In a Technical Assistance Advisement, the Florida Department of Revenue determined the proper sourcing methodology for income from twelve different types of sales by an online service provider (OSP) for Florida sales factor purposes. The OSP collects data that it distributes to its customers by a variety of methods, including print, email, and access to an interactive online network, for a fee. The Department grouped the receipts from the OSP’s sales into four broad categories: (1) receipts from sales of tangible personal property; (2) receipts from licensing of intangible property; (3) receipts from providing access to an interactive network; and (4) receipts from the sale of services. The Department first reiterated that the OSP’s sales of tangible property such as hardcopy publications are sourced to Florida if the property is delivered or shipped to a purchaser in Florida. Next, the Department held that “significant” royalty payments made from third parties located in Florida who have entered into licensing agreements with the OSP are sourced to Florida. Without defining “significant,” the Department reasoned that the apportionment factor is meant to reflect how income is generated and if an item of income is a “significant” part of a taxpayer’s income, then factor representation is appropriate. However, because the OSP’s predominant business activity generated revenue from the three other categories, the Department ruled that royalties should be included in the numerator and denominator of the OSP’s sales factor only if they are “significant” income to the OSP.
Finally, the Department concluded that the sourcing of the OSP’s interactive online database depended upon the location of the customer, as did the sourcing of the OSP’s sales of remote services. Regarding the latter, Florida law sources such sales to Florida if the “income producing activity” is wholly performed in the state. Under the Department’s interpretation, the income producing activity occurs where the customer is located. Fla. Dep’t of Revenue, Tech. Asst. Advisement, TAA 13C1-007 (Oct. 25, 2013).