula for
financial organizations provided by s. 220.15, F.S.

ISSUE II

Is "A" subject to Florida's intangible personal property tax?

DISCUSSION AND ANALYSIS OF LAW

Section 199.032, F.S., states:

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, except for notes
and other obligations for the payment of money, other than
bonds, which are secured by mortgage, deed of trust, or
other lien upon real property situated in the state. This
tax shall be assessed and collected as provided in this
chapter.

Section 199.175, F.S., states, in pertinent part:

(1) 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. Such intangibles shall be subject to annual taxation
under this chapter, unless the person who owns, manages, or
controls them is specifically exempt or unless the property
is specifically exempt. This provision shall apply
regardless of where the evidence of the intangible property
is kept; where the intangible is created, approved, or
paid; or where business may be conducted from which the
intangible arises....

(2) Intangible personal property shall have a taxable situs
in this state when it is deemed to have a business situs in
this state and it is owned, managed, or controlled by a
person transacting business in this state, even though the
owner may claim a domicile elsewhere. This provision shall
apply regardless of where the evidence of the intangible is
kept or where the intangible is created, approved, or paid.
(emphasis supplied)

(a) 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.

Subsection 199.303(2), F.S., states:

It is hereby declared to be the specific legislative intent
to tax all intangible personal property that may
constitutionally be taxed subject only to the exemptions
and credits allowed by law. However, if any application of
these statutes is declared unconstitutional, the taxes
imposed shall nevertheless remain in force, but only to the
extent permitted by the constitutions of this state and of
the United States. (emphasis supplied)

Section 199.303(2), F.S., declares the specific legislative
intent to tax all intangible personal property that may
constitutionally be taxed. Section 199.032, F.S., imposes tax
on all intangible personal property which has a taxable situs in
Florida.

Pursuant to subsection 199.175(2), F.S., taxable situs exists
when intangible property is deemed to have a business situs in
Florida, and is owned, managed, or controlled by a person
transacting business in Florida, regardless of domicile.
Paragraph 199.175(2)(a), F.S., states that intangible property
is deemed to have a business situs in Florida when it is
protected by Florida laws and courts and exists as a result of
business transacted in Florida with a customer in Florida.
Business is considered to be transacted in Florida when
commercial activities, such as financing, selling or servicing,

among others, are regularly conducted in Florida by agents,
employees, or representatives in Florida, as provided by
subparagraph 199.175(2)(a)2., F.S.

Although your letter references Allis-Chalmers Credit Corp. v.
Department of Revenue, 456 So.2d 899 (Fla. 1DCA 1984), and U.S.
Shoe Corp. v. Department of Revenue, 508 So.2d 1252, 12 FLW 902
(Fla. 1DCA 1987), the statute was amended, effective January 1,
1990, to correct the language which resulted in those decisions.
Subsequent to the amendment, it was no longer necessary for an
entity's representative to have discretionary authority in order
to subject the entity's intangible personal property to
Florida's intangible tax.

Under the current provisions of Chapter 199, F.S., the sales
contracts "A" purchases from Florida automobile dealerships are
subject to intangible tax, as "A" is engaging in commercial
activity in Florida through its employee who is in Florida,
which results in "A's" having intangible property that is
subject to tax. However, it should be noted that the Florida
Legislature, in the 1998 session, amended s. 199.185, F.S., to
exempt from taxation "one-third of the accounts receivable
arising or acquired in the ordinary course of a trade or
business, which are owned, controlled, or managed by a taxpayer
on January 1, 1999, and thereafter". In the legislative session
that concluded April 30, 1999, the Florida Legislature exempted
an additional one-third of the accounts receivable arising or
acquired in the ordinary course of a trade or business.
Accordingly, effective January 1, 2000, Senate Bill 318 exempts
two-thirds of eligible accounts receivable owned by businesses
from Florida's intangible tax.

Therefore, based on the information contained in your letter,
"A" is subject to Florida intangible personal property tax on
sales contracts purchased from Florida automotive dealerships to
the extent that they are not exempt from taxation pursuant to s.
199.185, F.S.

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, your request and
related backup documents are public records under Chapter 119,
F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Suzanne C. Paul
Technical Assistance and
Dispute Resolution

SCP/
Control No.: 37288