When did revenue from a data-and-analytics company's Buy and Watch services count as Florida sales-factor receipts?

Plain-English summary

The Florida Department of Revenue concluded that revenue from the taxpayer's Buy and Watch data-and-analytics services had to be included in the Florida sales-factor numerator when the customer was located in Florida.

The taxpayer collected raw information around the country, processed it into reports and analytics on its servers, and allowed customers to access the finished information. The Department treated each customer transaction as a separate income-producing activity. Collecting raw data was not itself the relevant transaction; the transaction occurred when the taxpayer sold the final service and received compensation.

The rule also specifically treated charges to Florida customers for direct access to a database as Florida sales.

What this means for you

Data, research, and analytics companies

Under the rules applied in this advisement, focus on the customer transaction for the completed service rather than only where raw data was gathered or stored.

Corporate tax teams

Analyze contracts individually. The Department did not source the whole business line as one activity; each customer sale was its own income-producing activity.

Common questions

Q: Did nationwide data collection determine the sales-factor location?
A: No. The Department focused on the sale of the finished service to the customer.

Q: How were direct database-access charges to Florida customers treated?
A: As Florida sales included in the numerator.

Citations and references

• Fla. Stat. §§ 220.15(5) and 213.22
• Fla. Admin. Code r. 12C-1.0155(1), (2)(a), (2)(f), (2)(h), and (2)(l)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 13C1-011

Original ruling text

Executive Director
Marshall Stranburg

QUESTION: Whether the sales revenue generated from the Buy and Watch segments constitute
Florida gross receipts for purposes of the sales factor.
ANSWER: The income producing activity occurs in Florida, since Florida is where the transactions
and activities from Taxpayer’s sales occur. The sales revenue generated by the Taxpayer in its Buy
and Watch segment activities constitutes a Florida gross receipt and must be sourced to Florida when
the location of the data collection service is performed in Florida.

November 21, 2013

XXX
XXX
XXX

Re:

Technical Assistance Advisement 13C1-011
Taxpayer: XXX
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.)

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
Your letter states, in part:

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 13C1-011
Page 2

The Taxpayer is a XXX XXX and XXX XXX company that provides its customers with an
understanding of XXX and XXX. The Taxpayer enters into contracts with various customers to
provide XXX information, XXX regarding XXX, and XXX viewing choices on a XXX. The
Taxpayer’s revenue is generated through multiple XXX, the principal two of which are (1) XXX and
XXX (“Buy”), and (2) XXX (“Watch”).
The Buy segment provides XXX data, XXX information, and analytics. This segment collects XXX
data via XXX used by unrelated third-party individuals. These individuals are located around the
country and use the XXX to record the XXX during their XXX. Through the information obtained
by the XXX, the Taxpayer is able to XXX in XXX, which is used by customers to XXX and XXX.
Buy segment services are provided primarily to businesses in the XXX.
The Watch segment provides XXX data and analytics primarily to the XXX and XXX across XXX,
XXX and XXX. Watch data is used by XXX to understand their XXX, establish the value of XXX,
and maximize the value of their content. The Watch segment collects data through the Taxpayer’s
XXX, which are placed in XXX. These XXX automatically XXX based upon the XXX to which the
XXX. Like the Buy segment, the Watch segment collects data and information from XXX
throughout the XXX.
The raw data and information the Taxpayer gathers from the XXX and XXX in both segments is
transmitted and stored at its data centers across the country, including locations in XXX, XXX, and
XXX The Taxpayer formats the data and puts it in a readable report/layout on its servers. Customers
located throughout the United States can access this information anytime, from any location, via
XXX and XXX provided by the Taxpayer. Each contract in the business segment represents an item
of income. Depending on the requirements of a particular contract, the income producing activity
may be in any given state.

ISSUE
The issue is whether the sales revenue generated from the Buy and Watch segments constitute Florida
gross receipts for purposes of the sales factor.
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.

