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KPMG LLP Telephone 513 421 6430

560 Lexington Avenue Fax 513 763 2690


New York, NY 10022 Internet www.us.kpmg.com

December 6, 2018

VIA E-MAIL

Florida Department of Revenue


Office of General Counsel
Post Office Box 6668
Tallahassee, FL 32314-6668

Re: PRL Fashions, Inc.


FEIN: 52-2039932
Case No.: 200225103, 200225104, 200225105
Petition for Administrative Hearing - Response to Notice of Decision of Refund Denial
dated October 08, 2018

Dear Mr. Hamm:

On behalf of our Client, PRL Fashions, Inc. (“PRL” or the “Taxpayer”), we respectfully request a
Chapter 120 administrative hearing with the General Counsel at the Department of Revenue (the
“Department”) regarding the refund denial of Florida Corporate Income/Franchise Tax refunds in the
amount of $1,293,025.78 for the fiscal tax years ended March 31, 2013, March 29, 2014, and March
28, 2015 pursuant to the Notices of Decision of Refund Denial dated October 08, 2018 received by
mail.

Taxpayer’s Response

The Taxpayer is an intangible holding company of licensed trademarks for the Ralph Lauren brand.
PRL’s business operations are limited to the licensing of intangible property (trademarks and trade
names) to domestic affiliate entities. The royalty income received is generated solely from the
licensing of trademarks and trade names and is calculated as a percentage of net sales of all licensed
products sold by or on behalf of the affiliated companies. PRL files a stand-alone Florida Corporate
Income/Franchise Tax Return. During the fiscal years ended March 31, 2013, March 29, 2014, and
March 28, 2015, the Taxpayer included royalty income in the computation of its Florida sales factor.
Note that PRL does not currently have payroll or property in the state.

Florida defines the term “sales” in Fla. Stat. § 220.15(5) as all gross receipts of the taxpayer from
transactions and activities in the regular course of its trade or business. Specifically exempted from
the definition of “sales” are dividends, rents, royalties, and gross receipts from the sale, exchange,
maturity, redemption, or other disposition of securities. Florida law further specifies that royalty
income is only to be included in the computation of the sales factor if a significant portion of the
taxpayer’s business consists of dealing in or with the production, exploration, or development of
minerals. The statute does not mention the inclusion of royalty income in the sales factor from
licensed intellectual property related to retail goods. The legislative intent of the exclusion of royalty
income is to eliminate ambiguity related to the sourcing of intangibles as intellectual property as its
benefit cannot be attributed to a particular state or income-producing activity.

KPMG LLP, a U.S. limited liability partnership, is the U.S.


Member firm of KPMG International, a Swiss cooperative.
Additionally, even if the receipts were included in the sales factor, they would not be sourced to
Florida. Fla. Admin. Code Ann. r. 12C-1.0155(1)(f)(2) provides that where income from intangible
property cannot readily be attributed to any particular income producing activity, such income cannot
be assigned to any state and therefore must be excluded from the sales factor entirely. The intangible
property owned by PRL is internally developed and licensed to and used among entities in multiple
states. Therefore, the income producing activity of the royalty receipts of PRL cannot be attributed to
any particular state for sourcing purposes. Accordingly, PRL must still exclude the royalty receipts
from its Florida sales factor by the regulation’s own operation.

To outline the most recent chain of correspondence, on March 19, 2018, PRL received a Notice of
Proposed Refund Denial in which the Department asserts that PRL falls within the Quaternary Market
Sector – comprised of companies engaged in the business of “intellectual property, trademarks, trade
names, and educational materials.” The Department further asserts that because companies operating
in the Quaternary Sector have no enumerated statutory guidance to rely on to determine an
apportionment method, a modified or alternative method is necessary. However, the analysis of the
Market Sectors is not supported by any statute or regulation promulgated by the Department nor do
we believe it is an accurate description of the Market Sectors. The Department has not set forth
guidance to support the claim that if a taxpayer falls within the “Quaternary Sector” they must use a
modified or alternative method of apportionment. The argument that an alternative apportionment
methodology must be used based on the definition of the various Market Sectors is a contradiction to
Florida’s statute. Absent any statutory or other administrative guidance set forth by the Department,
the Taxpayer must rely on the statutory guidance available. Furthermore, even if the royalties were
to be included under an alternative method of apportionment, they would not be sourced to Florida
according to the State’s regulations. This was detailed in our response to this notice dated May 14,
2018 with the subject “Response to Notices of Propose Refund Denial dated March 19, 2018.”

Following our response, we had a conference call with Suzanne Haines to discuss PRL’s refund
request. No additional arguments or facts were discussed at that time. The call was then followed by
the aforementioned Notice of Decision of Refund Denial on October 08, 2018 from the Department.
It should be noted that this denial did not address the market sector discussion noted in our May 14,
2018 response and rather, requested confirmation of issues regarding the inclusion of royalty income
and value of trademarks in the sales and property factor for apportionment, respectively, that do not
align with the facts previously stated about PRL. The Department’s proposed sourcing of royalties to
Florida, which we believe to be unsupported by the current tax statutes, causes the taxpayer to be
wrongfully liable for substantially more income tax to the State. In addition, there are no disputed
facts in this case. This issue stems from the misapplication of Florida tax law rather than from disputed
facts. Accordingly, we are petitioning for an administrative hearing to settle this dispute under the
Florida tax statutes pertaining to this matter.

Request for Administrative Hearing

Please accept this letter as a petition on behalf of our client for a Chapter 120 administrative hearing
with the Office of General Counsel to contest the refund denial of $1,293,025.78 related to the issue
stated above for tax periods ended March 31, 2013, March 29, 2014, and March 28, 2015.
Additionally, PRL also reserves the right to supplement this petition with additional information.

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If you have any questions or concerns regarding the submission of this petition, please feel free to
contact me at or Allison Bochet
.

Respectfully submitted,

Liezl Walker
Tax Managing Director

cc: Allison Bochet – KPMG LLP (New York)


Jeremy Dukes – KPMG LLP (Florida)