Executive Director Lisa Vickers QUESTION: How should the tuition revenues from Taxpayer s online courses be sourced within and without Florida for sales factor purposes? ANSWER: Taxpayer s receipts from its online courses constitute sales under the Florida statutes and rules and would be included in its sales factor for apportionment purposes. Taxpayer s revenues from its online courses would be sourced the student s state of residence. Since Taxpayer s business also meets the definition of an interactive network, the online revenues received from Florida students accessing its online courses would be Florida sales and sourced to Florida. May 17, 2012 Re: Technical Assistance Advisement (TAA) 12C1-006 Corporate Income Tax Sections: 220.02; 220.15 Rule: 12C-1.0155 (hereinafter referred to as Taxpayer ) Dear : This is in response to your request dated, for a Technical Assistance Advisement (TAA) pursuant to section 213.22, F.S., and Rule Chapter 12-11, F.A.C., regarding the treatment of online tuition revenues for Taxpayer s Florida sales factor. An examination of your letter has established that you have complied with the statutory and regulatory requirements for issuance of a TAA. Therefore, the Department is hereby granting your request for a TAA. FACTS SUPPLIED BY TAXPAYER Taxpayer offers and through both its physical locations and online division. The majority of Taxpayer s tuition receipts are paid by student financial aid services on behalf of students or made by students directly. Students typically apply for and enter into financial agreements and make direct payments from their state of residence. Taxpayer s online students are located across the country, with approximately located in Florida. Students must provide a home address for billing, shipping, and other purposes, so Taxpayer is able to determine tuition by its students state of residence. Child Support Enforcement Ann Coffin, Director General Tax Administration Jim Evers, Director Property Tax Oversight James McAdams, Director Information Services Tony Powell, Director www.myflorida.com/dor Tallahassee, Florida 32399-0100
Page 2 Taxpayer has service centers in,, and, each of which supports online students. The service centers conduct admissions, student financial services, general student services, information technology and career placement services. Taxpayer also has academic support teams in and that support both the online and ground school students. ISSUE How should the tuition receipts from Taxpayer s online courses be sourced within and without Florida for sales factor purposes? LAW Section 220.02(1), F.S., states in part: It is the intent of the Legislature in enacting this code to impose a tax upon all corporations, organizations, associations, and other artificial entities which derive from this state or from any other jurisdiction permanent and inherent attributes not inherent in or available to natural persons, such as perpetual life, transferable ownership represented by shares or certificates, and limited liability for all owners. It is the intent of the Legislature to subject such corporations and other entities to taxation hereunder for the privilege of conducting business, deriving income, or existing within this state... Section 220.15, F.S., states in part: (5) The sales factor is a fraction the numerator of which is the total sales of the taxpayer in this state during the taxable year or period and the denominator of which is the total sales of the taxpayer everywhere during the taxable year or period. (a) As used in this subsection, the term "sales" means all gross receipts of the taxpayer except interest, dividends, rents, royalties, and gross receipts from the sale, exchange, maturity, redemption, or other disposition of securities. (b)1.sales of tangible personal property occur in this state if the property is delivered or shipped to a purchaser within this state, regardless of the f.o.b. point, other conditions of the sale, or ultimate destination of the property, unless shipment is made via a common or contract carrier. Rule 12C-1.0155, F.A.C., provides in part: (1) For the purposes of the sales factor, the term "sales" means all gross receipts received by the taxpayer from transactions and activities in the regular course of its trade or business. (h) Sales of services. In the case of a taxpayer engaged in providing services, such as the operation of an advertising agency, the performance of equipment service contracts, or research and development contracts, "sales" includes the gross receipts from the performance of such services including fees, commissions, and similar items. (2)(e) Personal Services.