Technical Assistance Advisement 13C1-011
Page 3

(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….

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.

(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..

(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….

(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.

Technical Assistance Advisement 13C1-011
Page 4

ANALYSIS
Section 220.02(1), F.S., provides that it is the intent of the Florida Legislature to impose a corporate
income tax on every taxpayer in each taxable year for the privilege of conducting business, deriving
income, or being incorporated in this state. Section 220.15(5), F.S., defines the sales factor as “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, F.A.C., describes how the receipts from several types of
sales activities are computed, and then provides information on the computation of the Florida portion
of those receipts. Rule 12C-1.0155(2), F.A.C., provides that “the numerator of the sales factor shall
include gross receipts attributed to [Florida] which were derived by a taxpayer from transactions and
activities in the regular course of its trade or business.” In this case, the Taxpayer's activities do not
constitute the sale of tangible personal property. Therefore, the discussion below will focus on the
sourcing of sales other than tangible personal property, namely the sale of services.
The only Rule which is applicable to the sale of services is Rule 12C-1.0155(2)(l), 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 receipts is performed wholly within [Florida]. "Income producing activity" is
defined in Rule 12C-1.0155(2)(l), F.A.C., as "the transactions and activity directly engaged in by the
taxpayer for the ultimate purpose of obtaining gains or profits." If the income producing activity is
not wholly performed within Florida, it is necessary to conduct a cost of performance analysis. See
Rule 12C-1.0155(2)(l), F.A.C.
The following two cases illustrate Florida’s position on the interpretation of Rule 12C-1.0155(2)(l),
F.A.C. In Heller Western v. Arizona Department of Revenue 1, Heller Western 2 borrowed money
from its Illinois parent in order to lend money to Arizona businesses. Any loan over one million
dollars had to be approved by its parent in Illinois and its headquarters in California. The California
office also monitored the progress of loans made in Arizona and paid the interest expense on the
loans from the parent company to Heller Western in Arizona. Prior to 1978, Heller Western sourced
the interest earned from loans to Arizona customers 3 to Arizona. After 1978, Heller Western sourced
the interest earned from loans to Arizona customers outside Arizona. Heller Western argued that
pursuant to A.C.A.R.R. R15-2-135-8(b)(5)(j)(1978) (an Arizona rule similar to Rule 12C1.0155(2)(l), F.A.C.), borrowing money from its parent was part of its income producing activity in
Arizona, and that since more than fifty percent of the costs associated with the borrowing occurred
outside of Arizona, the income earned from lending money in Arizona should not be sourced to
Arizona. The Arizona Department of Revenue (“Arizona”) disagreed and argued that the interest
earned from loans to Arizona consumers should be sourced to Arizona because “only the activities of
the Arizona branch office immediately resulted in generating income from the Arizona loans. Thus
only those activities qualify as ‘income producing activity.’” 4
1

161 Ariz. 49 (Ariz. Sup. Ct. 1989)
Heller Western is a branch of a California corporation. The California corporation is a subsidiary of a corporation
domiciled in Illinois.
3
Customer is used interchangeably with consumer.
4
Id. at 52.
2

