How did Florida source software-subscription licensing fees and implementation-service revenue for the corporate sales factor?

Plain-English summary

Florida used different sales-factor sourcing rules for software subscription licenses and implementation services.

Software licensing fees were Florida sales to the extent subscribers used the software in Florida. If actual use location could not be determined, the subscriber's billing address was a reasonable approximation.

Implementation-service receipts were sourced transaction by transaction to the client's location. When the client was in Florida, the income-producing activity occurred in Florida. A client billing address could approximate location when physical location was unavailable.

What this means for you

Software companies

Separate license revenue from implementation or professional-service revenue before applying the sourcing rules.

Corporate tax teams

Maintain reliable usage and customer-location records. Billing addresses were accepted only as reasonable fallback approximations in this ruling.

Common questions

How were software fees sourced? By where the software was used.

How were implementation services sourced? By client location.

Could billing addresses be used? Yes, when actual location could not be determined.

Citations and references

• Fla. Stat. Sec. 220.15(5)
• Fla. Admin. Code R. 12C-1.0155(2)(h)4.
• Fla. Admin. Code R. 12C-1.0155(2)(l)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 20C1-003

Original ruling text

Florida Department of Revenue
Technical Assistance and Dispute Resolution

5050 West Tennessee Street Tallahassee FL 32399

Jim Zingale
Executive Director

floridarevenue.com

QUESTION: Taxpayer seeks advisement as to the Department’s position regarding the sourcing
of revenues generated from sales of software subscriptions and sales of implementation
services.
ANSWER: Pursuant to Rule 12C‐1.0155(2)(h)4., F.A.C., licensing fees for software are Florida
sales to the extent the software is used in Florida.
Rule 12C‐1.0155(2)(l), F.A.C., provides that when the activity producing the sales revenue
occurs entirely in Florida, the receipts from the Florida activity are deemed to be Florida sales.
The income producing activity occurs in Florida when Taxpayer’s client is located in Florida.

March 3, 2020

XXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXX
XXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXX

Re:

Technical Assistance Advisement 20C1‐003
Corporate Income Tax
Sales Factor of Apportionment
Section (s.) 220.15, Florida Statutes (F.S.)
Rule 12C‐1.0155, Florida Administrative Code (F.A.C.)
XXXXX (hereinafter “Taxpayer”)

Dear XXXXXXX,
This is in response to Taxpayer’s request dated November 1, 2019, for a Technical Assistance
Advisement (“TAA”) pursuant to s. 213.22, F.S., and Rule Chapter 12‐11, F.A.C., regarding how
to correctly source sales of XXXXX services.

Technical Assistance Advisement
Page 2

FACTS SUPPLIED BY TAXPAYER
Taxpayer is a XXXXX. Taxpayer’s XXXXX solutions are delivered XXXXX to organizations
headquartered in the United States. Specifically, XXXXX services. In addition to the standard
services XXXXX that are provided to Taxpayer’s clients, XXXXX can be configured extensively to
XXXXX specialized requests.
Taxpayer has two primary revenue sources: recurring revenues XXXXX and service revenues
XXXXX.
XXXXX.1 XXXXX. XXXXX.
XXXXX.
ISSUE PRESENTED
Taxpayer seeks advisement as to the Department’s position regarding the sourcing of revenues
generated from sales of XXXXX services.
XXXXX.
LEGAL AUTHORITY
Section 220.15(5), F.S., provides in pertinent 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.
(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 pertinent part:
(2) Florida sales. The numerator of the sales factor includes gross receipts
attributed to Florida 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.
1

