How were timeshare membership, exchange, occupancy, and service fees sourced in Florida's corporate sales factor?

Plain-English summary

The Florida Department of Revenue applied different corporate sales-factor sourcing rules to four categories of a timeshare exchange operator's receipts.

Membership fees were service receipts sourced by the customer's state of residence. Exchange fees were receipts from licensing real-property rights and were Florida sales when the resort where those rights were used was in Florida. Non-exchange occupancy charges likewise followed the location of the resort where the stay would occur.

Service fees were sourced by the location of the income-producing activity. Because the taxpayer's personnel performed the significant service activity in Florida, those fees were Florida sales.

What this means for you

Timeshare and travel programs

Do not apply one sourcing rule to every fee; identify what the customer buys and where the relevant customer, property, or work is located.

Corporate tax teams

Maintain residence records, resort-location data, and cost-of-performance support by receipt category.

Common questions

Q: How were membership fees sourced?
A: By the customer's state of residence.

Q: When were exchange or occupancy fees Florida sales?
A: When the relevant resort or real-property rights were located in Florida.

Q: Why were the service fees sourced to Florida?
A: The significant income-producing service activity occurred there.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 13C1-009

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: WHETHER THE EXCHANGE PROGRAM MEMBERSHIP FEES ARE SOURCED
TO FLORIDA.
ANSWER: EXCHANGE PROGRAM MEMBERSHIP FEES ARE SOURCED PURSUANT TO
RULE 12C-1.0155(2)(l), F.A.C., BASED ON THE LOCATION OF THE INCOME PRODUCING
ACTIVITY. IF THE MEMBERSHIP AGREEMENT IS EXECUTED IN FLORIDA AT THE
RESORT OR DEVELOPER’S OFFICE, THE SALE WILL BE SOURCED TO FLORIDA. IF THE
MEMBERSHIP AGREEMENT IS EXECUTED AT THE MEMBER’S RESIDENCE BY DIRECT
SOLICITATION, THEN THE SALE WILL BE SOURCED BASED ON THE MEMBER’S
RESIDENCE.
QUESTION: WHETHER THE EXCHANGE FEES ARE FLORIDA SALES.
ANSWER: EXCHANGE FEES ARE FLORIDA SALES IF THE LOCATION AT WHICH
OCCUPANCY RIGHTS WERE UTILIZED IS LOCATED IN FLORIDA. SEE RULE 12C1.0155(2)(c), F.A.C.
QUESTION: WHETHER THE NON-EXCHANGE-BASED OCCUPANCY CHARGES ARE
FLORIDA SALES.
ANSWER: NON-EXCHANGE-BASED OCCUPANCY CHARGES ARE FLORIDA SALES IF
THE RESORT WHERE THE STAY IS TO OCCUR IS LOCATED IN FLORIDA. SEE RULE 12C1.0155(2)(c), F.A.C.
QUESTION: WHETHER THE SERVICE FEES ARE SOURCED TO FLORIDA.
ANSWER: SERVICE FEES ARE SOURCED BASED ON THE LOCATION OF THE INCOME
PRODUCING ACTIVITY, WHICH OCCURS IN FLORIDA. SEE RULE 12C-1.0155(2)(l), F.A.C.
October 25, 2013
Re: Technical Assistance Advisement 13C1-009
Taxpayer: XXX (“Taxpayer”)
FEIN:XXX
Corporate Income Tax
Sales Factor
Section (“s.”) 220.15, Florida Statutes (F.S.)
Rule 12C-1.0155, Florida Administrative Code (F.A.C.)
Child Support Enforcement – Ann Coffin, Director  General Tax Administration – Maria Johnson, Director
Property Tax Oversight – James McAdams, Director  Information Services – Damu Kuttikrishnan, Director