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The Arizona Supreme Court ruled in favor of Arizona and stated, “[w]e believe that the term, ‘income
producing activity,’ in our regulation contemplates only direct sales payment activity by the
consumer, which in this case occurred in Arizona.” 5 This position was further elaborated by the
Court:
. . . Further, those activities are uniformly local to the situs of the consumer…. For example,
payments for interstate transportation of freight are allocated to the state where the freight is
delivered, not purchased, because that is where the consumer is. However, payments for interstate
transportation of people on a common carrier are allocated to the state where the ticket is purchased,
not the traveler's destination, again because that is where the consumer is. Finally, payments resulting
from business generated by interstate telephone calls are allocated to the state where the customer
placed or received the call; whether the seller called the consumer or the consumer called the seller, it
is the consumer's situs that is determinative. . . 6
The Court states that sourcing sales made to Arizona consumers to Arizona was a “logical
conclusion.” 7 The Court compares the interest earned from loans to a retailer selling goods and
states:
Heller Western can no more argue that its receipts from Arizona loan consumers should not be taxed
due to its out-of-state involvement in procuring its ‘inventory’ than a retailer who is engaged in
extensive dealings out of state to buy his merchandise could argue that he should not be taxed on the
goods he sells to consumers here. 8
The Arizona Supreme Court held that based on the “consumer location orientation…‘income
producing activity’ contemplates direct solicitation, negotiation, and sales activities with consumers
in this state.” 9 As a result, all sales were sourced to Arizona, regardless of where most of the costs of
performance occurred.
In Ameritech Publishing, Inc. v. Wisconsin Department of Revenue 10, Ameritech was in the business
of selling advertising for placement in telephone directories. The advertising services at issue were
sold entirely within Wisconsin. However, the vast majority of the costs of performance of the
advertising services occurred outside Wisconsin. The final product, a telephone book containing the
advertisements, was delivered to Wisconsin via common carrier. Ameritech initially sourced the
sales of these services to Wisconsin. However, it later filed amended returns seeking refunds arguing
that the sale of its services should not be sourced to Wisconsin pursuant to WIS. STAT. s. 71.25(9)(d)
(1999) similar to Rule 12C-1.0155(2)(l), F.A.C. because the majority of the costs of performance

5

Id.
Id.
7
Id. at 53.
8
Id.
9
Id.
10
No. 2009AP445 (App. Ct. IV 2009), 788 N.W.2d 383 (Wis. Ct. App. 2010)
6

Technical Assistance Advisement 13C1-011
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occurred outside Wisconsin, and the telephone books were delivered to Wisconsin via common
carrier.
The Wisconsin Department of Revenue (“Wisconsin”) disagreed and argued that Ameritech’s income
producing activity occurred within Wisconsin for several reasons. First, Wisconsin argued that
Ameritech had significant sales for the four years at issue and if Ameritech’s argument was accepted,
Ameritech would pay no tax in one of the years and receive a refund of two million dollars for two of
the years. Second, Wisconsin argued that Ameritech’s position was unreasonable because large
amounts of the income producing activity would not be sourced to Wisconsin, where the advertising
occurred. Wisconsin also argued that the Tax Appeals Commission’s finding that Ameritech’s
income producing activity was “furnishing its customers access to a Wisconsin audience was
reasonable….” 11 Finally, Wisconsin argued that Ameritech’s position that solicitation and ad
production were the income producing activities was “belied by the fact that these activities were not
specified in the contract,” and that not all of its customers used these services. 12
The Wisconsin Court of Appeals ruled in favor of Wisconsin and upheld the Tax Appeals
Commission’s finding that the:
. . .‘[I]ncome-producing activity’ associated with [Ameritech]'s service from 1994 to 1997 was, at
bottom, the provision of access to a Wisconsin audience. Advertisers paid [Ameritech] to reach
Wisconsin consumers through this familiar and well-established advertising medium. It is undisputed
that, in the course of providing this service, [Ameritech] employees working in offices outside of
Wisconsin executed tasks related to the sale and production of the ads. But [Ameritech]’s customers
did not pay primarily for [Ameritech] to service their accounts, design their advertisements, or send
their ad copy with the completed directory to the printer. They paid for the broad access [Ameritech]
could provide to a Wisconsin audience. 13
The Wisconsin Court of Appeals also agreed that the income producing activity occurred in
Wisconsin, not in the other states in which a majority of the costs of performance occurred and stated:
Moreover, the Commission reasonably concluded that this service of providing access to Wisconsin
consumers is income-producing activity performed within the state of Wisconsin under WIS. STAT.
§ 71.25(9)(d). During the relevant period, API acted as a gatekeeper for its advertisers to the
Wisconsin market; API's customers paid a monthly toll to reach that market via a venerable
advertising medium. API's income was dependent primarily upon its status as a telephone directory
publisher, and its ability to offer advertisers access to a pool of local consumers (Wisconsin
consumers in this case) through this medium. Thus, regardless which state API's sales persons and
advertising production staff was located, API's primary service of providing access to a Wisconsin
audience was performed in the state of Wisconsin. 14
11

