When were television-content licensing fees and advertising receipts included in Florida's corporate-income-tax sales factor?

Plain-English summary

The Florida Department of Revenue concluded that television-channel licensing fees and advertising receipts were sourced by the location of the taxpayer's direct customer.

Licensing income arose when cable operators could access and distribute the channel programming, so a license fee was a Florida sale when the operator was located in Florida. The individual viewers were not customers of the taxpayers.

Advertising income arose from the sale of advertising time, so it was a Florida sale when the advertiser was located in Florida. For this advisement, an operator or advertiser was located in Florida when the principal place directing or managing its trade or business was in Florida.

What this means for you

Media and content companies

Identify the contracting revenue customer separately from viewers or audiences when sourcing licensing and advertising receipts.

Corporate tax teams

Maintain the customer's principal business-management location for the specific sourcing method used in this ruling.

Common questions

Q: Were licensing fees sourced by viewer location?
A: No. They were sourced by the cable operator customer's location.

Q: How were advertising receipts sourced?
A: By the advertiser customer's location.

Citations and references

• Fla. Stat. §§ 220.15(5) and 213.22
• Fla. Admin. Code r. 12C-1.0155(2)(l)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 13C1-004

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: What portion of Taxpayer’s advertising receipts should be sourced to Florida and included
in the numerator of the sales factor?
ANSWER: In conclusion, licensing fee revenue earned from Operators will constitute a Florida sale
when the Operator (Taxpayer’s customer) is located in Florida. Advertising revenue will constitute a
Florida sale when the advertiser (Taxpayer’s customer) is located in Florida.
May 21, 2013

XXX
XXX
XXX

Re:

Technical Assistance Advisement 13C1-004
Corporate Income Tax
Income Calculation
Section (“s.”) 220.15, Florida Statutes (F.S.)
Rule 12C-1.0155, Florida Administrative Code (F.A.C.)
Taxpayers:
XXX
FEIN: XXX (Company A)
XXX
FEIN: XXX (Company B)
XXX
FEIN: XXX (Company C)
XXX
FEIN: XXX (Company D)
XXX
FEIN: XXX (Company E)
XXX
FEIN: XXX (Company F)
XXX
FEIN: XXX (Company G)
XXX
FEIN: XXX (Company H)
XXX
FEIN: XXX (Company I)
XXX
FEIN: XXX (Company J)
XXX
FEIN: XXX (Partnership)

Dear XXX:
This is in response to your request dated XXX, for a Technical Assistance Advisement (“TAA”) pursuant
to s. 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the gross receipts calculation for Taxpayer.
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Tony Powell, Director

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

Technical Assistance Advisement 13C1-004
Page 2

An examination of your letter has established that you have complied with the statutory and regulatory
requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for a
TAA.
FACTS SUPPLIED BY TAXPAYER
This TAA involves ten Taxpayers, which are all headquartered outside of Florida. The Taxpayers file
separate corporate income tax returns in Florida. The Taxpayers package and distribute originally
produced and third-party television content to customers across Florida and the United States. The
Taxpayers also own and develop content for specific cable television channels (“Channels”). The
Taxpayers license the right to broadcast the Channels to unrelated cable television and satellite television
network operators (“Operators”) throughout the United States. The Taxpayers do not broadcast television
content or operate television networks of any kind, and therefore do not earn revenue from the viewers or
ultimate consumers of the channels. All Taxpayers involved in this letter earn revenue (“licensing fees”)
from licensing and distributing content to the Operators and by the sale of advertisement spots in the
programming they license to the Operators. This TAA only addresses the gross receipts earned from the
licensing and distributing of content to the unrelated operators and gross receipts earned from the
advertisements, and it does not address any potential intercompany transaction.
Companies A - D
Companies A - D own and develop content for specific Channels and are in the business of acquiring the
rights to display XXX, producing other programming content, and packaging and distributing such
Channel content to the Operators. Historically the XXX have been produced by third parties and
purchased by Companies A - D, but recently the Taxpayers have started producing the XXX.
Additionally, Company A produces original content, which it displays on its Channel, as well as on those
of Companies B and C. Company A receives a fee from Companies B and C for the right to incorporate
this content into their respective Channels.
This content is generally produced and packaged for
distribution at locations outside of Florida, though occasionally content will be produced in Florida.
Approximately XXX percent of the revenues earned by Companies A - D are from licensing fees paid by
cable operators. The licensing fees are based on negotiated contractual per subscriber rates, which are
based on the demand for the content distributed by Companies A - D. The contracts run for several years,
and the total amount of licensing fees collected are generally related to the number of subscribers served
by the cable operator. As noted above, Companies A - D do not broadcast the Channel content directly to
television viewers, and the Taxpayers do not enter into agreements with or earn revenue from television
viewers. Instead Companies A - D make their Channel programming available to the cable operator, and
the cable operator broadcasts the Channel’s programming to its subscribers.
Companies A - D also generate revenue from the sale of advertising space embedded in the Channel
programming licensed to cable operators (“spots”). The advertising revenue consists of both “national”
and “local” spots. National spots are generally sold to businesses and organizations targeting customers
throughout the United States. Local spots are generally sold to businesses and organizations targeting