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

Technical Assistance Advisement 13C1-009
Page 2

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. 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
XXX (“Taxpayer”) is a membership-based company offering a timeshare XXX service for use by its
timeshare-XXX members and, in certain circumstances, other XXX and XXX products and services.
Taxpayer does not own or develop timeshare XXX ("XXX"), and Taxpayer does not own any
interests in timeshare XXX.
Taxpayer's U.S.-based operations are located primarily in XXX, including its corporate headquarters
and XXX. The majority of the company's U.S. payroll is also located in Florida, although it also has
payroll and/or property in several other states.
Taxpayer requests guidance relating to the Florida sales factor treatment of the following revenues:
(1) timeshare XXX fees; (2) timeshare XXX fees; (3) XXX charges; and (4) XXX service fees.
Timeshare XXX Fees
Taxpayer typically enters into multi-year contracts with XXX timeshare XXX, pursuant to which the
XXX agree to enroll all purchasers of timeshare XXX at the applicable XXX as members of
Taxpayer's XXX on an exclusive basis. Ancillary to the XXX timeshare XXX activities, the XXX is
required to incorporate XXX materials furnished by Taxpayer into the XXX sales program at the
XXX and to fully and accurately describe Taxpayer's XXX membership to all prospective purchasers.
The XXX also agrees to provide a current Taxpayer XXX to any individual who purchases a
timeshare interest XXX. In return, Taxpayer licenses XXX to use Taxpayer's name XXX, and
Taxpayer provides the timeshare XXX with the ability to XXX their timeshare XXX for XXX at
other XXX participating in the Taxpayer XXX. Taxpayer's timeshare XXX enhance the value of the
timeshare XXX offered by the XXX by offering additional flexibility. Accordingly, participation in a
timeshare XXX is often cited as a primary motivation in the purchase decision.
Timeshare XXX typically execute a membership at the time they purchase XXX. The XXX obtain
the member's signature on the membership application and provide the signed applications to
Taxpayer. The XXX pay the XXX membership fees directly to Taxpayer. These sales typically take
place at the XXX or at the XXX office. In other cases, memberships are obtained through direct
solicitation by Taxpayer. This direct solicitation activity is performed primarily by Taxpayer's XXXbased employees.

Technical Assistance Advisement 13C1-009
Page 3

XXX memberships can be for periods of XXX years. Membership and XXX in the XXX are
available only to owners of XXX who are in good standing with their XXX, as those XXX define
good standing. Some XXX purchase membership XXX for their timeshare XXX. In other cases,
timeshare XXX are responsible for XXX memberships and paying the related fees. Membership
XXX periods typically range from XXX years.
Taxpayer also offers an upgrade to its basic membership XXX. The upgraded XXX provides
participating timeshare XXX with enhanced value-added benefits and services, such as XXX, XXX,
and XXX discounts, a XXX service and access to special XXX options, including XXX, XXX and
XXX.
The primary benefit a timeshare XXX gets from purchasing XXX membership is the ability to
participate in XXX transactions, although membership does offer other XXX benefits. Payment of the
membership fee does not obligate Taxpayer to perform any XXX services, and the membership fee is
earned at the time it is paid by the XXX member. Taxpayer also provides the XXX members with
promotional and informational materials, such as publications highlighting XXX within the XXX and
XXX opportunities. Taxpayer also provides detailed, XXX-specific, information to members upon
confirmation of the member's XXX at an available timeshare XXX.
Timeshare XXX Fees
Taxpayer uses a XXX and a website to facilitate timeshare XXX. Generally, under the XXX,
Taxpayer allows a member XXX to XXX his or her right to XXX and XXX the member's XXX (the
"XXX") for the right to XXX timeshare XXX (the "XXX"). In order to participate in the XXX, the
timeshare XXX must be XXX member in good standing with Taxpayer – that is, his or her
membership fees due to Taxpayer must be paid and he or she must also be in good standing with the
XXX, as noted above. In addition, to request XXX, the timeshare XXX must pay XXX fee, which is
refundable as set forth in Taxpayer's standard terms and conditions for membership and XXX.
However, once XXX is confirmed, the XXX is non-refundable.
Timeshare XXX can be accomplished in two ways. One option is for the timeshare XXX to initially
request XXX at XXX with Taxpayer. Under this method, the timeshare XXX does not give up the
right to XXX and XXX the XXX until XXX has been confirmed. However, upon confirmation of
XXX, the member's rights to the XXX at the XXX are irrevocably XXX to Taxpayer.
The other option is for the timeshare XXX to XXX his or her XXX at the XXX. The XXX member
can request XXX at the same time that the XXX is made or generally at any time within XXX after
the commencement date of the XXX at the XXX, and the XXX can be no earlier than XXX before
the commencement date of the XXX at the XXX.
Under this second option, upon XXX, the member's rights to the XXX at the XXX are irrevocably
XXX to Taxpayer. Further, once the XXX is made, Taxpayer is free to provide the XXX at the XXX
to XXX member in XXX transaction or use the XXX for other commercial purposes, such as the
XXX sales described below.

