Florida Applies Service Revenue Sourcing Guidance Based on Location of Deliverables

March 1, 2022

Orlando, Florida Skyline

By: Tina M. Chunn, SALT Senior Manager

At a glance

  • The main takeaway: Florida concluded that a taxpayer’s service revenue should be sourced to Florida on a market basis – rather than using a cost-of-performance method – to the extent that the deliverables from those services are forwarded, sent, delivered or provided to a location in Florida.
  • Assess the impact: The variability from state to state in sourcing service revenue determinations can significantly impact your company’s multi-state income tax liabilities.
  • Take the next step: Aprio’s State and Local Tax (SALT) Team can guide you through varying state revenue sourcing methodologies to help you determine the best strategy for your revenues.

Schedule a free consultation today to learn more!

The full story:

In a Florida Technical Assistance Advisement (TAA) 21C1-005 (dated July 2, 2021, but released in January 2022), the state continued its recent string of interpretive guidance in which it concluded that a taxpayer’s service revenue should be sourced to the location of the customer (i.e., a market-based approach).[1] The state reached these conclusions despite regulatory provisions strongly suggesting that the state sources service revenue based on the location of the “income-producing activity,” typically referred to as the “cost of performance” approach.

In this TAA, the taxpayer and its subsidiaries provided a variety of services. The specific nature of these services is not provided, but the TAA makes clear that the services are not personal services nor are they sales of a financial organization.

The TAA explains the state’s sourcing regulation

Florida’s sales factor apportionment regulation first addresses the definition of “sales,” which means “all gross receipts received by the taxpayer from transactions and activities in the regular course of business,” and, with respect to services, “includes the gross receipts from the performance of such services including fees, commissions, and similar items.”[2]

Next, the regulation describes the type of sales that are considered “Florida sales,” and thus would be included in the numerator of the Florida sales factor. The general rule is that the “numerator of the sales factor includes gross receipts attributed to Florida which were derived by the taxpayer from transactions and activities in the regular course of its trade or business.”[3]

The regulation then described the application of the general to certain revenues, including, but not limited to, sales and rentals of tangible personal property and real property, computer-related sales, licensing of intangible property, personal services (which is not applicable in this case) and telecommunications services.[4] For any revenues that are not addressed by those specific provisions, there is a catch-all sourcing rule titled “Other Sales in Florida” which states:

  • Gross receipts from other sales shall be attributed to Florida if the income producing activity which gave rise to the receipts is performed wholly within Florida. Also, gross receipts shall be attributed to Florida if the income producing activity is performed within and without Florida, but the greater proportion of the income producing activity is performed in Florida, based on costs of performance. The term “income producing activity” 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.

The TAA’s analysis

Interestingly, the TAA, in applying the above rules to the taxpayer’s services, interpreted the general rule (described above) for determining Florida sales as directing that “such income is to be sourced to Florida and included in the numerator of the sales factor when the services are rendered to customers located in Florida, or the deliverables from those services are forwarded, sent, delivered, or provided, to a location in Florida for the customer.” It then determined that this rule is “more on point and more appropriately applied to the income in question” than the specific provision addressing “Other Sales in Florida.”

Based on that analysis, the TAA concluded that the taxpayer’s services should be included in the numerator of the Florida sales factor to the extent that “the deliverables from those services are forwarded, sent, delivered, or provided, to a location in Florida.”

The bottom line

Aprio’s SALT Team is experienced with the varying guidance for revenue sourcing methodology in the states and can help identify the proper approach for your revenues. Sourcing determinations can have a significant impact on your company’s multi-state income tax liabilities, and our analysis will ensure that your business is not over-apportioning income among the states. We constantly monitor these and other important state tax topics, and we will include any significant developments in future issues of the Aprio SALT Newsletter.

Contact Tina Chunn, SALT Senior Manager, State & Local Tax Services at  [email protected] or Jeff Glickman, partner-in-charge of Aprio’s SALT practice, at [email protected] for more information.

This article was featured in the February 2022 SALT Newsletter.

[1] For a prior Aprio SALT Newsletter article addressing this issue, click here.

[2] Fla. Admin. Code Ann. 12C-1.0155(1)(h).

[3] Fla. Admin. Code Ann. 12C-1.0155(2).

[4] See Fla. Admin. Code Ann. 12C-1.0155(2)(a)-(k).

[5] It is worth noting that such language does not specifically exist in the regulation.  However, the TAA states that the Florida “is frequently referred to as a “market state” because its sales apportionment is based on where the sales transaction takes place rather than where contracts are approved, where data is processed or stored, where payment is made, or where the customer’s headquarters is located.”


Any tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or under any state or local tax law or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Please do not hesitate to contact us if you have any questions regarding the matter.

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About the Author

Tina Chunn

Tina is a senior manager with Aprio’s State & Local Tax group. She has over 24 years of experience assisting companies and their owners to minimize their tax liability and maximize their profitability. Some of the industries Tina serves include professional services, manufacturing, warehousing and distribution, telecommunications, real estate, retailers and wholesalers. Tina has extensive experience dealing with corporate tax issues, including state and local tax returns; state and federal tax credits; state and local sales; and use, income, escheat, business licenses and property tax issues.

(770) 353-5334