In a recent decision, a Florida circuit court granted summary judgment in favor of a financial technology company, holding that its income from providing online bill payment services to Florida clients was not sourced to Florida for corporate income tax purposes. Checkfree Services Corporation v. State of Florida Department of Revenue, Case No. 2024 CA 1026 (Fl. Cir. Ct. Mar. 6, 2026). The decision is the latest in a series of Florida circuit court rulings reaffirming that Florida is a cost of performance State and that the Department of Revenue cannot rewrite its own rules to achieve a market-based sourcing result.
The Facts: Checkfree Services Corporation (“Checkfree”) is a Delaware corporation headquartered in Milwaukee, Wisconsin that provides online bill payment services to banks, credit unions, and other financial institutions. When a bank customer initiates a transaction to pay a bill online using the customer’s bank account, the request is sent electronically to Checkfree’s system. Checkfree then processes the transaction on behalf of its client by transferring cash through the Federal Reserve’s ACH system, using a third-party bank, or by producing a physical check to mail to the payee.
Checkfree’s business operations are located outside of Florida. Its data centers are located in Omaha, Nebraska, and Johns Creek, Georgia, and during the audit period, Checkfree had zero employees in Florida. The Department’s own audit confirmed that roughly 0.1% of Checkfree’s real and tangible property was located in the State.
Both parties agreed there were no disputed issues of fact and that the Court should decide the case as a matter of law.
The Decision: The Court noted that “no Florida statute explain[s] how to determine whether a sale other than the sale of tangible personal property qualifies as a ‘sale of the taxpayer in this state’…. However, the Department has promulgated administrative rules that address this definitional issue.” The Court’s analysis focused on Rule 12C-1.0155(2)(l), F.A.C. (the “COP Rule”). Under that rule, gross receipts from “other sales” are attributed to Florida only if the “income producing activity” giving rise to the receipts is performed in Florida, measured by “costs of performance.” If the greater proportion of costs are incurred outside of Florida, none of the receipts are sourced to the State. As the Court noted, the analysis under the COP Rule is “binary”—it’s an all-or-nothing test.
The key issue was defining the “income producing activity.” The Department looked to the activities of the Florida customers of Checkfree’s clients who paid their bills online, and it argued the income producing activity occurred wholly in Florida. This approach would have effectively converted Florida’s COP Rule into a look-through market-based sourcing regime. The Court rejected the Department’s argument, relying on the plain language of the COP Rule, which defines “income producing activity” as “the transactions and activity directly engaged in by the taxpayer for the ultimate purpose of obtaining gains or profits.” (Emphasis preserved.) The focus must be on Checkfree’s activities—not on the activities of its clients or their customers. With virtually all of Checkfree’s costs incurred outside Florida, the math was “straightforward”—none of the receipts were Florida sales.
The Court also quickly disposed of the Department’s argument that Checkfree’s receipts should be sourced under a separate rule governing charges for “direct access to a data base.” The evidence was clear that Checkfree’s clients could not see, control, or touch anything in Checkfree’s database. As Checkfree’s witnesses put it, Checkfree “gets paid to move money.” At the hearing, the Department argued that the rule also covers indirect access to a database, but the Court noted the Department’s own regulatory language is limited to direct access. The Department was forced to live with the words it chose.
Finally, while not necessary to its holding, the Court invoked the well-established principle that tax statutes are to be construed in favor of the taxpayer and against the government, with all ambiguities resolved in the taxpayer’s favor.
The Takeaway: While the national trend is toward market-based sourcing (only a handful of states still apply a traditional cost of performance methodology), Florida has not made that legislative change. This case serves as a reminder that departments of revenue cannot achieve through audit what they have not accomplished through the legislature. Service providers with significant Florida customers but out-of-state operations should take note. The Court’s reasoning makes clear that the relevant inquiry under Florida’s COP Rule focuses on the taxpayer’s own activities and where its costs are incurred—not the location of its customers or their customers. Taxpayers should evaluate whether the line of cases rejecting market-based sourcing warrants revisiting their current Florida apportionment positions, including by filing refund claims for open years.
This update is one in a series of updates written for the April 2026 edition of The BR State + Local Tax Spotlight.
© 2026 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.