A Florida Circuit court ruled that credit card interest and related interchange fees received by two banks from outside the state are not in-state sales for apportionment purposes, even where the underlying source of those payments are from in-state customers. See, Capital One Bank (USA), N.A. and Capital One, N.A. v. State of Florida, Department of Revenue, Florida Circuit Court, Leon County, Case Nos. 2022-CA-2070; 2022-CA-2073 (October 17, 2025).
Financial Organization Sourcing in Florida
In this instance, the banks’ customers, including those from Florida, remitted their payments to a bank located outside of the state. The taxpayer banks received these payments as interest income from the out-of-state bank. Florida has special apportionment provisions for financial organizations. Florida Statute § 220.15(c) actually lists six specific provisions that detail how specific items of a financial organization’s income should be sourced. Under Fla. Stat. § 220.15(c)(3), interest income is sourced to the state if received within the state, other than interest from loans secured by out-of-state property. A “catch-all” provision states that other gross income, including other interest, resulting from the operation as a financial organization within this state is sourced to Florida [See, Fla. Stat. § 220.15(c)(7)]. It was agreed that the amounts at issue qualified as interest.
Statute Is Clear
The court found the statute to be clear and unambiguous: if the interest is received from outside the state, the interest is excluded from the sales factor numerator. The court said it was “undisputed” that the banks received the income from outside the state. Thus, the amounts at issue are excluded from the sales factor numerator.
Department’s Attempt to Apply General Sourcing Fails
In so ruling, the court rejected that the Department of Revenue’s (DOR’s) argument to source the income based on the location of the bank’s customers and that where the bank received the income was “irrelevant.” The DOR, in making its assessment, sourced the income under the catch-all provision. But this catch-all provision only applies to income that is not otherwise specifically listed in the statute. Here, the interest income is clearly sourced under Fla. Stat. § 220.15(c)(3). The court took the DOR’s reliance on the catch-all provision to task in that it would convert defined interest in the statute into catch-all interest. This would have the effect of rendering the specific sourcing provisions “purposeless.”
Ryan’s Take and Action Steps
This decision is just another example where the DOR seeks an alternative interpretation of its sourcing provisions where the apportionment statutes result in income being sourced outside of the state. Typically, these cases involve application of a market-based standard (which is in effect what the department tried to do here) where the statute looks at the income-producing activity.
In this instance, the banks were aided by clear statutory language, and the court respected that language. Financial organizations should proactively analyze their income streams to see where they fall within the provisions of § 220.15(c). It is not yet known whether the DOR will appeal.
Reach out to Ryan’s tax professionals below for insights on how this ruling may impact your financial organization.
TECHNICAL INFORMATION CONTACTS:
Greg Rottjakob
Principal
Ryan
813.568.9085
greg.rottjakob@ryan.com
Adam Weinreb
Director
Ryan
917.472.9420
adam.weinreb@ryan.com
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