Page 3 1. Gross receipts for the performance of personal services are attributable to this state if such services are performed in this state. 2.a. If services relating to a single item of income are performed partly within and partly without this state, the gross receipts for the performance of such services shall be attributable to this state only if a greater portion of the services were performed in this state, based on costs of performance. b. The term "costs of performance" means direct costs determined in a manner consistent with generally accepted accounting principles and in accordance with accepted conditions or practices in the taxpayer's trade or business. Where independent contractors are used to complete a contract, the term "costs of performance" will include amounts paid to the independent contractors. 3. Where services are performed partly within and partly without this state, the services performed in each state may constitute a separate income producing activity, even though the client is billed a lump sum amount. In such cases, the gross receipts for the performance of services attributable to this state shall be measured by the ratio which the time spent in performing such services in this state bears to the total time spent in performing such services everywhere. Time spent in performing services includes the amount of time expended in the performance of a contract or other obligation which gives rise to such gross receipts. Personal services not directly connected with the performance of the contract or other obligation, as for example, time expended in negotiating the contract, are excluded from the computations. (h)computer related sales. 1. Hardware delivered in Florida constitutes Florida sales. 2. Canned software programs are Florida sales if delivered to a customer in Florida. 4. Licensing fees for software are Florida sales to the extent the software is used in Florida. 5. Interactive networks. a. Where there are charges to Florida customers for direct access to a data base, these charges are considered Florida sales. These charges include, but are not limited to, fees to access the network, fees based on the number of information requests made, time charges for connection to the data base and lines, and information retrieval from the data base. b. Where there are charges by a corporation located in Florida to Florida customers for access to third party data bases, all charges will be considered Florida sales, regardless of where the thirdparty data bases are located. c. Where a foreign (out-of-state) corporation charges Florida customers for access to third party data bases, all charges will be considered Florida sales except for charges directly related to the retrieval of information from the third-party data base. d. When a P.C. or mainframe is physically located in Florida, a corporation will have a "Florida customer" for purposes of this subparagraph. (l) Other Sales in Florida. Gross receipts from other sales shall be attributed to this state if the income producing activity which gave rise to the receipts is performed wholly within this state. Also, gross receipts shall be attributed to this state if the income producing activity is performed within and without this state but the greater proportion of the income producing activity is performed in this state, based on costs of performance. The term "income producing activity"
Page 4 applies to each separate item of income and means the transactions and activity directly engaged in by the taxpayer for the ultimate purpose of obtaining gains or profits. Where independent contractors are used to complete a contract, the term "income producing activity" will include amounts paid to the independent contractors. ANALYSIS Taxpayer asserts that the item of value that the student obtains is purchasing the right to attend the online course, and the subsequent delivery of the online course content to the student. Taxpayer further asserts that both elements of this transaction occur in the state where the student is physically located. In this case, the income producing activity is the convenience of taking courses from home at a time most suitable for the student. The income from the online courses is earned when Taxpayer provides the student with access to the online classes. Taxpayer states that generally, students access the courses from their homes; therefore, the tuition revenue would be sourced to the student s state of residence. The numerator of the sales factor includes gross receipts attributed to Florida that were derived by a taxpayer from transactions and activities in the regular course of its trade or business. 1 The specific transactions and activities at issue that occur in the regular course of Taxpayer s trade or business are the provision of online courses to the student s location. If we consider this the provision of a service to the student, Rule 12C-1.0155(2)(l), F.A.C., is applicable. This rule attributes sales to Florida if the income producing activity which gave rise to the receipt is within Florida. Income producing activity is defined as the transaction and activity directly engaged in by the taxpayer for the ultimate purpose of obtaining gains or profits. In this case, Taxpayer is paid by students who desire to take courses online, generally from their homes. As a result, the service is provided to the student at their place of residence, and if the student s place of residence is in Florida, then the sale is a Florida sale. Likewise, if we consider Taxpayer s sales as providing computer related sales, Rule 12C-1.0155(2)(h)5., F.A.C., would source Taxpayer s sales in the same manner. Students enrolling in the online courses are paying for the convenience of accessing Taxpayer s virtual classrooms from their homes. Online courses are interactive by nature, which means that students receive instruction and feedback from their professor, as well as connection with their peers from their own homes. Generally, online courses are offered through a web-based learning management system that contains tools for distance learning, such as course content and notes, a bulletin board system and chat for collaboration and communication, assignment drop boxes, interactive quizzes, and exams. Since Taxpayer charges students for access to these online courses and materials, Taxpayer s business meets the definition of an interactive network, and therefore, the receipts received from Florida students accessing the online courses would be considered Florida sales and sourced to Florida. 1 Rule 12C-1.0155(2)(e), F.A.C.
Page 5 CONCLUSION Taxpayer should source its tuition receipts from its online courses to Florida if the student is accessing the course content from Florida. Since students generally access the course content from the state in which they reside, receipts from students that reside in Florida should be sourced to Florida in the numerator of the sales factor. This response constitutes a Technical Assistance Advisement under Section 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in Section 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes, or judicial interpretations of the statutes or rules, upon which this advice is based, may subject similar future transactions to a different treatment than expressed in this response. You are further advised that this response, your request and related documents are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of Section 213.22, F.S. Your name, address, and any other details, which might lead to identification of the taxpayer, must be deleted before disclosure. In an effort to protect the confidentiality of such information, we request you provide the undersigned with an edited copy of your request for Technical Assistance Advisement, backup material and response within fifteen days of the date of this advisement. If you have any further questions with regard to this matter and wish to discuss them, you may contact me directly at (850)717-7658. Sincerely, Pamela K. Slater, Esq., LL.M. Senior Attorney Technical Assistance & Dispute Resolution Record ID: 115237