What is nonbusiness income in Florida corporate tax law?

Nonbusiness income in Florida includes interest, dividends, capital gains, and royalties that do not arise from the regular course of a taxpayer’s trade or business.

How does Florida determine business vs. nonbusiness income?

Florida uses two tests embedded in statute: the transactional test (based on business activity) and the functional test (based on whether the asset is integral to business operations).

What is the significance of Rule 12C-1.0155 in Florida?

This rule governs whether income from intangible property like dividends and interest is included in the sales factor. Passive income is typically excluded.

Are dividends included in the sales factor in Florida?

Only if the dividends come from active business use of the intangible asset. Passive dividends are excluded under Rule 12C-1.0155(1)(f)2.

What happened in the OptumRx case?

OptumRx is currently litigating whether its manufacturer rebates are part of gross receipts and whether its PBM services are sourced correctly under Florida’s rules.

What was at issue in the Honda case?

Honda challenged the inclusion of GHG and CAFE credit income as apportionable business income. The case was voluntarily dismissed before a decision.

Would Microsoft have won in Florida like it did in California?

Probably not. Florida likely would have excluded the dividends from the sales factor due to its passive nature, even if they were business income.

Does Florida use cost-of-performance or market-based sourcing?

Florida law uses cost-of-performance, but the Department has interpreted it in ways that resemble market-based sourcing, especially for services.

Can functionally related dividends be business income in Florida?

Yes. They are presumed to be business income under § 220.03(1)(r), but must still meet sales factor inclusion criteria.

Why is Florida more rigid than other states on business income?

Florida combines strict statutory definitions with detailed rules that limit what counts as apportionable income and what can be included in the sales factor.

Business vs. Nonbusiness Income in Florida Corporate Tax: A Line More Rigid Than You Think

For multistate corporations navigating Florida’s corporate income tax rules, the difference between business and nonbusiness income isn’t just theoretical—it can determine whether income is subject to apportionment, which state gets to tax it, and whether key receipts are included in the sales factor.

While many states have blurred the boundaries between business and nonbusiness income, Florida draws that line sharply, through both its statutory language and its administrative rules. Two recent cases—OptumRx and Honda—show how Florida continues to enforce a highly structured, conservative interpretation. And when compared to cases like Microsoft’s successful refund in California, it’s clear Florida plays by a different rulebook.

Florida’s Statutory Framework: Business Income by Exclusion

Florida does not define “business income” directly. Instead, it defines nonbusiness income in § 220.03(1)(r), Fla. Stat.:

“Nonbusiness income” means rents and royalties from real or tangible personal property, capital gains, interest, dividends, and patent and copyright royalties, to the extent that they do not arise from transactions and activities in the regular course of the taxpayer’s trade or business.
The term does not include income from tangible and intangible property if the acquisition, management, and disposition of the property constitute integral parts of the taxpayer’s regular trade or business operations…
Functionally related dividends are presumed to be business income.

This structure incorporates both the transactional test and the functional test, although Florida does not name them. Both are regularly applied in audits and litigation.

Administrative Overlay: Not All Business Income Affects Apportionment

Florida further limits apportionment through Rule 12C-1.0155(1)(f)2, which excludes certain types of intangible income from the sales factor:

Where business income in the form of dividends… results from the mere holding of the intangible personal property by the taxpayer, such dividends… shall be excluded from the denominator of the sales factor.

Even if income is business income, it must still pass this test to be included in apportionment calculations.

OptumRx: Rebates and Sourcing in Dispute

In OptumRx, Inc. v. Florida Department of Revenue (2025 CA 000188), the taxpayer argues that pharmaceutical rebates are part of its PBM services and should be included in the sales factor. It also claims that most of its services are performed outside Florida under the cost-of-performance rule.

The Department disagrees, asserting that:

Rebates are not sales receipts and should be excluded from the sales factor.
The rebates stem from passive activity, not Florida operations.
The services should be sourced based on where benefits are delivered—i.e., Florida patients.

Honda: Dismissed Before Decision, But Clear Positions

In American Honda Motor Co., Inc. v. Florida Department of Revenue (2022 CA 000222), Honda attempted to exclude proceeds from the sale of GHG and CAFE credits as nonbusiness income, arguing the credits were incidental and not part of its regular business operations.

The Department countered that:

The credits were generated through core vehicle sales.
They were functionally integrated into Honda’s business model.
They should be included in the sales factor.

Honda filed a notice of voluntary dismissal, and the court never ruled on the matter. Still, the pleadings show how the Department frames income as apportionable under both statutory and rule-based logic.

The California Contrast: Microsoft’s Refund Wouldn’t Fly Here

In 2024, Microsoft successfully argued in California that foreign dividends were business income and should be included in the sales factor denominator. The state’s Office of Tax Appeals agreed, resulting in a refund exceeding $100 million.

In Florida, that outcome would be unlikely. Even if the dividends were business income, Florida’s Rule 12C-1.0155(1)(f)2 would likely exclude them as resulting from passive investment. Microsoft’s victory in California underscores how strict Florida’s structure truly is.

Conclusion: Florida’s Boundary Is Built to Withstand Litigation

Florida applies a layered and restrictive approach to business income:

Statutory classification under § 220.03(1)(r).
Rule-based exclusions that limit inclusion in the sales factor.

Cases like OptumRx and Honda show how aggressively the state applies this structure. And compared to jurisdictions like California, where refund claims like Microsoft’s are possible, Florida’s tax law is far less forgiving.