How did Florida source a cable programmer's distributor subscription revenue and national advertising revenue for the corporate sales factor?

Plain-English summary

The taxpayer sold programming access to distributors and advertising time to advertisers. Neither receipt type had a specifically enumerated sourcing method, so Florida applied the rule for sales other than tangible personal property and examined each item's income-producing activity.

Subscription income arose when the taxpayer made programming available to its distributor customer, not when the distributor later served individual viewers. Subscription receipts were Florida sales when the distributor was located in Florida.

Advertising income arose from the taxpayer's national advertising contracts and activity. Those receipts were Florida sales when the advertiser was located in Florida. For this TAA, a customer was located in Florida when its trade or business was principally directed or managed there.

What this means for you

The immediate contracting customer controlled, not the ultimate audience. Contract terms remain critical because the Department lacked the taxpayer's distributor and advertising agreements.

Common questions

Were individual cable subscribers the sourcing customer? No. The distributor was the taxpayer's customer.

Where was subscription revenue sourced? To the distributor's location.

Where was advertising revenue sourced? To the advertiser's location.

Citations and references

• Fla. Stat. § 220.15(5) and Fla. Admin. Code r. 12C-1.0155, as cited in the advisement.

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 11C1-008

Original ruling text

Executive Director
Lisa Echeverri

TAX: Corporate Income Tax
TAA NUMBER: 11C1-008
ISSUE: Sales Apportionment
STATUTE CITES: Section 220.15(5), F.S.
RULE CITES: Rule 12C-1.0155, F.A.C.
QUESTION: What is the appropriate method for apportioning cable network income?
ANSWER: A taxpayer is required to source subscription revenue and advertising revenue pursuant to Rule
12C-1.0155(2)(l). F.A.C.

September 15, 2011
XXX
XXX
XXX
Re:

Technical Assistance Advisement 11C1-008
Corporate Income Tax
XXX. (“Taxpayer”)

Dear XXX:
This letter is in response to your letter of XXX, requesting a ruling as to the appropriate method for
apportioning subscription revenue and advertising revenue. 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 1
Taxpayer, a XXX corporation, is a leading XXX and XXX company. Taxpayer classifies it business into
the following three reporting segments:
•
•
•

XXX;
XXX;
XXX.

1

The facts set forth include those provided by the Taxpayer as well as other information found in publically
accessible resources. The Taxpayer did not provide with its request any contracts, agreements, or other
documents concerning the subscription revenue and advertising revenue discussed in this TAA.
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 11C1-008
Page 2
Taxpayer’s XXX include domestic and international XXX and XXX programming. The programming
of Taxpayer’s XXX is distributed via XXX systems, XXX distribution systems, XXX companies and
other distribution XXX. Among the Taxpayer’s brands are XXX, XXX, XXX, XXX, XXX, XXX,
XXX, XXX, XXX, XXX and XXX.
LEGAL AUTHORITY
Section 220.02, F.S., states in part:
(1) 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 intended that any limited liability company that is classified as a
partnership for federal income tax purposes and formed under chapter 608 or
qualified to do business in this state as a foreign limited liability company not be
subject to the tax imposed by this code. 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. … (Emphasis Supplied)
Section 220.15, F.S., states in part:
(1) Except as provided in ss. 220.151 and 220.152, adjusted federal income as
defined in s. 220.13 shall be apportioned to this state by taxpayers doing business
within and without this state by multiplying it by an apportionment fraction
composed of a sales factor representing 50 percent of the fraction, a property
factor representing 25 percent of the fraction, and a payroll factor representing 25
percent of the fraction. If any factor described in subsection (2), subsection (4), or
subsection (5) has a denominator that is zero or is determined by the department
to be insignificant, the relative weights of the other factors in the denominator of
the apportionment fraction shall be as follows:

(5) The sales factor is a fraction the numerator of which is the total sales of
the taxpayer in this state during the taxable year or period and the
denominator of which is the total sales of the taxpayer everywhere during the
taxable year or period.
(a) As used in this subsection, the term “sales” means all gross receipts of the
taxpayer except interest, dividends, rents, royalties, and gross receipts from
the sale, exchange, maturity, redemption, or other disposition of securities.
However:

1. Rental income is included in the term if a significant portion of the taxpayer's
   business consists of leasing or renting real or tangible personal property; and
2. Royalty income is included in the term if a significant portion of the taxpayer's
   business consists of dealing in or with the production, exploration, or
   development of minerals.