Id. at ¶ 30
Id.
13
Id. at ¶34.
14
Id. at ¶35.
12

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The Wisconsin Court of Appeal stated that the Tax Appeals Commission reasonably relied on The
Hearst Corporation v. DOR 15 in order to determine the income producing activity. In Hearst, WISNTV was a television broadcaster located in Wisconsin. WISN-TV generated revenue from local and
national advertisements. The administration of the local advertisements occurred within Wisconsin,
while the administration of the national advertisements occurred outside Wisconsin. WISN-TV
argued that the income producing activity in regards to national advertisement was performed outside
Wisconsin since all the costs of performance occurred outside Wisconsin. The Tax Appeals
Commission in Hearst ruled that the income producing activity was the broadcasting of the national
advertisement in Wisconsin, despite the fact that the costs of performance of the advertisement
occurred outside Wisconsin. The Tax Appeals Commission reasoned that:“[T]he network and
national advertising revenues are based upon the showing or broadcasting thereof. Without
broadcasting there is no income.” The Tax Appeals Commission further found that “advertisers
choose spots based upon the demographic profile of the audience viewing the particular programming
during which the spots occur or are available, and that the advertisers are buying the spots due to the
programming and its demographic makeup.”
In its findings of fact, the Tax Appeals Commission concluded “the income producing activity is the
actual broadcasting of the programming desired by the advertiser and the commercial spots during
that programming and, thus, is in Wisconsin.”16
In both Heller Western and Ameritech, the majority of the taxpayer’s costs of performance occurred
outside the state in which their customers resided and where the income producing activity actually
occurred. The taxpayers in both cases argued that sales should be sourced to the state in which the
majority of the costs of performance occurred instead of where the customer was located and where
the income producing activity occurred. However, the courts in the two cases held that the income
producing activities were the actual sale of services to its customers, as opposed to the costs of
performing those services. The courts in both cases sourced the taxpayer’s gross receipts from the
sale of services to the market state, the state in which the customer resided, reasoning that the direct
sale to the customer at the customer’s domicile is where the income producing activity occurred. In
analyzing the income producing activity, the most important factor to determine is where the
customer is located.
The background of the adoption of the sales apportionment factor for the Florida corporate income
tax is also helpful for this analysis. When the adoption of the corporate income tax was being
debated by the Florida legislature in 1971, there were two options available to measure the receipts
for the sales apportionment factor: the pure destination test, also known as the market state test, or the
combined destination and origin test. 17 The pure destination test sources the goods sold to the market
state or the state where the goods are consumed. The combined destination and origin test assign the
sales to the state from which the goods were shipped if the taxpayer was not doing business in the
state of the purchase or if the purchaser was the federal government.
15

Wis. Tax Rptr(CCH) ¶203-149 (WTAC 1990)
Id. at ¶18.
17
England, Arthur. Corporate Income Taxation in Florida: Background, Scope, and Analysis. 1972. p.14–15. Print.
16

