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Florida, a Market State…Really?

Tax Development Apr 16, 2021

Florida, a Market State…Really?

The Technical Assistance and Dispute Resolution section of the Florida Department of Revenue recently released Technical Assistance Advisement (TAA) 20C1-010, advising a taxpayer on sourcing income from services to Florida. The taxpayer provided services to a customer that had locations both within and outside of Florida.

The laws referenced in the TAA included F.S. § 220.15(5), which describes the sales factor as sales in this state over total sales of the taxpayer. In that same section, sales are defined as all gross receipts of the taxpayer with some exceptions. Rule 12C-1.0155 of the Florida Administrative Code (FAC) is also cited to similarly state that sales means all gross receipts of the taxpayer, and that sales of services also include all gross receipts from the performance of those services. Rule 12C-1.0155(2) provides that Florida sales include gross receipts attributed to Florida.

In its analysis, the agency also cites F.S. § 220.02(1), which is the imposition statute of the Florida revenue code. It states that the intent of the Florida Legislature is to impose a corporate income tax on all taxpayers for conducting business, deriving income, or incorporating in the state of Florida. Based on the intent of the Legislature and the statutes and rules defining the sales factor and Florida sales, the TAA concludes that the taxpayer should include the income it receives from services in both the numerator and denominator of its Florida apportionment factor. 

What the agency fails to recognize is Rule 12C1.1055(2)(e), which provides that for gross receipts for the performance of personal services, they are sourced to Florida based on whether the greater portion of the services were performed in Florida based on the cost of performance [emphasis added]. This is the agency’s own interpretation of the sourcing rules for the sales of services. However, the agency presumes to rely on its long-standing practice of sourcing income from services on a market basis. 

Taxpayers should carefully consider how they are determining the revenues from services in their Florida sales factor and challenge the state when it tries to source those receipts to Florida based on the market for the services. 


Mark L. Nachbar

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