Technical Assistance Advisement 13C1-009
Page 4

XXX Charges
Taxpayer also offers XXX to XXX timeshare XXX and third parties upon payment of a fee. The fee
charged by Taxpayer is based primarily upon the XXX, the XXX the XXX, the XXX the XXX, and
the XXX. Participating timeshare XXX are not required to XXX their XXX to purchase these XXX.
Taxpayer obtains these XXX from XXX members or directly from XXX. As noted above, under the
XXX membership terms and conditions, XXX that have been XXX but have not been utilized for
XXX are available for Taxpayer to offer to XXX members or third parties for a fee.
Taxpayer obtains XXX directly from XXX in two ways. Some XXX are purchased on a "XXX"
basis, where Taxpayer is required to pay the XXX the agreed upon price for the XXX provided by the
XXX, regardless of whether Taxpayer is able sell the XXX to a member or third party. Other XXX
are purchased on an "XXX" basis, where Taxpayer is only required to pay the agreed upon price for
the XXX after Taxpayer sells the XXX to a member or third party.
XXX Service Fees
Taxpayer provides various XXX and XXX services for XXX that do not have their own XXX and/or
XXX to perform that function. Taxpayer also provides a comprehensive array of services to the
XXX, such as XXX and XXX support and consulting services. These services are provided under
agreements separate from the XXX agreements described above. They are generally performed by
employees at Taxpayer’s headquarters in XXX and are invoiced directly to the XXX.
ISSUE
Whether Taxpayer’s gross receipts earned from the above mentioned revenue items should be
sourced to Florida.
LAW
Section 220.15, F.S., states in part:
(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….

(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….

Technical Assistance Advisement 13C1-009
Page 5

Rule 12C-1.0155, F.A.C., provides 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.

(f)1. Where the income producing activity in respect to business income from
intangible personal property can be readily identified, such income is included in the
denominator of the sales factor and, if the income producing activity occurs in this
state, in the numerator of the sales factor as well. For example, usually the income
producing activity can be readily identified in respect to interest income received on
deferred payments on sales of tangible personal property and income from the sale,
licensing, or other use of intangible personal property. The sale or licensing of the use
of a trade name, trademark, or patent will be attributable to the state in which the trade
name, trademark or patent is used.

2. Where business income from intangible property cannot readily be attributed to any
   particular income producing activity of the taxpayer, such income cannot be assigned
   to the numerator of the sales factor for any state and shall be excluded from the
   denominator of the sales factor. For example, where business income in the form of
   dividends received on stock, royalties received on patents or copyrights, or interest
   received on bonds, debentures or government securities results from the mere holding
   of the intangible personal property by the taxpayer, such dividends and interest shall
   be excluded from the denominator of the sales factor.
3. In the case of a taxpayer engaged in the sale, assignment, or licensing of intangible
   personal property such as patents and copyrights, "sales" includes the gross receipts
   therefrom.

(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.

Technical Assistance Advisement 13C1-009
Page 6

(f) The rental, leasing, licensing, or other use of a trade name, trademark, or patent to a
business entity located in Florida will be considered a Florida sale. The mere holding
of intangible personal property is not, of itself, an income producing activity.

(h) Computer related sales.

5. Interactive networks.
   a. Where there are charges to Florida customers for direct access to a data base, these
   charges are considered Florida sales. These charges include, but are not limited to, fees
   to access the network, fees based on the number of information requests made, time
   charges for connection to the data base and lines, and information retrieval from the
   data base.
   b. Where there are charges by a corporation located in Florida to Florida customers for
   access to third party data bases, all charges will be considered Florida sales, regardless
   of where the third-party data bases are located.
   c. Where a foreign (out-of-state) corporation charges Florida customers for access to
   third party data bases, all charges will be considered Florida sales except for charges
   directly related to the retrieval of information from the third-party data base.
   d. When a P.C. or mainframe is physically located in Florida, a corporation will have a
   "Florida customer" for purposes of this subparagraph.

(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, is taxable in another state, must apportion its business income to Florida.
Florida has 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.