Technical Assistance Advisement 13C1-011
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The Florida legislature adopted the pure destination test and assigned fifty percent of the
apportionment factor to the sales factor. 18 Florida deviated from assigning the three apportionment
factors equally because Florida is a consumer state, and foreign corporations that do not relocate
personnel and property to Florida, would be taxed at a higher rate than local corporations that have
significant payroll and property factors assigned to Florida. 19 When analyzing each portion of the
receipts, a determination must be made as to the final destination of the product or service being sold.
Numerous sourcing rules in Florida source sales based on the situs of the consumer. For example,
Rule 12C-1.0155(2), F.A.C., states that “[a]ll 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.” Tangible personal property is sourced to Florida if the property is delivered or
shipped to Florida. 20 Intangible personal property is sourced to Florida if it is located and used in this
state. 21 In Florida, the sourcing of gross receipts depends on the location of the consumer.
The interpretation of Rule 12C-1.0155(2)(l), F.A.C., has been difficult in almost all states adopting
the rule. Walter Hellerstein, a state corporate income tax expert, has made the following observation
in his legal treatise which supports Florida’s interpretation of Rule 12C-1.0155(2)(l), F.A.C.:
There is, however, a more fundamental objection to UDITPA's costs-of-performance rule for
attributing receipts from services—whether applied on an all-or-nothing basis or on a percentageattribution basis, as some states do —namely, that the rule often fails to serve the purpose of the sales
factor to reflect the contribution of the market state to the taxpayer's income. While services may
often be performed in the same state in which they are consumed, this is not always the case,
especially with regard to services such as advertising, consulting, and other professional services that
may be performed in one state but effectively “delivered” in all of the states in which the service
provider's customers carry on their activities. Accordingly, as a matter of policy, states adopting a
market-oriented approach for service providers have embraced a much sounder solution to the
problem of attributing the receipts of service providers than those states that rely either on UDITPA's
costs-of-performance methodology or on the traditional rule of assigning services to the state in
which they are performed. 22
Rule 12C-1.0155(2)(l), F.A.C., is applicable in this case. The Rule requires that the income
producing activity first be identified. If the income producing activity occurs wholly within Florida,
the sale is then sourced to Florida. The income producing activity in the present case is fees earned
by the Taxpayer from transaction services provided to its customers, including customers located in
Florida. The income producing activity is not analyzed holistically as one major activity, but each
18

Id. at 15.
Id.
20
Rule 12C-1.0155(2)(a), F.A.C.
21
Rule 12C-1.0155(2)(f), F.A.C.
22
Hellerstein & Hellerstein: State Taxation (WG&L), ¶9.18[3][a], (2012).
19

Technical Assistance Advisement 13C1-011
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individual transaction is considered a separate transaction and consequently a separate income
producing activity.
The term "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." 23 The word “and” signifies
that both transactions and activities must exist simultaneously in order for any activity to be
considered the income producing activity. The word “transaction” is used several times in the Florida
Statutes and Rules, but is not defined. Black’s Law Dictionary 24 defines “transaction as:

1. The act or an instance of conducting business or other dealings.
2. Something performed or carried out; a business agreement or exchange.
3. Any activity involving two or more persons.
   The income producing activity in the present case occurs wholly within Florida if the Taxpayer’s
   customer is located in Florida. Such a result is consistent with Ameritech, Heller Western, Florida’s
   legislative history, and Hellerstein’s analysis. The collection of data is not the income producing
   activity because there is no transaction involved, as defined above. The transaction occurs when the
   Taxpayer sells the final service to its customer and receives compensation for the service in return.
   When determining what the income producing activity is, Rule 12C-1.0155(2)(l), F.A.C., requires
   that each individual transaction, not the entire business line, be analyzed.
   Furthermore, Rule 12C-1.0155(2)(h)5.a., F.A.C., provides that “[w]here there are charges to Florida
   customers for direct access to a date base, these charges are considered Florida sales.” Since the
   customers access the data through a data base, the sales can be sourced to Florida based on Rule 12C1.0155(2)(h)5.a., F.A.C.
   CONCLUSION
   The income producing activity for the Buy and Watch segments occurs in Florida if Taxpayer’s
   customer is located in Florida and Florida is where the transactions and activities occur. Also, charges
   to Florida customers for direct access to a data base are considered Florida sales. Such sales must be
   included in the numerator of the sales factor.
   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.
   23
   24

Rule 12C-1.0155(2)(l), F.A.C.
716 (2nd Pocket Edition 2001)

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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
ID #146303