Did a corporation-taxed LLC create Florida income-tax nexus through an independent contractor performing in-state services?

Plain-English summary

The LLC had Florida corporate income-tax nexus and had to file a return. It had elected federal corporate treatment and used an independent contractor to perform maintenance services for customers in Florida, even though it maintained no Florida office or employees.

Florida's rule treated performing any service in the state as conducting business. The Department found no exception for using an independent contractor instead of an employee and treated the contractor as the company's agent for the Florida work.

What this means for you

Avoiding payroll or office space did not avoid nexus on these facts. A business taxed as a corporation can create a Florida filing obligation through an independent contractor who performs customer services in the state on its behalf.

Common questions

Q: Did the LLC have Florida employees? No.

Q: What Florida activity created nexus? Its contractor performed maintenance services for Florida customers on the LLC's behalf.

Q: Did paying Florida sales tax eliminate the income-tax filing issue? No. The ruling separately required a corporate income-tax return.

Citations and references

• Fla. Stat. § 220.02(1) — entities subject to Florida corporate income tax
• Fla. Stat. § 220.11(1) — corporate income tax imposed
• Fla. Admin. Code r. 12C-1.011(1)(m) — performing services in Florida
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02C1-005

Original ruling text

SUMMARY

QUESTION: Is a limited liability company that has elected
to be treated as a corporation for federal income tax
purposes, required to file a Florida corporate income tax
return, when its activities in Florida are conducted solely
through an independent contractor?

ANSWER - Based on Facts Below: The limited liability
company has nexus in Florida as the result of activities
engaged in by its independent contractor, and is required
to file a Florida corporate income tax return.

Aug 29, 2002

Re: Technical Assistance Advisement 02C1-005
Corporate Income Tax - Filing Requirements
s. 220.11, F.S.
XXX, hereinafter referred to as "A"

Dear :

Your letter of XX, requested a Technical Assistance Advisement
concerning your company's filing requirements for Florida
corporate income 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 limited liability company that has elected to be taxed
as a corporation for federal income tax purposes. "A" pays
Florida sales tax, but has no offices or employees in Florida.
However, "A" employs an independent contractor in Florida, who
provides XXX for XXX and XXX located in Florida, on behalf of
other parties in Florida and other states.

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....

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. Such
tax shall be in addition to all other occupation, excise,
privilege, and property taxes imposed by this state or by
any political subdivision thereof, including any
municipality or other district, jurisdiction, or authority
of this state.

Rule 12C-1.011, F.A.C., states in part:

(1) The following activities, notwithstanding others within
the meaning of taxable privileges described in s. 220.02,
F.S., will be construed as conducting business, earning or
receiving income in this state, or constitute those
activities of a resident or citizen of this state for
purposes of this tax, and corporations participating
therein are subject to taxation unless exempted by the
constitution or the laws of the United States or this

state.

(m) Performing any service within the state.

DISCUSSION

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(1)(m), F.A.C., provides that a
corporation which performs any service within Florida will
create nexus for that corporation. None of these provisions
exempt corporations that transact their business in Florida
through the use of independent contractors rather than employees
from the tax, as the independent contractor is deemed to be the
agent of the corporation which hires him to represent it.

Based on the information contained in your letter dated XX, and
the Department's letter dated XX, your company is providing
maintenance services to customers in Florida through the use of
an independent contractor. Therefore, your company is
conducting business, and earning and receiving income in
Florida, and has nexus for Florida corporate income tax
purposes, as it is deemed to be transacting business in Florida
through the activities of the independent contractor.
Accordingly, your company is subject to Florida corporate income
tax pursuant to the provisions of subsections 220.02(1), and
220.11(1), F.S., and Rule 12C-1.011(1), F.A.C., and is required
to file a Florida corporate income 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
based on those facts and 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.: 51392