Florida: Sale of platform services sourced based on customer’s location

The Florida Department of Revenue recently addressed how a technology company should source service receipts. The taxpayer, a provider of a platform for developers to create and sell technology apps, charged the developers (users) a fee for access to the platform and for the right to use apps and intellectual property. Users were also charged fees when their customers (consumers) made purchases over the taxpayer’s platform or other platforms.  Under Florida law, the sales factor is total sales in Florida over total sales everywhere for the taxable year.  Gross receipts from sales other than tangible personal property are attributed to Florida “if the income producing activity which gave rise to the receipts is performed wholly within Florida.” The “income producing activity is defined as “transactions and activity directly engaged in by the taxpayer for ultimate purpose of obtaining gains or profits.”  

After reviewing cases from Arizona and Wisconsin, the Department of Revenue observed that the courts in these states sourced the taxpayer’s receipts from sales of services to the state in which the customer resided, on the basis that the direct sale to the customer at the customer’s domicile was the location at which the income producing activity occurred. In analyzing the income producing activity, the Department stated that the most important factor is to determine where the customer is located.

Accordingly, the Department determined that fees charged users for access to the taxpayer’s platform are presumed to be sourced to the user’s billing address. In addition, when consumers paid fees to access a user’s app or purchase goods and services via a user’s app or outside of a user’s app, those receipts should be sourced based on the consumer’s billing address. Thus, if the billing address is located in Florida, the receipts would be attributed to the state for corporate income tax purposes. For more information on TAA 20C1-001, please contact Jeremy Dukes at 954-847-3971.