Technical Assistance Advisement 13C1-009
Page 7

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 “[t]he 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.” Rule 12C-1.0155(2), F.A.C., sources various
items of sales to Florida. Those items which are not specifically included, may be included pursuant
to Rule 12C-1.0155(2)(l), F.A.C., which is a catch-all rule, provided the item meets the requirements
of the rule. 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), F.S., and Rule 12C-1.0155(2),
F.A.C.
Rule 12C-1.0155(2)(l), F.A.C., addresses the sale of services since there is no other specific rule
which sources such sales. Pursuant to Rule 12C-1.0155(2)(l), F.A.C., the sales of services are sourced
to Florida if the income producing activity which gave rise to the receipt is performed within Florida.
"Income producing activity" is defined as "the transactions and activity directly engaged in by the
taxpayer for the ultimate purpose of obtaining gains or profits." This standard requires taxpayers to
determine the location where the transaction and activity generating each separate item of income is
performed.
XXX Membership Fees
The XXX membership fee for XXX or XXX is a sale of a service by the Taxpayer and is sourced
pursuant to Rule 12C-1.0155(2)(l), F.A.C. XXX in the timeshare XXX and execution of the
membership agreement typically occurs at the XXX by the XXX or at the XXX office. Some
membership XXX occurs as a result of direct solicitation by the Taxpayer, in which case the
execution of the membership typically occurs at the member’s state of residence.
Based on the information provided, the Taxpayer earns fees from the sale of XXX memberships.
Payment of the membership fee does not obligate the Taxpayer to perform any XXX services, and the
membership fee is earned at the time it is paid by the customer. Membership XXX may be purchased
directly by the customer or by the XXX on the customer’s behalf.
Sales are attributed to Florida if the income producing activity which gave rise to the receipt is within
Florida. In this case, the income producing activity underlying the sale of the intangible XXX right to
purchase XXX services is the marketing and collection activity directed at the customer. Therefore,
if the customer’s state of residence is Florida, the XXX membership and membership XXX fees
(including XXX) is a Florida sale pursuant to Rule 12C-1.0155(2)(l), F.A.C. This is true regardless
of whether the XXX membership (XXX) is purchased directly by the XXX member or by the XXX.

Technical Assistance Advisement 13C1-009
Page 8

XXX Fees
As stated above, Taxpayer uses a XXX and a website to XXX timeshare XXX. The purpose of the
XXX is to allow a member XXX to XXX his or her right to XXX and XXX the member’s timeshare
XXX (XXX) for the right to XXX at a XXX timeshare XXX. The XXX member must pay a fee to
the Taxpayer in order to complete this XXX.
Since the sale in this case involves real property, the sale is sourced pursuant to Rule 12C1.0155(2)(c), F.A.C., which provides that "[g]ross receipts from the sale, lease, rental, or licensing of
real property are in this state if the real property is located in this state."
The XXX transaction falls within 12C-1.0155(2)(c), F.A.C., because Taxpayer is "licensing" real
property. The term "licensing" is not defined by the Florida Income Tax Code, or by any other
provision in Title 14 of the Florida Code 1. Licensing is, however, defined by Black's Law Dictionary
as "[t]he sale of a license authorizing another to use something (such as computer software) protected
by copyright, patent or trademark." Under this definition, the Rule 12C- 1.0155(2)(c), F.A.C., phrase
"licensing of real property" means selling an authorization to use real estate that the licensee would
not otherwise have the right to use. Because Taxpayer XXX fees are charges paid by members to
obtain real estate XXX rights they would not otherwise have, the XXX fees constitute fees for the
"licensing of real property" within the meaning of Rule 12C-1.0155(2)(c), F.A.C. Therefore,
pursuant to Rule 12C-1.0155(2)(c), F.A.C., XXX fees are Florida sales if the XXX at which XXX
were utilized is located in Florida.
XXX Charges
As discussed above, XXX purchases and resells XXX specific XXX for a XXX fee. This activity is
essentially equivalent to buying and selling XXX. There is no XXX of intangible rights involved, and
the true object of the purchaser in these transactions is to XXX. This sale should be sourced
pursuant Rule 12C-1.0155(2)(c), F.A.C., which provides that "[g]ross receipts from the sale, lease,
rental, or licensing of real property are in this state if the real property is located in this state."
Therefore, pursuant to Rule 12C-1.0155(2)(c), F.A.C., XXX charges are Florida sales if the XXX
where the XXX occurs is located in Florida.
XXX Service Fees
XXX service fees are performed primarily by Taxpayer’s personnel in XXX. No significant activity
related to XXX services are performed in other states. Therefore, XXX service fees are sourced to
Florida pursuant to Rule 12C-1.0155(2)(l), F.A.C., since the income producing activity occurs in
Florida.

1

We note the term “license” is defined at s. 212.02(10)(i), F.S., for purposes of real property, as the granting of a
privilege to use or occupy a building or a parcel of real property for any purpose. Use of this definition would result in
the same determination.

Technical Assistance Advisement 13C1-009
Page 9

CONCLUSION

1. XXX membership fees are sourced pursuant to Rule 12C-1.0155(2)(l), F.A.C., based on the
   customer’s state of residence.
2. XXX fees are Florida sales if the XXX at which XXX rights were utilized is located in Florida
   pursuant to Rule 12C-1.0155(2)(c), F.A.C.
3. XXX charges are Florida sales if the XXX where the XXX is to occur is located in Florida,
   pursuant to Rule 12C-1.0155(2)(c), F.A.C.
4. XXX Service Fees are sourced based on the location of the income producing activity, which
   in this case is in Florida, pursuant to Rule 12C-1.0155(2)(l), F.A.C.
   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 #142649