Bulletin: October 17, 2007
Not only the alligators bite in Florida!

A recent adverse finding by the Florida tax authorities may be of concern to a wide range of enterprises doing business there. It seems to impose a Florida tax liability by virtue of the presence and activities in the State of mere agents. Its precise ambit is currently uncertain, but the liability can arise even if the business is not present there in any sense other than through local agents.

We are grateful to Gerry Nehra for the original heads up on this. Gerry's contact details are: www.mlamatty.com. Gerry's original Business Associate Advisory is as follows:

FLORIDA "LONG-ARMING" AN OUT OF STATE COMPANY FOR STATE INCOME TAX

There is no good spin that can be placed on the following recent (October 17, 2007) Advisement out of the Florida Department of Revenue:

An out-of-state financial services processing company had nexus with Florida for corporate income tax purposes even though its only contact with the state was through unrelated authorized vendors. The taxpayer did not maintain real or tangible personal property or employ personnel or agents in Florida. However, the taxpayer was licensed, as required, with the Office of Financial Regulation of the Florida Department of Financial Services as a payment instrument seller and, under this license, the taxpayer had registered locations (authorized vendors) in the state. For nexus purposes, "doing business" in Florida means actively engaging in any transaction for the purpose of financial gain. Following decisions from other state supreme courts, and in light of the fact that the U.S. Supreme Court has declined to review the issue, the Florida Department of Revenue's position is that physical presence is not required to impose the state's corporate income tax. The taxpayer's unrelated authorized vendors were licensed agents of the taxpayer who operated on the taxpayer's behalf within Florida. The activities of these vendors were sufficient to create corporate income tax nexus, because without them, the taxpayer could not operate its business in Florida.

Technical Assistance Advisement, No. 07C1-007, Florida Department of Revenue, October 17, 2007, ¶205-125 Other References: Explanations at ¶10-075

The independent contractor agreement between direct selling companies and its representatives is seldom referred to as a license, but is that enough of a distinction? This activity will be monitored to see if it is appealed."

Through our membership of State Law Resources (www.statelaw.org) we are able to help you if you wish to monitor the situation or become more actively involved in this question, via Doug Bell and Cynthia Tunnicliff of Pennington, Moore, Wilkinson, Bell & Dunbar PA of Tallahassee, a leading law firm in the field of regulatory affairs. Feel free to contact Doug or Cynthia direct if you wish.