The Florida Department of Revenue recently issued two separate Technical Assistance Advisements (TAAs) that address the sourcing of revenues from sales of items other than tangible personal property for apportionment factor purposes.
In these two separate TAAs, the Department applied market-based sourcing principles to source revenues from services for apportionment factor purposes in contrast to the cost of performance language contained in the state’s regulation.
One TAA highlighted a business that provides data collection services. The taxpayer requested guidance from the Department regarding whether specific sales revenue equated to Florida gross receipts for sales factor purposes.
The other TAA focused on ten taxpayers based outside of Florida who package and distribute television content to customers throughout the country, including some in Florida. As some of these taxpayers held partnership interests in a partnership also engaged in owning, developing and licensing television content. They requested guidance on how to apportion revenue earned from licensing and distributing content to unrelated operators and from the sale of advertising during licensed programming.
In both cases, the Department referenced Florida statutes governing computation of the sales factor, which provide that the numerator of the sales factor includes receipts attributed to Florida derived from transactions and activities in the regular course of trade or business. The Department focused attention on a sourcing rule addressing “other sales in Florida” under which receipts from the sales of services are attributed to Florida if the income-producing activity is performed in Florida or if the activity is performed in numerous jurisdictions but the greater proportion of such activity is performed in Florida as determined by the costs of performance.
For many service-based businesses, these TAAs suggest a significant shift away from looking at where the services are performed and instead focusing on the location of the customer for purposes of apportionment. This is important to note both as a trend in recent TAAs as well as in audits of taxpayers. Furthermore, this trend is in alignment with developments in many states throughout the country.
Thus, it is important for taxpayers to understand what would be seen as proper methods of sourcing revenue from sales of other than tangible personal property.
For questions or assistance with possible planning strategies, Faith L. Gorman, State & Local Tax Director, may be reached at [email protected]
