The Florida Department of Revenue (“the Department”) has notoriously ignored the statutory apportionment methodology for services found in Florida Administrative Code Rule 12C1.10155, the Department’s Cost of Performance (COP) rule, which governs the appropriate allocation of revenue for state corporate income tax purposes. Recently, the circuit court for Leon County admonished the Department from its attempt to assert alternative apportionment, requiring Target Enterprise to source its income based on a market sourcing form of apportionment in Target Enterprise, Inc. v. Department of Revenue.1 [See our release on the Florida Circuit Court (2nd), No. 2021-CA-002158, November 28, 2022.] Now, the Department has attempted to once again require taxpayers to use a market-based approach for sourcing service revenues in corporate income tax audits of six related entities of Fiserv, Inc. (“Fiserv”) and for OptumRx, Inc. (“OptumRx”).
Fiserv
Fiserv and its subsidiaries provide financial technology services. For all but one of the six related entities, the cost of the services provided occurred outside the state of Florida. The Department issued tax assessments to the Billmatrix subsidiary and the other subsidiaries, asserting that the receipt of the service was the income-producing activity and thus the situs of the cost of performance. The trial court granted the Billmatrix motion for summary judgment and determined that the tax assessments issued to the Billmatrix appellants are invalid and abated in full.2 The summary judgment order expressly rejected the Department’s interpretation of the COP rule, as such interpretation was directly contrary to the plain language of the rule. The court also noted that the Department’s similar market-based sourcing interpretation had been rejected in another circuit court proceeding, referencing the Target Enterprise, ruling.
Subsequently, however, the Department moved to dismiss the Billmatrix proceeding on procedural grounds. The trial court announced its intent to issue an order dismissing the proceeding and vacating its decision on the merits. On July 11, 2023, the trial court issued its written order3 granting the Department’s motion to dismiss. In January 2025, the Florida First District Court of Appeal denied Fiserv’s request for a rehearing of its tax sourcing appeal. Although Fiserv/Billmatrix won the battle (the technical issues), they lost the war on procedural grounds, adding fuel to the Department’s fire to challenge cost of performance sourcing.
OptumRx
Now comes OptumRx, where once again the Department sourced pharmacy benefit services to Florida based on the beneficiary’s state of residence. For the audit period 2016-2018, the Minnesota-based provider was assessed more than $12 million in tax and interest based on market-based revenue sourcing. On February 7, 2025, OptumRx filed a complaint in the Florida Circuit Court for Leon County.4 The basis of the complaint, once again, was that the Department wrongly interpreted Fla. Admin Code Ann. Section 12C-1.0115(2)(l), to require sales of intangible property to be sourced to the location in which the services were consumed by plan members, not the location of the cost of performance of the services. The complaint cites both the trial court decision in Billmatrix and Target Enterprises, both of which were decided by the court in Leon county.
When will the Department learn that it cannot change the apportionment laws by fiat? The code clearly states that Florida is a cost of performance jurisdiction. Yet the Department thinks it can interpret the law to support a market-based apportionment strategy. The only answer to their folly is for the Department to request the Legislature to change the law regarding the sourcing of revenue. It would be interesting to see if a Florida-based service provider would choose to apportion its income based on market sourcing. Would the Department contest the taxpayers use of market sourcing?
Ryan’s state income tax experts are here to help you evaluate your apportionment position in Florida and to assist you in any challenges that the Department asserts. Please contact our expert listed below to assist you with your Florida tax needs.
1 Florida Circuit Court (2nd), No. 2021-CA-002158, November 28, 2022.
2 Billmatrix Corp., et. al v. Florida Department of Revenue, Circuit Court, 2nd Dist., Leon County, No. 2020 CA 000435 (March 1, 2023).
3 Billmatrix Corp. v. Department of Revenue, Fla. Dist. Ct. App., 1st Dist., No. 1D23-1920. (July 11, 2023).
4 OptumRx, Inc. v. Department of Revenue (Case No. 2025 CA 000188).
TECHNICAL INFORMATION CONTACT:
Greg Rottjakob
Principal
Ryan
813.568.9085
greg.rottjakob@ryan.com
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- Greg Rottjakob