Did computer-equipment leases owned by out-of-state trusts or their Florida-connected grantor create taxable Florida intangibles?

Plain-English summary

The trusts' computer-equipment leases did not have a taxable Florida situs, and the grantor's related Florida lease receivables were exempt. The trusts were organized, managed, and commercially domiciled outside Florida, did not transact business in Florida, and had the leases serviced from an out-of-state office.

The grantor did transact lease business in Florida, which established a Florida business situs for those leases. But the associated receivables arose in the ordinary course of business and were not supported by negotiable instruments, so the Department treated them as exempt accounts receivable. It also said the trusts' leases would receive the same exemption if they later acquired a Florida situs on the stated terms.

What this means for you

The ruling separated two questions: first, whether an intangible had a Florida taxable situs; second, whether an exemption applied after situs existed. Entity management, where business was conducted, and the specific payment obligations in the lease documents all mattered.

Common questions

Q: Did Florida customers alone give the trusts a taxable situs? No. The Department found no Florida commercial domicile or business activity by the trusts.

Q: Did the grantor have Florida business situs? Yes, for leases transacted through its Florida activity.

Q: Why were the grantor's receivables exempt? They were ordinary-course business debts not supported by negotiable instruments and fit the ruling's accounts-receivable analysis.

Citations and references

• Fla. Stat. § 199.052(1) — intangible-tax return filing
• Fla. Stat. § 199.023(3) — trusts and business trusts included as persons
• Fla. Stat. § 199.175(1)-(2) — commercial domicile and business situs
• Fla. Stat. § 199.185(1)(l) — accounts-receivable exemption
• Fla. Admin. Code r. 12C-2.002(1)(n) — lease-payment receivables
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02C2-008

Original ruling text

SUMMARY

QUESTION: Will leases of computer equipment owned by Trusts
having no Florida domicile or business situs be subject to
tax? Will Grantors having a Florida business situs be
subject to intangible tax?

ANSWER - Based on Facts Below: Leases of computer equipment
owned by Trusts will not be taxable because there is no
commercial domicile or business situs in Florida. Although
the Grantors have established domicile for the leases
transacted in Florida, the associated accounts receivable
generated as a result of the Florida activity will be
exempt from tax.

Oct 10, 2002

Re: Technical Assistance Advisement No. 02C2-008
Intangible Tax - Leases and Business Trusts
Sections 199.052(1), 199.023(3), 199.175(1) and (2), and
199.185(1)(l), F.S.
Rules 12C-2.002(1)(n), F.A.C.
XXX (Grantor)

Dear :

Your letter requesting a Technical Assistance Advisement
has been referred to this office for response. The specific
scenario for which advice has been requested is summarized
below.

Facts as Presented by Petitioner

The Grantor is a corporation formed under the laws of a
state other than Florida. The Grantor maintains its chief and
principal office, where executive and management functions are
performed, and where the course of business operations is
determined, outside the state of Florida. The Grantor entered

into agreements to lease equipment to customers, some of whom
are located in Florida. The lease agreements are not
transferable by mere endorsement or delivery (i.e., nonnegotiable).

Trusts were also organized under the laws of a state other
than Florida. Almost all of the Grantor's leases were
subsequently transferred into these Trusts. The Trusts maintain
their chief and principal offices where executive and management
functions are performed, and where the course of business
operations is determined, outside the state of Florida. The
Trusts then issued notes that are secured by the leases,
commercial loans, and a security interest in the related
underlying equipment or other property.

The Trusts do not transact business in Florida, nor do the
Trusts have employees or agents managing or controlling the
trust assets in the State. The Grantor's sales representatives
solicit business in Florida. However, such solicitation is not
made on behalf of the Trust.

The Grantor and the Trusts entered into servicing
agreements. The Grantor performs its duties as servicer of the
leases from its office outside the state of Florida. Pursuant
to the servicing agreements, as servicer of the leases in the
trust, the Grantor's duties include, but are not limited to:

*

Collection and posting of all payments;

*

Responding to inquires of the lessees;

*

Accounting for collections;

*

Furnishing monthly, quarterly, and annual statements;

The Grantor's duties as servicer do not permit it to perform the
following discretionary functions:

*

Amend, modify, or otherwise change the portion of the
agreed upon credit and collection policies and procedures
relating to collection without written consent;

*

Forgive any payment of rent, principal, or interest with
respect to any lease;

The lessees are required to maintain, repair and insure the
leased equipment. Neither the Grantor nor the Trust has any
obligation to assemble, install, test, adjust or service the
leased equipment. The lease agreements do not permit the
Grantor to substitute, add, or exchange any item of leased
equipment that would result in any reduction of payments due
under the associated lease agreement. Neither the Grantor nor
any other Trust representative is responsible for the leased
equipment once the leases have been transferred to the Trusts.

