A recent Florida Department of Revenue Technical Assistance Advisement (TAA) applied costs-of-performance (COP) sourcing for corporate income tax purposes in a manner that is more akin to market sourcing. Tech. Asst. Adv. 11C1-008 (Sept. 15, 2011).
The TAA applied to receipts from the Taxpayer’s two predominant revenue streams: receipts from subscription programming and advertising. The Taxpayer provided subscription content directly to distributors and had no direct contact with its customers’ customers (i.e., retail subscribers/customers). The Department of Revenue stated that the income producing activity is the Taxpayer’s delivery of programming content to distributors and that such delivery constitutes performance. Thus, the Department found that subscription revenue would be sourced to Florida when the distributor is located in Florida. The Taxpayer’s receipts from subscription services provided to out-of-state distributors would not be sourced to Florida, even if that distributor provided the content to Florida residents.
Interestingly, there was no mention of the location of the Taxpayer’s activities or costs associated with producing the programming content, which is typically the focus of a COP analysis. The TAA further stated that the Taxpayer cannot use the special industry regulation applicable to broadcasters because the Taxpayer is not in direct contact with individual subscribers.
The Department ruled that the Taxpayer’s advertising revenue should be sourced to the location of the advertiser. The TAA stated that “although activities related to the production of income . . . occur outside of Florida (such as the gathering . . . and processing of all necessary information to develop and produce the advertisements), those activities cannot rightly be called income producing activity.”
This TAA demonstrates the significant non-uniformity associated with the application of COP sourcing.