Florida’s cost of performance (“COP”) regulation for purposes of apportioning sales other than tangible personal property seemed clear. 12C-1.0155(2)(l), Fla. Admin. Code, provides:
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.
When the income producing activity occurs both in and outside of Florida, sales are only to be attributed to Florida when the greater proportion of the income producing activity is performed in Florida. Two recent cases between 2022 (Target) and 2023 (Billmatrix) further clarified that the Florida Department of Revenue cannot ignore the cost of performance rule when it fails to suit them.
However, in a string of recent cases, the Department is continuing to take the position that if the customer is in Florida, then the revenues should be sourced here as well. In Apple, the Florida Department of Revenue’s position is that “item of income” described in Rule 12C-1.0155(2)(l), Fla. Admin. Code, above, means each exchange between a buyer and seller that results in a separate increment of income. Therefore, the Department believes the income producing activity in such transactions occurs exclusively in Florida when the customer is located here. Meanwhile, in Microsoft, the Department has said it is “not reasonable to expect that none of the purchasers of these products are located in Florida,” and declined to rely on the COP rule in favor of Rule12C-1.0155(2)(h) instead.
These two are only a sample of the current COP cases in litigation, and surely more are to come within the year. This onslaught of cases challenging the Florida Department of Revenue’s strange attempts to bypass the COP rule begs the question – Does FDOR believe the COP Rule is dead? If so, how will the courts sort this mess out?
Jeanette Moffa, Esq.
Phone: (954) 800-4138
Email: [email protected]
Jeanette Moffa is a Partner in the Fort Lauderdale office of Moffa, Sutton, & Donnini. She focuses her practice in Florida state and local tax. Jeanette provides SALT planning and consulting as part of her practice, addressing issues such as nexus and taxability, including exemptions, inclusions, and exclusions of transactions from the tax base. In addition, she handles tax controversy, working with state and local agencies in resolution of assessment and refund cases. She also litigates state and local tax and administrative law issues.