Technical Assistance Advisement 11C1-008
Page 3
(b)1. Sales of tangible personal property occur in this state if the property is
delivered or shipped to a purchaser within this state, regardless of the f.o.b. point,
other conditions of the sale, or ultimate destination of the property, unless
shipment is made via a common or contract carrier. However, for industries in
SIC Industry Number 2037, if the ultimate destination of the product is to a
location outside this state, regardless of the method of shipment or f.o.b. point, the
sale shall not be deemed to occur in this state.

(7) The term “everywhere,” as used in the computation of apportionment factor
denominators under this section, means "in all states of the United States, the
District of Columbia, the Commonwealth of Puerto Rico, any territory or
possession of the United States, and any foreign country, or any political
subdivision of the foregoing."

Rule 12C-1.0155, F.A.C., states in part:
(1) For the purposes of the sales factor, the term “sales” means all gross
receipts received by the taxpayer from transactions and activities in the
regular course of its trade or business.

(h) Sales of services. In the case of a taxpayer engaged in providing services,
such as the operation of an advertising agency, the performance of
equipment service contracts, or research and development contracts, “sales”
includes the gross receipts from the performance of such services including
fees, commissions, and similar items.

(2) Florida sales. The numerator of the sales factor shall include gross receipts
attributed to this state which were derived by the taxpayer from transactions
and activities in the regular course of its trade or business. All interest
income, service charges, carrying charges, or time-price differential charges
incident to such gross receipts shall be included regardless of the place where the
account records are maintained or the location of the contract or other evidence of
indebtedness.
(a) Sales of Tangible Personal Property in Florida. Gross receipts from sales of
tangible personal property are in this state if the property is delivered or shipped
to a purchaser within this state regardless of the F.O.B. point, other conditions of
the sales, or the ultimate destination of the property. Tangible personal property
shipped by common or contract carriers will use a destination test to determine
whether the sale is a Florida sale or a sale without this state.
1.a. Property shall be deemed to be delivered or shipped to a purchaser within this
state if the recipient is located in this state, even though the property is ordered
from outside this state.
b. Example: The taxpayer, with inventory in State A, sold $100,000 of its
products to a purchaser having branch stores in several states including this state.
The order for the purchase was placed by the purchaser's central purchasing
department located in State B. $25,000 of the purchaser's order was shipped

Technical Assistance Advisement 11C1-008
Page 4
directly to purchaser's branch store in this state. The branch store in this state is
the "purchaser within this state" with respect to $25,000 of the taxpayer's sales.
2.a. Property is delivered or shipped to a purchaser within this state if the
shipment terminates in this state, even though the property is subsequently
transferred by the purchaser to another state.
b. Example: The taxpayer makes a sale to a purchaser who maintains a central
warehouse in this state at which all merchandise purchases are received. The
purchaser reships the goods to its branch stores in other states for sale. All of the
taxpayer's products shipped to the purchaser's warehouse in this state are property
"delivered or shipped to a purchaser within this state."

4.a. The term "purchaser within this state" shall include the ultimate recipient of
the property if the taxpayer in this state, at the designation of the purchaser,
delivers to or has the property shipped to the ultimate recipient within this state.
b. Example: A taxpayer in this state sold merchandise to a purchaser in State A.
Taxpayer directed the manufacturer or supplier of the merchandise in State B to
ship the merchandise to the purchaser's customer in this state pursuant to
purchaser's instructions. The sale by the taxpayer is in this state.

(e) Personal Services.

1. Gross receipts for the performance of personal services are attributable to this
   state if such services are performed in this state.
   2.a. If services relating to a single item of income are performed partly within and
   partly without this state, the gross receipts for the performance of such services
   shall be attributable to this state only if a greater portion of the services were
   performed in this state, based on costs of performance.
   b. The term "costs of performance" means direct costs determined in a manner
   consistent with generally accepted accounting principles and in accordance with
   accepted conditions or practices in the taxpayer's trade or business. Where
   independent contractors are used to complete a contract, the term "costs of
   performance" will include amounts paid to the independent contractors.
2. Where services are performed partly within and partly without this state, the
   services performed in each state may constitute a separate income producing
   activity, even though the client is billed a lump sum amount. In such cases, the
   gross receipts for the performance of services attributable to this state shall be
   measured by the ratio which the time spent in performing such services in this
   state bears to the total time spent in performing such services everywhere. Time
   spent in performing services includes the amount of time expended in the
   performance of a contract or other obligation which gives rise to such gross
   receipts. Personal services not directly connected with the performance of the
   contract or other obligation, as for example, time expended in negotiating the
   contract, are excluded from the computations.