XXXXX. XXXXX.

Technical Assistance Advisement
Page 3

4. Licensing fees for software are Florida sales to the extent the software is used
   in Florida.

(l) Other Sales in Florida. Gross receipts from other sales shall be attributed to
Florida if the income producing activity which gave rise to the receipts is
performed wholly within Florida. Also, gross receipts shall be attributed to Florida
if the income producing activity is performed within and without Florida but the
greater proportion of the income producing activity is performed in Florida, 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
Reliance on Technical Assistance Advisements
Taxpayer cites several TAAs issued by the Department in its TAA request. TAAs are binding on
the Department only under the facts and circumstances described in the request for a specific
taxpayer. Section 213.22(1), F.S., states, "Technical assistance advisements shall have no
precedential value except to the taxpayer who requests the advisement…." Therefore, other
TAAs have not been taken into consideration when reviewing Taxpayer's request.
Sales of XXXXX
Taxpayer’s XXXXX revenue are receipts related to XXXXX. XXXXX. XXXXX. XXXXX. XXXXX. XXXXX;
XXXXX.
XXXXX.
As described, this XXXXX transaction is essentially a short‐term license of software and should
be included in the sales factor of apportionment according to Rule 12C‐1.0155(2)(h)4., F.A.C.,
which states that licensing fees for software are Florida sales to the extent the software is used
in Florida.
In the event Taxpayer is unable to determine the physical location where the software is used,
a subscriber’s billing address is a reasonable approximation.

Technical Assistance Advisement
Page 4

Sales of XXXXX Services
XXXXX services revenue is generated from XXXXX the specifications provided to Taxpayer by
each client in order to meet that client’s business requirements. Fees charged for XXXXX
services are priced on a fixed fee basis XXXXX.
XXXXX services are almost exclusively provided XXXXX, from locations throughout the United
States. XXXXX. XXXXX.
XXXXX services provided to Taxpayer’s clients generally include:









XXXXX.
XXXXX.
XXXXX. XXXXX.
XXXXX.
XXXXX.
XXXXX.
XXXXX.
XXXXX.

XXXXX.
Rule 12C‐1.0155(2)(l), F.A.C., provides guidance for sourcing sales of services. The rule 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. The income producing activity is not analyzed holistically as one major
activity, but each individual transaction is considered a separate transaction and consequently a
separate income producing activity.
"Income producing activity" is defined in the rule as "the transactions and activity directly
engaged in by the taxpayer for the ultimate purpose of obtaining gains or profits."
Pursuant to the rule, when the activity producing the sales revenue occurs entirely or
predominantly in Florida, the receipts from the Florida activity are deemed to be Florida sales.
In the instant case, the income producing activity is the purchase of XXXXX services by a client.
The income producing activity occurs entirely in Florida when Taxpayer’s client is located in
Florida.
In the event Taxpayer is unable to determine the physical location where the purchase of
XXXXX services occurred, a client’s billing address is a reasonable approximation of customer
location for sales factor purposes.

Technical Assistance Advisement
Page 5

CONCLUSION
Pursuant to Rule 12C‐1.0155(2)(h)4., F.A.C., licensing fees for software are Florida sales to the
extent the software is used in Florida. In the event Taxpayer is unable to determine the physical
location where the software is used, a subscriber’s billing address is a reasonable
approximation.
Rule 12C‐1.0155(2)(l), F.A.C., provides that when the activity producing the sales revenue (i.e.,
the purchase of XXXXX services) occurs entirely in Florida, the receipts from the Florida activity
are deemed to be Florida sales. The income producing activity occurs in Florida when
Taxpayer’s client is located in Florida. In the event Taxpayer is unable to determine the physical
location where the purchase of XXXXX services occurred, a client’s billing address is a
reasonable approximation of customer location for sales factor purposes.
This response constitutes a Technical Assistance Advisement under section 213.22, F.S., which
is binding on the Department only under the facts and circumstances described in the request
for this advice as specified in section 213.22, F.S. Our response is based on those facts and
specific situation summarized above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the statutes or rules upon this advice is
based may subject future transactions to a different treatment than expressed in this response.
You are further advised that this response, your request and related backup documents are
public records under Chapter 119, F.S., and are subject to disclosure to the public under the
conditions of section 213.22, F.S. Confidential information must be deleted before public
disclosure. In an effort to protect confidentiality, we request you provide the undersigned with
an edited copy of your request for Technical Assistance Advisement, the backup 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.
Sincerely,
Jennifer M. Ensley

Jennifer M. Ensley
Tax Law Specialist
Technical Assistance and Dispute Resolution

Activity: 288391
Cc:

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