How did Florida documentary stamp and annual intangible taxes apply to timeshare cooperative shares and notes transferred to an out-of-state subsidiary?

Plain-English summary

The cooperative stock certificate was not separately subject to documentary stamp tax, and the cooperative shares were not subject to annual intangible tax. Documentary tax applied to the document giving the shareholder the right to occupy the cooperative property. The stock could not be transferred separately from that occupancy right, so the inseparable interest qualified for the stated intangible-tax treatment.

Purchase-money notes legally transferred in substance and form to a wholly owned out-of-state subsidiary before January 1 were not annually taxable when the subsidiary owned them on January 1 and had no Florida commercial domicile or business situs. The Florida developer could perform ministerial or processing activities under an agreement barring discretion; permission to perform functions beyond those limited activities would create Florida situs for the notes.

If the company and subsidiary properly filed a consolidated intangible-tax return, the parent's subsidiary interest and intercompany accounts were eliminated from the tax base.

What this means for you

Formal entity location alone did not decide the note issue. Transfer substance, January 1 ownership, Florida operations, agents, servicing authority, and actual discretion all mattered.

Common questions

Q: Was the cooperative stock certificate separately stamp-taxable? No.

Q: Were the inseparable cooperative shares annually intangible-taxable? No.

Q: Did the out-of-state subsidiary's notes have Florida situs? Not under the stated no-office, no-agent, and ministerial-servicing facts.

Q: What would create situs? Allowing the Florida company to perform functions beyond ministerial or processing activities, including discretionary authority over the notes.

Citations and references

• Fla. Stat. §§ 201.02(2) and 201.05 — cooperative occupancy documents and stock certificates
• Fla. Stat. §§ 199.032 and 199.023(14) — annual intangible tax and taxable situs
• Fla. Admin. Code rr. 12B-4.011(2) and 12C-2.002(1)(h) — cooperative stock and intangible-property rules
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01M-004

Original ruling text

SUMMARY

QUESTION(S):

1 and 4:

When a Company sells shares it owns in a timeshare
cooperative corporation to purchasers of the timeshare
units, are such shares subject to documentary stamp
tax imposed under s. 201.05, F.S., or the annual
intangible personal property tax imposed by s.
199.032, F.S.?

8. Regarding the transfer of notes by the Company to its
   wholly owned out-of-state Subsidiary prior to January
   1 and owned by the subsidiary on January 1, are such
   notes subject to the annual intangible personal
   property tax imposed by s. 199.032, F.S.?

9. Do the subsequent activities of the Company on behalf
   of the Subsidiary pertaining to its servicing of the
   transferred notes constitute ministerial functions or
   processing activities, thereby rendering that the
   Company is neither commercially domiciled nor has a
   business situs in Florida, and thus not subject to the
   annual personal property tax imposed by s. 199.032,
   F.S.?

10. Will the performance of ministerial functions by the
    Company on behalf of the Subsidiary establish a
    taxable situs in Florida for the transferred notes?

11. Will the Company be subject to the annual personal
    property tax for its ownership interest in the
    Subsidiary for any year the Company and the Subsidiary
    file a consolidated return?

ANSWER(S) - Based on Facts Below:

1 and 4:

The sale of shares of stock in the Cooperative will
not be subject to the documentary stamp tax upon the
issuance or transfer of a certificate of stock, since
documentary stock is required to be paid on the
document evidencing the right of the stockholder to
occupy the building owned by the Cooperative, per s.
201.05, F.S. The shares of the stock in the
Cooperative will not be subject to the annual
intangible tax since the ownership of the stock and
the ownership of the dwelling cannot be separated.

8. The notes transferred by the Company to its out-ofstate subsidiary prior to January 1 and owned by the
   Subsidiary on January 1 would not be subject to the
   annual intangible tax, providing legal transfer of the
   notes is effected in substance and form. Providing
   the Subsidiary has no operations, offices, agents, or
   representatives in Florida, the Subsidiary will not
   have a business situs nor will it be commercially
   domiciled in Florida for intangible tax purposes.

9. As stated in the request, the activities of the
   Company will constitute ministerial functions or
   processing activities. This presumes that the service
   agreement between the Company and Subsidiary bars the
   Company from exercising any discretionary authority
   pertaining to the servicing of the notes. If the
   Subsidiary grants permission to the Company to perform
   functions that are other than ministerial or
   processing activities, the notes would then have a
   taxable situs in Florida.

10. Providing the activities of the Company servicing the
    notes constitute ministerial or processing activities
    and the service agreement between the Company and its
    Subsidiary bars the Company from exercising any
    discretionary authority pertaining to the servicing of
    the notes, the Subsidiary will not have a taxable
    situs in Florida, and thereby will not be subject to
    the annual intangible tax on such notes.

11. Presuming all of the statutory requirements are met
for the filing of a consolidated return, upon the
filing of such return the value of the Company's
ownership interest in the Subsidiary and intercompany
accounts would be eliminated from the intangible tax
base.

