Were qualifying foreign-source dividends from a foreign subsidiary included in Florida adjusted federal income?

Plain-English summary

Florida ruled that qualifying foreign-source dividends repatriated from foreign subsidiaries were subtracted when calculating adjusted federal income for Florida corporate income tax.

The controlling question was whether the dividends were treated as received from sources outside the United States under Internal Revenue Code section 862 or were amounts included under sections 78 or 951. If so, Florida's subtraction applied regardless of whether the dividends otherwise would be classified as business or nonbusiness income.

Because the qualifying dividends left the tax base through that subtraction, the Department said there was no need to decide their business-versus-nonbusiness classification. The quoted Florida provision also required an addback for deducted expenses directly or indirectly attributable to the subtracted amount.

What this means for you

Federal characterization drives this Florida modification. Companies must substantiate that the dividend falls within the cited foreign-source provisions and identify related deductible expenses for the required addback.

Common questions

Did business-income classification control? No.

What controlled? Whether the dividend qualified as foreign-source income under the federal provisions incorporated by Florida law.

Did the ruling separately decide corporate nexus? Its operative issue and conclusion addressed the dividend subtraction, not a separate nexus determination.

Citations and references

• Fla. Stat. §§ 220.02, 220.03, and 220.13, and I.R.C. §§ 78, 862, and 951, as quoted or referenced in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 10C1-004

Original ruling text

TAX: Corporate Income Tax
TAA NUMBER: 10C1-004
ISSUE: Business/Nonbusiness Income
STATUTE CITES: Section 220.13(b)2., F.S .
RULE CITES: None.
QUESTION: The issue concerns the Florida corporate tax implications of the Taxpayer’s
receipt of repatriated dividends from a foreign subsidiary.
ANSWER: If the repatriated dividends constitute foreign source dividends under s. 78, 862,
or 951 of The IRC, they will be subtracted in calculating adjusted federal income, regardless
of whether the foreign source dividend constitutes business or nonbusiness income.
March 17, 2010
XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 10C1-004
Nexus-Foreign source dividends Corporate Income Tax
XXX (“Taxpayer”)
Sections 220.02, 220.03, 220.13, Florida Statutes (F.S.)

Dear XXX:
This letter is in response to your letter of XXX, requesting a ruling as to whether the taxpayer
has nexus for purposes of Florida’s corporate income tax. This response constitutes a
Technical Assistance Advisement (“TAA”) under Chapter 12-11, Florida Administrative
Code, and is issued to you under the authority of section 213.22, Florida Statutes.
FACTS AS PROVIDED BY THE TAXPAYER
Taxpayer is an XXX (where buyers and sellers can meet, exchange information, and complete
e-commere transactions) in XXX. Taxpayer is currently a XXX C-corporation and parent of
various USA LLCs and foreign subsidiaries organized in different countries in XXX. All of
the USA LLCs are organized in XXX and XXX.
Substantially all services of the Taxpayer and its subsidiaries are provided in XXX. However,
substantially all of the company’s computer hardware for operations is currently located in
XXX and XXX and owned by Taxpayer. The foreign subsidiaries utilize the computer
hardware owned by Taxpayer for customer platforms in various XXX countries. Taxpayer’s
revenues include general and administrative chargebacks received from various foreign and
United States subsidiaries, interest income on deposits with excess cash available, and
dividends received from foreign subsidiaries.
From time to time, Taxpayer may cause its subsidiaries to distribute earnings from its
operating subsidiaries to the USA holding company. Taxpayer is evaluating the implications
of these repatriations on Florida corporate income tax. Thus, in the letter dated XXX,
Taxpayer requested a Technical Assistance Advisement regarding the Florida corporate
income tax implications of the Taxpayer’s receipt of repatriated dividends from a foreign
subsidiary.

Technical Assistance Advisement 10C1-004
Page 2

LEGAL AUTHORITY
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. . . .
Subparagraph 220.13(1)(b)2., F.S., states, in part:
There shall be subtracted from such taxable income any amount to the extent
included therein the following:
a. Dividends treated as received from sources without the United
States, as determined under s. 862 of the Internal Revenue Code.
b. All amounts included in taxable income under s. 78 or s. 951 of the
Internal Revenue Code.
However, as to any amount subtracted under this subparagraph, there shall be
added to such taxable income all expenses deducted on the taxpayer’s returns
for the taxable year which are attributable, directly or indirectly, to such
subtracted amount….
ISSUE PRESENTED
The issue concerns the Florida corporate income tax implications of the Taxpayer’s receipt of
repatriated dividends from a foreign subsidiary.
DISCUSSION AND ANALYSIS
Florida imposes a 5.5 percent tax on the net income of every corporation subject to Florida
income tax. A taxpayer’s net income equals the amount of adjusted federal income
apportioned to Florida plus nonbusiness 1 income allocated to Florida. The computation of a
taxpayer’s Florida income tax liability is made after the taxpayer computes it federal tax
liability.

1

Section 220.03(1)(r), F.S., provides that “nonbusiness income” does not include “income … which could be included in
apportionable income without violating the due process clause of the U.S. Constitution.”

Technical Assistance Advisement 10C1-004
Page 3

The starting point for computing adjusted federal income for Florida corporate income tax
purposes is the federal taxable income as reflected on line 30, federal 1120. 2 A taxpayer’s
federal taxable income, for Florida income tax purposes, is modified by certain additions and
subtractions to arrive at its adjusted federal income. Florida exempts “foreign source income”
from its corporate income tax by subtracting the income, less direct and indirect expenses,
from the adjusted federal income, and Florida exempts nonbusiness income from adjusted
federal income.
The Florida Statute providing for the subtraction of foreign dividends does not distinguish
between business and nonbusiness income. The controlling factor is whether the repatriated
dividends constitute foreign source dividends. If the repatriated dividends constitute foreign
source dividends, there will be no need to classify the dividends as either business or nonbusiness income because the dividends will have been excluded from the tax base. As
previously stated, Florida allows all foreign source dividends to be excluded from taxable
income. Section 220.13(1)(b)2. F.S., allows all dividends, treated as received from sources
without the United States under IRC Sec. 862, and all amounts included in taxable income
under IRC Sec. 781 or 951, to be excluded from taxable income. Thus, if the repatriated
dividends constitute foreign source dividends, they will be subtracted in calculating adjusted
federal income. This is true regardless of whether the foreign source dividend constitutes
business or nonbusiness income.
CONCLUSION
If the repatriated dividends constitute foreign source dividends, they will be subtracted in
calculating adjusted federal income.
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. 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 interpretation of the statutes or rules upon which this
advice is based may subject similar future transactions to a different treatment from that
which is expressed in this response.
You are further advised that this response, your request and related backup 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 Technical Assistance Advisement, the backup material and this response, deleting

2

Generally, a taxpayer’s adjusted federal income equals its federal taxable income as defined in I.R.C. Section 63, subject to
various limitations and after various modifications are made.

Technical Assistance Advisement 10C1-004
Page 4

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,
Jermane L. Wright, Esq., CPA, LLM
Senior Attorney
Technical Assistance and Dispute Resolution
JLW/
Record ID: 79043