Did an out-of-state recognition-products seller create Florida corporate income tax nexus when its in-state activity was limited to soliciting orders?

Plain-English summary

The seller offered customized employee-recognition gifts and other tangible products, but all manufacturing and inventory warehousing occurred outside Florida.

Its Florida representatives only solicited orders. Customers' orders were sent outside Florida for approval or rejection, approved orders were filled and shipped from outside the state, and delivery occurred exclusively through the U.S. Postal Service or common carriers.

Those activities fell within Public Law 86-272. For taxable years beginning after the activity change—or any year in which protection covered the entire year—the taxpayer had no Florida corporate income tax filing or payment obligation.

What this means for you

Protection depended on a narrow activity boundary and tangible-goods sales. Any Florida fulfillment, inventory, non-solicitation service, or unprotected activity requires a new nexus analysis.

Common questions

What did Florida representatives do? Solicit orders for tangible personal property.

Where were orders approved and filled? Outside Florida.

Was a Florida return required for fully protected years? No.

Citations and references

• Fla. Stat. §§ 220.02 and 220.11, 15 U.S.C. §§ 381-384, and Fla. Admin. Code r. 12C-1.0511, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 11C1-006

Original ruling text

Executive Director
Lisa Vickers

TAX: Corporate Income Tax
TAA NUMBER: 11C1-006
ISSUE: Nexus
STATUTE CITES: S. 220.02, 220.11, F.S., Public Law 86-272
RULE CITES: Rule 12C-1.0511, F.A.C.
QUESTION: Do the Taxpayer’s Florida business activities generate nexus and the associated corporate income tax
filing requirement?
ANSWER: The Taxpayer’s Florida business activities do not generate nexus, and are protected from the
imposition of Florida corporate income tax by Public Law 86-272. Therefore, the Taxpayer has is not required to
file Florida corporate income tax returns and remit the tax due.

September 01, 2011

XXX
XXX
XXX
RE:

Technical Assistance Advisement 11C1-006
Corporate Income Tax - Nexus
Sections 220.02 and 220.11, Florida Statutes (F.S.)
XXX. (hereinafter referred to as “the Taxpayer”)
FEIN: XXX

Dear XXX:
This letter is in response to your letter dated XXX, requesting a ruling as to whether the taxpayer has
nexus for purposes of Florida’s corporate income tax. In your letter, you indicate that the Taxpayer’s facts
are different or have changed since the issuance of Technical Assistance Advisement 11C1-003, where the
Department ruled that the Taxpayer was not protected by Public Law 86-272 and was required to file
Florida corporate income tax returns.
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 TAXPAYER
The Taxpayer works with companies who wish to recognize and honor their employees’ achievements.
Specific milestones recognized may be an employee’s length of service, good safety record, promotion,
Child Support Enforcement – Ann Coffin, Director z General Tax Administration – Jim Evers, Director
Property Tax Oversight – James McAdams, Director z Information Services – Tony Powell, Director

www.myflorida.com/dor
Tallahassee, Florida 32399-0100

Technical Assistance Advisement 11C1-006
Page 2

retirement or other special events. The Taxpayer offers a wide variety of gifts and products that
companies can use to recognize and reward their employees.
Many of the products offered by the Taxpayer as recognition awards may be customized to fit a particular
occasion, and may involve casting, stamping, stone setting, polishing or laser customization. Taxpayer
also utilizes relationships with vendors to offer gift items by third-parties, including custom-designed
gifts, which may include jewelry, electronics, appliances, sporting goods, and art prints. Even with the
wide variety of gift items, all of the Taxpayer’s manufacturing and inventory warehousing facilities are
located in XXX.
The Taxpayer utilizes sales representatives to solicit sales of its products throughout the United States. In
a typical transaction, Taxpayer’s customer agrees to purchase products/gifts from the Taxpayer on behalf
of the employees it wishes to recognize. Customers provide employee information (dates, milestones,
awards, etc.) to the Taxpayer and select the gift to be sent.
The Taxpayer maintains and tracks the information on its database in XXX (Headquarters), and when an
applicable event occurs a gift is automatically sent via common carrier to the employee. Taxpayer’s
compensation is determined by the type and quantity of the products shipped to the customer’s employee.
The Taxpayer’s business activities in Florida consist exclusively of utilizing sales representatives to solicit
orders for sales of gifts and products that companies use to recognize and reward their employees. Orders
of these items are sent outside of Florida for approval or rejection, and if approved, shipment and delivery
instructions are also initiated from a point outside of Florida. Some of the products are shipped directly to
the customer from the vendor’s warehouse, and others are shipped directly from the Taxpayer’s
warehouse in XXX. None of the Taxpayer’s vendors fill orders from a point within Florida. The
Taxpayer does not maintain or make use of any office or place of business in Florida, and does not own or
lease any real or tangible personal property in Florida.
Taxpayer does not have inventories, including consigned inventories in Florida, nor does it use its own
vehicles to ship products into Florida. It does not repair or service any personal or real property, and does
not install or assemble any products within Florida. Taxpayer does not send employees into Florida to
service inoperative product or to address warranty issues.
The Taxpayer does provide training to its customers, but none of the training occurs in Florida. The
Taxpayer does not engage in collections activity or credit investigations within Florida, and does not train
personnel in Florida. In conducting business in Florida, Taxpayer does not bring any equipment or
tangible personal property into the state, and does not engage any third parties to perform any of the
business activities described in the foregoing section labeled “Facts as Provided by Taxpayer.”
Taxpayer requests a letter ruling as to whether or not its business activities in the State of Florida are
sufficient to create nexus so that the Taxpayer is subject to Florida corporate income tax.