Dec 19, 2001

Re: Technical Assistance Advisement No. 01M-004
Documentary Stamp Tax and Intangible Tax
Shares of Stock in a Timeshare Cooperative Corporation
Sections 201.02(2), 201.05, and 199.032, F.S.
Rules 12B-4.011(2) and 12C-2.002 (1) (h), F.A.C.
XXX ("The Company")
XXX ("The Cooperative")

Dear :

This is in response to your recent request for a technical
assistance advisement regarding how Florida taxes apply to
planned sales by The Company of shares of stock in a Florida
timeshare cooperative corporation, and the ownership of such
shares by purchasers. The responses to the sales and use tax
and ad valorem tax questions will be answered under separate
cover.

Facts as Presented by Practitioner

The Company is a limited liability company formed under
Florida law. The Company is in the business of acquiring and
developing timeshare properties. The Company's initial
development will be located in a county in Florida, with the
intention of developing other properties at other locations,
including locations outside of Florida.

The Company's timeshare development will be structured as a
cooperative corporation. The Company has formed The

Cooperative, a cooperative corporation under Florida law.

The Company will acquire real property timeshare interests
in two existing condominium projects that are adjacent to one
another in a county in Florida. Once the Company acquires such
timeshare interests, the Company will convey the timeshare
interests to the Cooperative in exchange for all of the
authorized shares of the Cooperative. The condominium projects
include two bedroom residential units that are independent
housekeeping units with facilities for cooking, sleeping and
sanitation normally found in a principal residence. At a later
time, the Company may contribute to the Cooperative additional
real property, some of which may be located outside of Florida.
The Cooperative will subject the residential real property to a
timeshare regime.

The Company will sell shares it owns in the Cooperatives to
purchasers. The Company will offer purchasers the opportunity
to finance their share purchases over time. As an incident of
stock ownership, each purchaser of shares in the Cooperative
will acquire occupancy rights to a unit in the Cooperative's
property for a portion of each year. Purchasers of Cooperative
shares will be prohibited from transferring or selling their
stock in the Cooperative separately from their occupancy rights.

The Cooperative will assess each shareholder annually for
maintenance and other expenses of the property. The expenses
will include ad valorem taxes payable by the Cooperative on its
real property. Other expenses will include amounts paid to the
manager under a management account agreement to manage the
Cooperative's property and amounts paid to the Company or its
affiliate to administer the Club.

A shareholder will have all the rights and powers incident
to the ownership of Cooperative shares. The shareholder will
have the right to sell, mortgage, or hypothecate his shares.
The shareholder will benefit from any increase in the value of
his shares and suffer the consequences of any loss in value of
the shares. The shareholder will be free to use his timeshare
period subject only to the rules of the Cooperative applicable
to all other shareholders.

Additional facts presented in your amended request dated
XX, include the withdrawal of the portion of the original
request for an advisement that a purchase money note secured by
shares of the Cooperative will not be subject to the annual
intangible personal property tax.

Included within the amended request is the fact that the
Company is contemplating creating a whole new subsidiary (the
"Subsidiary") outside Florida. The Subsidiary will have no
operations, offices, agents, representatives or employees in
Florida.

When the Company sells its shares in the Cooperative, some
purchasers will execute and deliver to the Company purchase
money installment notes, which will be secured by shares in the
Cooperative. The Company will transfer the purchase money
installment notes generated during the year to the Subsidiary as
a capital contribution. This transfer would take place prior to
December 31 of each year. Once the notes are transferred to the
Subsidiary, the Company will not exercise any discretion or
judgment as to the quality of the notes. The Subsidiary will
enter into a service agreement with the Company, for which the
Company will be paid a fee, to provide the following services:

*

Identify all sold notes as sold notes in their accounting
records.

*

Ensure that notes that are sold are in compliance with any
credit and collection policies of the Subsidiary or that
the notes are not in default prior to purchase.

*

Maintain the books and records necessary for the collection
of the sold notes.

*

Report activities, outstanding balances, and aging of notes
to the Subsidiary on a periodic basis.

*

Collect the notes and account for any collections.

*

Remit proceeds to the Subsidiary.

*

Make routine communications with the issuers of the notes
regarding payments, credit problems.

*

Notify the Subsidiary of uncollected accounts.

*

Send routine reminders to the issuers of the notes for late
payment.

In the absence of the Subsidiary's written permission, the
Company will have no authority to engage in any activities
related to the transferred notes other than those granted in the
service agreement.

Petitioner's Statement of Positions

The activities outlined above constitute ministerial
functions, since they do not involve the use of discretion or
judgment with respect to the notes. Further, the activities
constitute processing activities because they are done in
accordance with criteria set by the Subsidiary. The Company
does not own, control or manage the notes on January 1 and is
not subject to the annual intangible tax. The Subsidiary will
not be subject to the annual tax, because it will not have a
taxable situs in this state.

