Last month, Apple Inc. and Verizon Communications, Inc. each filed lawsuits against the Florida Department of Revenue (the “Department”) in the circuit court for Leon County. Apple contests a $26.3 million assessment tied to digital services and subscriptions, while Verizon seeks a $24.7 million refund, claiming it over-apportioned Florida income from its internet and voice services. These cases represent the latest in a string of taxpayer challenges to the Department’s controversial interpretation of Florida’s sourcing rules for services.

Florida law requires multistate businesses to apportion income using a three-factor formula based on property, payroll, and double-weighted sales.[1] To source receipts from sales of services, taxpayers often apply the “other sales” rule.[2] This so-called Cost of Performance (“COP”) Rule sources receipts to Florida if (1) the income producing activity is performed entirely within the state, or (2) the majority of the income producing activity is performed in Florida, based on costs of performance.[3]

In recent years, the Department has often interpreted its sourcing regulation to require a market-based approach, rather than a COP approach. As a result, the Apple and Verizon lawsuits are part of a broader pattern of legal challenges to the Department’s position.

In 2022, Target Enterprise Inc. (“TEI”) successfully challenged a $10 million tax assessment after a Florida circuit court ruled that the Department was required to apply its own COP Rule to service receipts.[4] In that case, TEI’s sales receipts were for services it provided to Target Corporation. TEI, a subsidiary of Target, did not provide any direct services to Target’s Florida customers. Despite this, the Department sourced TEI sales receipts based on Target’s Florida retail square footage. The Department, relying on state law allowing adjustments between related entities, contended TEI did not provide “sufficient” documentation supporting its use of the COP Rule.

The court disagreed, finding TEI proved a majority of its expenses, i.e. payroll, were incurred outside the state. As a result, the COP Rule applied and TEI’s service sales were not attributable to the state. The court explained that the COP Rule operates in two steps. First the taxpayer’s income producing activity must be determined. Then the rule “requires a balancing of the costs incurred to perform the activity.” If the greater proportion of those costs were incurred in Florida, all the sales receipts are apportioned to Florida. But, if the greater proportion of sales were incurred outside of Florida, no sales are attributable to Florida, since the numerator of the sales factor would be zero.[5]

The Target Enterprises ruling laid the groundwork for other taxpayers to challenge the Department’s continued use of market-based sourcing. In Billmatrix, the Department argued the income-producing activity under the COP Rule should be based on the customer’s location—effectively adopting a market-based approach. But in its March 1, 2023, order, the court rejected that view and reaffirmed that a plain reading of Florida’s COP Rule, not a market-based method, governs the sourcing of service receipts.[6] Although the court granted summary judgment, the case was later dismissed on procedural grounds, leaving the substantive win without effect.

On February 7, 2025, OptumRx, Inc. filed a complaint challenging the Department’s $12.3 million assessment, asserting that the Department improperly sourced service revenue using an estimated market approach, rather than the COP Rule. OptumRx contends the correct sourcing method is the COP Rule. The Department filed its answer on March 20, 2025, maintaining its market-based sourcing position.[7]

In its March 13, 2025, complaint, Apple challenges a $26.3 million assessment related to revenue from digital services such as iTunes, App Store commissions, and content subscriptions. Apple argues that the Department improperly applied a market-based approach by misclassifying these sales under rules for telecommunications and computer-related services, instead of following the COP Rule.[8]

Similarly, Verizon seeks a $24.7 million refund, claiming the Department wrongly sourced its internet and voice service revenue to Florida. Verizon contends that most of its service-related costs were incurred outside the state and that its internet access services are not “telecommunications services” under Florida law, making the COP Rule—not market sourcing—the proper standard.[9]

Despite circuit court rulings upholding Florida’s COP Rule, the Department continues to apply market-based sourcing in audits and assessments. These new cases demonstrate the Department’s persistent stance—even as courts consistently reject it. Taxpayers with Florida-facing service revenue should proactively review their sourcing methods and assess whether they have a viable refund claim. Those already under audit should evaluate their litigation posture and consider how best to preserve their rights.

[1] Fla. Stat. § 220.15.

[2] See, e.g., Target Enterprises, Inc. v. Department, 2021-CA-002158 (Nov. 28, 2022); Billmatrix Corporation v. Department, 2020-CA-000435 (Mar. 1, 2023); Florida Technical Assistance Advisement No. 20C1-003 (Mar. 3, 2020).

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

[4] Target Enterprise, Inc. v. State of Florida Department of Revenue, No. 2021-CA-002158 (Nov. 28, 2022).

[5] Id.

[6] Billmatrix Corporation v. Department, Docket No. 2020-CA-000435 (Mar. 1, 2023).

[7] OptumRx Inc. v. Department, Docket No. 2025-CA-000188 (Feb. 7, 2025).

[8] Apple Inc. v. Department, Docket No. 2025-CA-000407 (Mar. 13, 2025).

[9] Verizon Communications, Inc. v. Department, Docket No. 2025-CA-000430 (Mar. 17, 2025).