How did a Florida financial organization source its redacted service fees, securities income, other financial income, and assets for apportionment?

Plain-English summary

Florida applied the special apportionment rules for financial organizations rather than the ordinary sales-factor rule. The ruling sourced most service-related fees by customer or client location and sourced managed-securities fees and gross profits by where management occurred.

The taxpayer was a redacted financial organization headquartered in Florida and filed consolidated Florida returns with its subsidiaries. The public version removes the names of its business lines and income categories, so the page cannot identify the underlying products without speculation.

Financial-service fees followed the customer or client

The Department said multiple redacted fees, including amounts categorized as “other income,” were sourced to the location of the customer or client receiving the service under section 220.15(5)(c)1.

When the customer or client was in Florida, the fee was included in both the numerator and denominator of the Florida sales factor.

Managed securities followed management activity

Fees from selling redacted securities or similar managed items were sourced to Florida when management occurred in Florida. Gross profits from those sales were treated the same way under section 220.15(5)(c)2.

Losses from the sales were excluded from the sales factor rather than reducing gross profits.

One redacted income stream used the customer-location rule in subparagraph 4

The Department also sourced a redacted income category to the location of the customer under section 220.15(5)(c)4. Because the public ruling removes the product description, this page does not assign that treatment to a named modern product.

Specified redacted assets held by the taxpayer were also included in the Florida property-factor calculation under section 220.15(3).

What this means for you

Financial organizations

Classify each revenue stream before sourcing it. Customer-facing services, securities trading or management, mortgage-related income, rents, and other financial income have separate statutory rules.

Corporate tax departments

Retain records showing customer location and where securities or investment activity was managed. Both facts affected the Florida numerator.

Accountants and tax professionals

The public redactions materially limit analogy. Use the revealed sourcing method, not guessed product identities.

Common questions

Q: How were financial-service fees sourced?
A: By the location of the customer or client receiving the service.

Q: How were fees and gross profits from managed securities sourced?
A: By where management occurred.

Q: Were securities-sale losses included in the sales factor?
A: No. The ruling excluded them.

Q: Does the public TAA identify every income category?
A: No. The product and service descriptions are heavily redacted.

Citations and references

• Fla. Stat. § 220.15(5)(c)1. — financial services rendered in Florida
• Fla. Stat. § 220.15(5)(c)2. — gross profits from securities managed in Florida
• Fla. Stat. § 220.15(5)(c)4. — specified customer-account interest rule applied to one redacted category
• Fla. Stat. § 220.15(3) — Florida property factor
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 04C1-001

Original ruling text

SUMMARY

QUESTION: How should the specified items of income be
represented in the Florida sales factor of a financial
organization?

ANSWER - Based on Facts Below: The specified items of
income should be represented in the Florida sales factor of
the financial organization as directed by s. 220.15(5)(c),
F.S.

Jan 23, 2004

Re: Technical Assistance Advisement 04C1-001
Corporate Income Tax - Sales Apportionment
s. 220.15, F.S.
XXX, hereinafter referred to as "A"

Dear :

Your letter of XX, requested a Technical Assistance Advisement
addressing the proper sourcing of income 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

Your letter of XX, states that "A" is a "XXX" headquartered in
Florida, which engages in XXX, and provides XXX to individuals
and XXX. "A" is a member of XXX.

The taxpayer's income is comprised of XXX, and XXX consisting
principally of XXX. "A" and its subsidiaries file their Florida
corporate income tax returns on a consolidated basis.

LAW

Paragraph 220.15(5)(c), F.S., states:

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:

1. Fees, commissions, or other compensation for financial
   services, rendered within this state;

2. Gross profits from trading in stocks, bonds, or other
   securities managed within this state;

3. Interest received within this state, other than interest
   from loans secured by mortgages, deeds of trust, or other
   liens upon real or tangible personal property located
   without this state, and dividends received within this
   state;

4. Interest charged to customers at places of business
   maintained within this state for carrying debit balances of
   margin accounts, without deduction of any costs incurred in
   carrying such accounts;

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;

6. Rents from real or tangible personal property located in
   this state; or

7. Any other gross income, including other interest,
   resulting from the operation as a financial organization
   within this state....

DISCUSSION AND ANALYSIS OF LAW

Based on the wording of paragraph 220.15(5)(c), F.S., which
deals with "[s]ales of a financial organization, including, but
not limited to, ..., and XXX," "A" is considered to be a
financial organization under the provisions of Chapter 220, F.S.

XXX, as described in your letter dated XX, paid to "A" for XXX
and XXX for individuals or XXX should be apportioned based on
the location of the customer, as provided by subparagraph
220.15(5)(c)1., F.S. Therefore, if the customer for whom the
transaction is executed is located in Florida, the XXX income
from that transaction should be included in both the numerator
and the denominator of the Florida sales factor.

The XXX fees described in your letter, derived from selling XXX,
should be sourced based on where management of those XXX took
place, as directed by subparagraph 220.15(5)(c)1., F.S. That
is, fees resulting from these sales should be sourced to Florida
when XXX took place in Florida. Additionally, gross profits
resulting from sales of these XXX are sourced to Florida when
management of the XXX took place in Florida, as directed by
subparagraph 220.15(5)(c)2., F.S. Losses from such sales would
be excluded from the sales factor. Therefore, if the XXX which
were sold were managed in Florida, the XXX fees and XXX from
these transactions should be included in both the numerator and
the denominator of the Florida sales factor.

XXX fees, as described in your letter, should be sourced to the
location of the client to whom the services are provided, as
stated in subparagraph 220.15(5)(c)1., F.S., and should be
included in both the numerator and denominator of the Florida
sales factor if the client is located in Florida.

XXX income, as described in your letter, derived from providing
XXX should be sourced to the location of the customer to whom
the XXX is provided, as stated in subparagraph 220.15(5)(c)4.,
F.S., and should be included in both the numerator and
denominator of the Florida sales factor if the customer is
located in Florida.

XXX fees, as described in your letter, should be sourced to the
location of the client to whom the services are provided, as

stated in subparagraph 220.15(5)(c)1., F.S., and should be
included in both the numerator and denominator of the Florida
sales factor if the client is located in Florida.

XXX fees, as described in your letter, should also be sourced to
the location of the client to whom the services are rendered, as
stated in subparagraph 220.15(5)(c)1., F.S., and should be
included in both the numerator and denominator of the Florida
sales factor if the client is located in Florida.

The XXX fees described in your letter, categorized as "other
income", should be sourced to the location of the client to whom
the services are rendered, as stated in subparagraph
220.15(5)(c)1., F.S., and should be included in both the
numerator and denominator of the Florida sales factor if the
client is located in Florida.

Additionally, the XXX held by the taxpayer, as well as the
values of other XXX assets, should be included in the
computation of the Florida property factor as directed by
subsection 220.15(3), 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
Tax Law Specialist
Technical Assistance and
Dispute Resolution

SCP/
Control No.: 58096