Technical Assistance Advisement 13C1-004
Page 3

customers only in the area where a specific cable operator’s viewers are located. The spots are sold XXX
weeks in advance of airing. The advertising rates are influenced by the size of the expected audience for
the programming, as well as by the number of spots sold and advertiser demand in the marketplace. Local
spots may also be sold by the cable operator.
Companies E and F
Companies E and F own and develop original content for specific channels. This content is generally
produced and packaged for distribution outside of Florida. However, some content may be produced in
Florida.
Approximately XXX percent of the revenues earned by Companies E and F are from licensing fees
purchased by cable operators. These licensing fees are based on negotiated contractual per subscriber
rates, which are based upon the demand for the content distributed. The contracts run for several years,
and the total amount of licensing fees collected are generally related to the number of subscribers served
by the cable operator. As noted above, Companies E and F do not broadcast the Channel content directly
to television viewers, and the Taxpayers do not enter into agreements with, or earn revenue from,
television viewers. Instead Companies E and F make their Channel programming available to the cable
operator, and the cable operator broadcasts the Channel’s programming to its subscribers.
Companies E and F also generate revenue from the sale of advertising space embedded in the Channel
programming they license to cable operators (“spots”). The advertising revenue consists of both
“national” and “local” spots. National spots are generally sold to businesses and organizations targeting
customers throughout the United States. Local spots are generally sold to businesses and organizations
targeting customers only in the area where a specific cable operator’s viewers are located. The spots are
sold XXX weeks in advance of airing. However, some of the spots are also sold pursuant to longer term
contracts between the advertiser and one of the Taxpayers. The advertising rates are influenced by the
size of the expected audience for the programming, as well as by the number of spots sold and advertiser
demand in the marketplace. Local spots may also be sold by the cable operator.
Companies G - J
Companies G - J hold partnership interests in Partnership, which is in the same general business of
Companies A - F. Partnership owns and develops content for a specific Channel, which content includes
both live and recorded programming. Partnership packages and distributes the Channel content to cable
operators. The live content is generally produced in a state outside of Florida, but it may also be produced
in other locations throughout the US and internationally, including at times, in Florida.
Approximately XXX percent of the revenues earned by Partnership are from licensing fees purchased by
cable operators. These licensing fees are based on negotiated contractual per subscriber rates, which are
based upon the demand for the content distributed. The contracts run for several years, and the total
amount of licensing fees collected are generally related to the number of subscribers served by the cable
operator. As noted above, Partnership does not broadcast the Channel content directly to television
viewers, and Partnership does not enter into agreements with, or earn revenue from, television viewers.