(i) Television and Radio Broadcasting. Gross receipts, including advertising
revenues, from broadcasting within and without the state will be attributed to the

Technical Assistance Advisement 11C1-008
Page 5
numerator of the sales factor on the basis of the ratio of the audience within the
state to the audience everywhere.
(j) Newspaper and Magazine Revenue. Receipts from the sale of newspapers and
magazines, including advertising fees, will be considered Florida sales on the
basis of the ratio of circulation within the state to circulation everywhere.

(l) Other Sales in Florida. Gross receipts from other sales shall be attributed to
this state if the income producing activity which gave rise to the receipts is
performed wholly within this state. Also, gross receipts shall be attributed to
this state if the income producing activity is performed within and without
this state but the greater proportion of the income producing activity is
performed in this state, based on costs of performance. The term "income
producing activity" applies to each separate item of income and means the
transactions and activity directly engaged in by the taxpayer for the ultimate
purpose of obtaining gains or profits. Where independent contractors are used
to complete a contract, the term "income producing activity" will include amounts
paid to the independent contractors.
. . . (Emphasis Supplied)
ISSUE PRESENTED
What is the appropriate method of apportionment of income for Taxpayer’s XXX?
DISCUSSION AND ANALYSIS
A state is allowed by the U.S. Constitution to tax the income of a multistate corporation if the state
applies a formula that fairly apportions a percentage of the corporation’s income attributable to business
2
activities inside and outside the state. Under Section 220.15, F.S. and Rule 12C-1.015, F.A.C., a
Florida corporation that conducts business activities occurring both within and without Florida and that,
by virtue of that activity, are taxable in another state, must apportion its business income to Florida.
Florida has adopted an apportionment fraction with a sales factor representing 50% of the fraction, a
property factor representing 25% of the fraction, and a payroll factor representing 25% of the fraction.
The Florida sales factor is a measure of receipts received from business activity conducted in Florida.
Subsection (5) of Section 220.15, F.S., provides the general proposition that the “sales factor is a
fraction the numerator of which is the total sales of the taxpayer in this state during the taxable year or
period and the denominator of which is the total sales of the taxpayer everywhere during the taxable
year or period.” Rule 12C-1.0155(2), F.A.C., states that “the numerator of the sales factor shall include
gross receipts attributed to this state which were derived by the taxpayer from transactions and activities
in the regular course of its trade or business.” The determination of whether a sale is to be attributed (or
“sourced”) to Florida generally will be based upon the factors and concepts set forth in paragraph (b) of
subsection (5) of Section 220.15, F.S., and Rule 12C-1.0155(2), F.A.C.
Neither the statues nor the rules provide an enumerated method for determining the portion of the
receipts from the type of XXX programming revenue and advertising revenue received by the Taxpayer
2

Complete Auto Transit, Inc. v. Brady, 430 U.S. 274 (1977).