Request for Advisement

You request an advisement on the following:

1. Will the leases of computer equipment owned by the Trusts
   be sitused to Florida for Florida Intangible Personal
   Property Tax purposes?

2. If the leases of computer equipment owned by the Trusts are
   sitused to Florida for Florida Intangible Tax purposes,
   then will the leases be exempt from such tax as accounts
   receivable?

3. If the leases of computer equipment owned by the Grantor
   are sitused to Florida for Florida Intangible Personal
   Property Tax purposes, then will the leases be exempt from
   such tax as accounts receivable?

Provisions of Law

Section 199.052(1), F.S., provides that an annual
intangible tax return is to be filed by every corporation
authorized to do business in this state and by every person,
regardless of domicile, who on January 1 of the tax year owns,
manages or controls intangible personal property with a taxable
situs in this state.

Section 199.023(3), F.S., defines person as any individual,
firm, partnership, joint adventure, syndicate, trust, business
trust, trustee, estate, personal representative, receiver, other
fiduciary, other group or combination acting as a unit, or
association.

Pursuant to s. 199.175(1), F.S., taxable situs exists when
intangible personal property is owned, managed, or controlled by
any person domiciled in this state on January 1 of the tax year.
The intangibles will be subject to tax under this chapter
regardless of where they are kept; where the intangible was
created, approved, or paid; or where business may be conducted
from which the intangible arises. A Florida corporation that
owns the stock of an out-of-state corporation, and manages and
controls such corporation from a location in this state, will
not cause the intangible of the out of state corporation, which
arises out of business transacted outside this state, to be
subject to the Florida intangible tax.

Section 199.175(1)(a) and (b), F.S., provides that "any
person domiciled in this state" means a person, including an
artificial entity, having a commercial domicile in this state.
An entity acquires its commercial domicile when its chief or
principal office is in this state, where executive or management
functions are performed, or where the course of business
operations is determined.

Section 199.175(2), F.S., provides that property having a
business situs in this state, and that is owned, managed, or
controlled by a person transacting business in this state, will
have a taxable situs in this state. This provision applies
regardless of the fact the owner may claim domicile elsewhere
and applies regardless of where the intangible is kept, created,
approved, or paid.

Section 199.185(1)(l), F.S., allows accounts receivable
arising or acquired in the ordinary course of trade or business
to be exempt from tax. This exemption does not apply to
accounts receivable arising outside the taxpayer's ordinary
course of trade or business. For intangible tax purposes,
"accounts receivable" means business debt that is owed by

another to the taxpayer or assignee in the ordinary course of
trade or business and is not supported by negotiable
instruments.

According to Rule 12C-2.002(1)(n), F.A.C., payments
required under lease contracts will be taxed as receivables
under the following conditions:

1. Lease payments that are past due.
2. Lease contracts that transfer title to the property to
   the lessee by or at the end of the lease term.
3. Lease contracts that contain a bargain purchase
   option, such as a purchase of property below market
   value or salvage value.
4. Lease contracts that require the lessee to pay the
   lessor even if the property is not used by the lessee
   (excludes operating leases or true leases).

Position of the Department

Advisement I:

Will the leases of computer equipment owned by

the Trusts be sitused to Florida for Florida
Intangible Tax purposes?

Answer I:

The Trust does not have commercial domicile in
this state, nor does the Trust conduct
business in this state. Therefore, the leases
of computer equipment owned by the Trust on
January 1 will not have a taxable situs in
this state.

Advisement II:

If the leases of computer equipment owned by

the Trusts are sitused to Florida for Florida
Intangible Personal Property Tax purposes,
then will the leases be exempt from such tax
as accounts receivable?

Answer II:

If the leases of computer equipment owned by
the Trust were sitused to Florida via the
establishment of commercial domicile or
business situs, then the leases in question

would be exempt as accounts receivable.

Advisement III: If the leases of computer equipment owned by
the Grantor are sitused to Florida for Florida
Intangible Personal Property Tax purposes,
then will the leases be exempt from such tax
as accounts receivable?

Answer III:

The Grantor transacts business in this state,
thereby establishing a business situs for the
leases of computer equipment transacted in
Florida. The associated accounts receivable
arising from the Grantor's activity in Florida
will be exempt from the Florida Intangible
Personal Property tax.

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, 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,

Celestine Grantham
Senior Tax Specialist
Technical Assistance and Dispute Resolution
Office of General Counsel

CG/mh