Technical Assistance Advisement 13C1-004
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Instead Partnership makes its Channel programming available to the cable operator, and the cable operator
broadcasts the Channel’s programming to its subscribers. Partnership also generates revenue from the sale
of advertising space embedded in the Channel programming it licenses to cable operators (“spots”). The
advertising revenue consists of both “national” and “local” spots. National spots are generally sold to
businesses and organizations targeting customers throughout the United States. Local spots are generally
sold to businesses and organizations targeting customers only in the area where a specific cable operator’s
viewers are located. The spots are sold XXX weeks in advance of airing. However, some of the spots are
also sold pursuant to longer term contracts between the advertiser and the partnership. The advertising
rates are influenced by the size of the expected audience for the programming as well as by the number of
spots sold and advertiser demand in the marketplace. Local spots may also be sold by the cable operator.
ISSUE
Whether Taxpayer’s gross receipts earned from licensing fees and advertising should be sourced to
Florida.
LAW
Section 220.15(5), F.S., states in part:
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)(l), F.A.C., provides:
(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.
ANALYSIS
A state is allowed by the United States 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 activities inside and outside the state. Under s. 220.15, F.S. and Rule 12C-1.015, F.A.C., a
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

Technical Assistance Advisement 13C1-004
Page 5

adopted an apportionment fraction with a sales factor representing fifty percent of the fraction, a property
factor representing twenty-five percent of the fraction, and a payroll factor representing twenty-five
percent of the fraction.
The Florida sales factor is a measure of receipts received from business activity conducted in Florida.
Section 220.15(5), 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 s. 220.15(5)(b), F.S., and Rule
12C-1.0155(2), F.A.C.
Pursuant to Rule 12C-1.0155(2)(l), F.A.C., sales are attributed to Florida if the income producing activity
which gave rise to the receipt is performed within Florida. "Income producing activity" is defined as "the
transaction and activity directly engaged in by the taxpayer for the ultimate purpose of obtaining gains or
profits."
Licensing Fees
The Taxpayers license specific Channel content to the Operators in exchange for a license fee. The
Operators and the Taxpayers enter into licensing agreements pursuant to which Operators obtain this
channel programming, and the right to broadcast that channel programming to their subscribers. The
agreements run for several years, and the total amount of licensing fees collected are generally related to
the number of subscribers served by the Operator.
The income producing activity underlying the sale is the Taxpayer’s delivery of programming content to
the Operators. Performance occurs when the license period has commenced and the Operator is able to
access the programming content. The income producing activity occurs where the operator is located,
since the location is where the programming content is delivered and the operator has the right to access
the programming content. Taxpayers are making their programming available to the Operators, who then
distribute the programming content directly to the public. Taxpayer does not have direct contact and
receives no revenue directly from the individual customers of the Operators. Therefore, licensing fee
revenue earned from Operators will constitute a Florida sale when the Operator (Taxpayer’s customer) is
located in Florida.
Advertising Revenue
The Taxpayer also earns revenue from sale of advertising time. Taxpayer’s advertising consists of
consumer advertising, which is sold primarily on a national basis in the United States. Generally,
Taxpayer sells space to national and local advertisers to promote their products/services.

Technical Assistance Advisement 13C1-004
Page 6

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
without 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
activities since there is no transaction involved or income earned. Those activities may have caused or led
up to the income producing activity, but they did not constitute such activity. The income producing
activity, is the sale of advertising time. Taxpayer’s income producing activity with respect to its
advertising is performed throughout the United States, because the Taxpayer is paid to advertise on a
national basis, and contracts regarding advertising activity are negotiated and entered into across the
United States. Therefore, advertising revenue will constitute a Florida sale when the advertiser
(Taxpayer’s customer) is located in Florida.
CONCLUSION
In conclusion, licensing fee revenue earned from Operators will constitute a Florida sale when the
Operator (Taxpayer’s customer) is located in Florida. Advertising revenue will constitute a Florida sale
when the advertiser (Taxpayer’s customer) is located in Florida. Solely for purpose of this TAA, a
distributer or an advertiser will be deemed to be located in Florida when the principal place from which
the trade or business of the distributer or advertiser is director or managed is within Florida.
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 documents are public records under
Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details, which might lead to identification of the taxpayer, must be
deleted before disclosure. In an effort to protect the confidentiality of such information, we request you
provide the undersigned with an edited copy of your request for Technical Assistance Advisement, backup
material and response within fifteen days of the date of this advisement.
Sincerely,

Affan Qureshi, Esq.
Senior Attorney
Technical Assistance and Dispute Resolution
(850)717-7602
Record ID #138810