Technical Assistance Advisement 11C1-008
Page 6
that should be sourced to Florida. Therefore, Taxpayer’s receipts from these activities appear to
constitute “sales other than tangible personal property” under Rule 12C-1.0155(2)(l), F.A.C.
Rule 12C-1.0155(2)(l), F.A.C., focuses on each separate item of income and the activities which
produce that income. To paraphrase that rule, sales are attributed to Florida if the income producing
activity which gave rise to the receipt is within Florida. “Income producing activity” is defined by Rule
12C-1.0155(2)(l), F.A.C., as “the transaction and activity directly engaged in by the taxpayer for the
ultimate purpose of obtaining gains or profits.” On the other hand, Rule 12C-1.0155(2)(e)1., F.A.C.,
which pertains to personal services, focuses on where those services are performed. The term “personal
services” has limited meaning and does not include the type of income producing activity present in this
case. Therefore, receipts from the activities conducted by the Taxpayer would seem to be attributed to
Florida if the income-producing activity is performed entirely or predominately in Florida. See, Rule
12C-1.0155(2)(l), F.A.C.
Based on the information provided, Taxpayer generates revenues from providing programming to XXX
XXX operators, XXX distribution companies, XXX companies and other distributors (“Distributors”)
that have contracted to receive and distribute this programming (“subscription revenue”) and from the
sale to XXX advertisers (“Advertisers”) of space on Taxpayer’s programming (“advertising revenue”).
Subscription Revenue
Taxpayer receives income from its contracts with Distributors that broadcast XXX XXX to the public.
Taxpayer earns revenue as programming services are provided to Distributors based on negotiated
contractual programming rates. Taxpayer’s agreements with its Distributors are typically long-term
arrangements that provide for annual service fee increases and have fee arangements that are generally
related to the number of subscribers served by the Distributors.
The income producing activity underlying the sale is the Taxpayer’s delivery of programming content to
the Distributors. Performance occurs when the license period has commenced and the Distributor is able
to access the programming content. Taxpayer is simply making its XXX/programming available to the
distributors, who then deals directly with the public and distributes Taxpayers XXX/programming
directly to the public. Taxpayer does not have a direct contact and receives no revenue directly from the
individual subscribers/customers of the Distributors. Therefore, Taxpayer is not required to utilize Rule
12C-1.0155(2)(i), F.A.C., but instead subscription revenue earned from Distributors, who accessed the
programming content, will constitute a Florida sale when the Distributor (Taxpayer’s customer) is
located in Florida.
Advertising Revenue
The Taxpayer also receives income from sales of advertising time XXX. Taxpayer’s advertising
consists of consumer advertising, which is sold primarily on a national basis in the U.S. and on a panregional or local-language feed basis outside the U.S. Generally, Taxpayer sells space XXX to national
advertisers to promote their products/services. Local advertising space is typically sold by the
Distributors. Advertising contracts generally have terms of one year or less. Advertising revenues are
generated from a wide variety of advertsing categories. In the U.S., advertising revenues are a function
of the size and demographics of the audience delivered, the “CPM,” which is the cost per thousand
viewers delivered, and the number of units of time sold. Units sold and CPMs are influenced by the

Technical Assistance Advisement 11C1-008
Page 7
quantitive and qualitative characteristics of the audience of each network, the perceived quality of the
network and of the particular programming, as well as overall advertiser demand in the marketplace.
Rule 12C-1.0155(2)(l), F.A.C., provides that sales are attributed to Florida if the income producing
activity which gave rise to the receipt is within Florida. As was previously noted, Rule 12C-1.0155(2)(l),
F.A.C., defines the term “income producing activity” as “the transaction and activity directly engaged in
by the taxpayer for the ultimate purpose of obtaining gains or profits.” Here, although activities related
to the production of the income may occur within or outside of Florida (such as the gathering,
accumulating and processing of all necessary information to develop and produce the advertisements),
those activities cannot rightly be called income producing activity. Those activities may have caused or
led up to income producing activity, but they did not constitute such activity.
Taxpayer’s income
producing activity with respect to its advertising sales is performed throughout the U.S. because the
Taxpayer is paid to advertise on a national basis and contracts regarding advertising activity are
negotiated and entered into across the U.S. Therefore, advertising revenue will constitute a Florida sale
when the Advertiser (Taxpayer’s customer) is located in Florida.
CONCLUSION
The taxpayer is required to source it subscription revenue and advertising revenue pursuant to Rule 12C1.0155(2)(l), F.A.C. Subscription revenue earned from Distributors will constitute a Florida sale when
the Distributor is located in Florida. Advertising revenue earned by Taxpayer will be sourced to Florida
when the Advertiser is located in Florida. Solely for purposes of this TAA, a Distributor or an
Advertiser will be deemed to be located in Florida when the principal place from which the trade or
business of the Distributor or Advertiser is directed or managed is within Florida. Please note that the
results reached in this TAA are based upon information provided in your XXX request and other
publically available facts. Should additional facts or information, such as the terms and conditions or
any contracts, agreements, or other documents with Distributors or Advertisers, differ from those in your
request or in this advisement, the response proved herein may be different.
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 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.

Technical Assistance Advisement 11C1-008
Page 8
Sincerely,
Jermane L. Wright
Senior Attorney
Technical Assistance and Dispute Resolution
JLW/
Record ID: 109119