Technical Assistance Advisement 11C1-006
Page 3

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. . . .

Subsection 220.11(1), F.S., states, in part:
A tax measured by net income is hereby imposed on every taxpayer for each taxable year . .
. for the privilege of conducting business, earning or receiving income in this state, or being
a resident or citizen of this state. . .
Rule 12C-1.0511, Florida Administrative Code, states, in part:
(2) The Department of Revenue hereby incorporates by reference in this rule Public Law
86-272 (15 U.S.C. ss. 381-384).

Public Law 86-272, (15 U.S.C. ss. 381-384), states in part:
(a) No state, or political subdivision thereof, shall have the power to impose, for any taxable year ending after the date of the enactment of this Act, a net income tax on the income
derived within such State by any person from interstate commerce if the only business
activities within such State by or on behalf of such person during such taxable year are
either, or both, of the following:
(1) the solicitation of orders by such person, or his representative, in such State
for sales of tangible personal property, which orders are sent outside the State for
approval or rejection, and if approved, are filled by shipment or delivery from a
outside the State; and
(2) the solicitation of orders by such person, or his representative, in such State in
the name of or for the benefit of a prospective customer of such person, if orders by
such customer of such customer to such person to enable such customer to fill
orders resulting form such solicitation are orders described in paragraph (1).

Technical Assistance Advisement 11C1-006
Page 4

ISSUE PRESENTED
Whether the taxpayer has nexus and the associated tax return filing requirement for purposes of Florida’s
corporate income tax?

DISCUSSION AND ANALYSIS
The question posed here is whether the Florida business activities of the Taxpayer have created Florida
“nexus” with the accompanying Florida corporate income tax filing requirement? The determination of
nexus for Florida Corporate Income tax purposes is based on the “facts and circumstances” of each
particular situation. The determination of Florida nexus is also guided by consideration of the following
principle requirements: Florida Statutes and Rules, the Due Process clause (14th amendment), the U.S.
Commerce Clause, and Public Law 86-272.
Here, we have a Taxpayer that changed or clarified its business activities so that its Florida business
activities now are confined to the solicitation of sales. The facts presented indicate the Taxpayer no
longer generates the necessary connection or nexus for Florida to require the Taxpayer to file a corporate
income tax return (applicable to tax years beginning on or after the change in Florida business activities or
to the tax years that Taxpayer was protected by Public Law 86-272 for the entire tax year). Public Law
86-272 (incorporated in Rule 12C-1.0511, F.A.C.), prohibits the imposition of the Florida corporate
income tax because the Taxpayer’s Florida business activities consist exclusively of the following: 1)
utilizing sales representatives to solicit orders for sales of tangible personal property, 2) orders for sales of
the Taxpayer’s products are sent outside of Florida for approval or rejection, 3) if approved, delivery and
shipment of orders are initiated and completed from a point outside of Florida, and 4) the Taxpayer’s
products are shipped exclusively via the United States Postal Service or common carrier.
CONCLUSION
The Taxpayer’s Florida business activities do not generate nexus, and are protected from the imposition of
Florida corporate income tax by Public Law 86-272 (applicable to tax years beginning on or after the
change in Florida business activities or to the tax years that Taxpayer was protected by Public Law 86-272
for the entire tax year). Consequently, Taxpayer is not under the corporate income taxing jurisdiction of
the State of Florida and will not required to file Florida corporate income tax returns and remit tax for tax
years beginning on or after the change in Florida business activities or to the tax years that Taxpayer was
protected by Public Law 86-272 for the entire tax year.
This response constitutes a Technical Assistance Advisement under section 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 section 213.122, 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.

Technical Assistance Advisement 11C1-006
Page 5

You are further advised that this response, your request, and related backup documents are public records
under Chapter 119, Florida Statutes, and are subject to disclosure to the public under the conditions of
section 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 materials and this response, deleting the 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,

Charles J. Dunning
Tax Law Specialist
Technical Assistance and Dispute Resolution
CJD/tlf
Record ID: 104276