Where did Florida source a multistate taxpayer's service revenue for the corporate income tax sales factor?

Plain-English summary

Florida directed the taxpayer to source its service receipts on a market basis to the location where the services were provided.

The ruling's service, customer, and contract details are heavily redacted. Its operative conclusion says that the relevant market was where the service recipient was located or resided.

When the recipient was located or resided in Florida, the corresponding service income belonged in both the Florida numerator and the everywhere denominator of the taxpayer's Florida sales factor.

What this means for you

Multistate service businesses

The ruling focused on the customer's or recipient's market location rather than the taxpayer's headquarters or where its records were kept.

Corporate tax teams

Retain support for recipient location. The ruling does not disclose enough about the redacted service to generalize beyond its fact-specific market-sourcing conclusion.

Common questions

Did Florida use market sourcing? Yes.

What location controlled? The location where the recipient was located or resided.

How were Florida receipts reported? In both the Florida numerator and the everywhere denominator.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 20C1-010

Original ruling text

TAX: Corporate Income Tax
TAA NUMBER : TAA 20C1-010
ISSUE : Request for Guidance on the Sourcing of Sales
STATUTE CITES: S. 220.15, F.S.
RULE CITES: Rule 12C-1.0155, F. A. C.
QUESTION: How should the taxpayer source its income from services it provides?
ANSWER: The taxpayer should source its income from services it provides to the location to
which the services are provided, on a market basis.

September 11, 2020

XXX
XXX
XXX
XXX
Re:

Technical Assistance Advisement 20C1-010
Request for Sales Sourcing Guidance
Section 220.15, F.S.
Rule 12C-1.0155, F.A.C.
XXX (“the taxpayer”)
FEIN: XXX

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 guidance on the sourcing
of sales. 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
The taxpayer is headquartered in XXX. It XXX with XXX charged with XXX. The taxpayer also
provides services to XXX.
The taxpayer has XXX located in XXX, including Florida, that XXX.

XXX
September 11, 2020
Florida Department of Revenue
Page 2

The copies of contracts provided with the TAA request indicate that the taxpayer is XXX.
ISSUE
The taxpayer is requesting guidance on the proper sourcing of income derived from the
activities of XXX, for Florida corporate income tax purposes.

LAW
Section 220.15(5)(a), F.S., states:
(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.
   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 includes gross receipts attributed to
Florida which were derived by the taxpayer from transactions and activities in the

XXX
September 11, 2020
Florida Department of Revenue
Page 3

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.

ANALYSIS
Subsection 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. Subsection 220.15(5), F.S.,
defines the sales factor as a fraction, the numerator of which is the total sales of the taxpayer in
Florida 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 different 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 includes 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 taxpayer is entitled to receive income for providing services to XXX. The XXX receiving
those services XXX.
Section 220.15, F.S., and Rule 12C-1.0155, F.A.C., direct that the income received for services
provided by the taxpayer XXX should be sourced to the location of XXX, on a market basis.
Therefore, to the extent that the XXX is located or resides in Florida, such income should appear
in both the numerator and the denominator of the Florida sales factor computed in the
taxpayer’s Florida corporate income tax return.
CONCLUSION
The income the taxpayer receives from services XXX should appear in both the numerator and
the denominator of the Florida sales factor computed in the taxpayer’s Florida corporate
income tax return, when the XXX receiving the service is located or resides in 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

XXX
September 11, 2020
Florida Department of Revenue
Page 4

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,

Suzanne C. Paul
Suzanne C. Paul
Tax Law Specialist
Technical Assistance and Dispute Resolution
(850) 717-6794
SCP/
cc: XXX
XXX
XXX
XXX
AMS No.: 7000367197