The Company and its Subsidiary are eligible to file a
consolidated return for any year, which will not create a
business situs for the Subsidiary's notes. Where a consolidated
return is filed, intercompany accounts shall not be subject to
annual taxation; thus, the Company will not be subject to the
annual intangible tax for its ownership interest on the
Subsidiary for any year the Company and the Subsidiary file a
consolidated return.

REQUESTED ADVISEMENTS

1. The sale of shares of stock in the Cooperative will not be
   subject to the documentary stamp tax imposed by s. 201.05,
   F.S., upon the issuance or transfer of a certificate of
   stock.

4. The shares of stock in the Cooperative will not be subject
to the annual intangible personal property tax imposed by
s. 199.032, F.S.

8. The notes transferred by the Company and the Subsidiary
   prior to January 1 and owned by the Subsidiary on January 1
   are not subject to the intangible personal property tax
   levied pursuant to s. 199.032, F.S., since the Subsidiary
   has neither a business situs nor is commercially domiciled
   in Florida.

9. The activities of the Company as outlined above constitute
   ministerial functions or processing activities under s.
   199.023, F.S.

10. The performance of ministerial functions by the Company on
    behalf of the Subsidiary will not establish a taxable situs
    in Florida for the transferred notes.

11. The Company's ownership interest in the Subsidiary will be
    eliminated from the intangible tax base as an intercompany
    account by the filing of a consolidated return.

DISCUSSION AND LAW

Documentary Stamp Tax

Section 201.02(1), F.S., imposes the documentary stamp tax
on deeds and other instruments transferring an interest in real
property at the rate of $.70 per $100 based on the consideration
given. Section 201.02(2), F.S., provides that the tax is also
payable upon documents by which the right is granted to a
tenant-stockholder to occupy an apartment in a building owned by
a cooperative apartment corporation or in a dwelling on real
property owned by any other form of cooperative association as
defined in s. 719.103, F.S. In such a case, documentary stamp
tax is not applicable to stock certificates issued in
conjunction with the sale of a cooperative, since tax is
required to be paid on the document granting the stockholder the
right of occupancy based on the sales price paid for the

dwelling.

Intangible Tax

Section 199.023 (1)(a), F.S., defines intangible personal
property to include shares of stock of incorporated or
unincorporated businesses, business trusts and mutual funds.
Stock in a cooperative association is not taxable if the
ownership of the stock and the ownership of the housing unit
cannot be separated.

Section 199.032, F.S., imposes an annual tax on all
intangible personal property that has a taxable situs in
Florida. Intangible personal property has taxable situs in
Florida when it is owned, managed or controlled by any person
domiciled in this state, or when it has a business situs in this
state and it is owned, managed or controlled by a person
transacting business in this state. See s. 199.175, F.S.
"Control or manage" does not include ministerial functions. See
s. 199.023(13), F.S. "Processing activities" include those
undertaken to administer or service intangible personal property
in accordance with such terms, guidelines, criteria, or
direction as are provided solely by the owner of the property.
See s. 199.023(14), F.S. Property that does not have taxable
situs in Florida is not subject to annual intangible tax.

Section 199.052(10), F.S., permits the filing of a
consolidated return for any year provided the statutory
requirements are met. When a company elects to file a
consolidated return, intercompany accounts are eliminated, and
thus are not subject to the annual tax.

Department Response

In response to Question #1, the sale of shares of stock in
the Cooperative will not be subject to the documentary stamp tax
imposed by s. 201.05, F.S., upon the issuance or transfer of a
certificate of stock, since tax is required to be paid on the
document evidencing the right of the stockholder to occupy the
building on real property owned by a cooperative corporation.

In response to Question #4, the shares of the Cooperative
will not be subject to the annual intangible personal property
tax since the ownership of the stock and the ownership of the
dwelling cannot be separated. As stated in your letter,
purchasers of shares in the Cooperative will be unable to
transfer their shares in the Cooperative separately from their
occupancy rights in the building owned by the Cooperative.

In response to Question #8, the notes transferred by the
Company to the Subsidiary prior to January 1 and owned by the
Subsidiary on January 1 would not be subject to the annual
intangible tax, providing legal transfer of the notes is
effected in substance and form and providing the Subsidiary has
neither a business situs nor a commercial domicile in Florida.
Your correspondence states that the Subsidiary will have no
operations, offices, or agents, representatives in Florida.
Based on all these facts, the Subsidiary will not have a
business situs nor will it be commercially domiciled in Florida
for intangible tax purposes.

In response to Question #9, your letter states that the
activities of the Company will constitute ministerial functions
or processing activities. This presumes that the service
agreement between the Company and Subsidiary bars the Company
from exercising any discretionary authority pertaining to the
servicing of the notes. If the Subsidiary grants permission to
the Company to perform functions that are other than ministerial
or processing activities, the notes would then have a taxable
situs in Florida.

In response to Question #10, presuming the Company performs
only ministerial functions on behalf of the Subsidiary, such
performance would not establish taxable situs in Florida for the
transferred notes.

In response to Question #11, presuming all of the statutory
requirements are met, upon the filing of a consolidated return
the value of the Company's ownership interest in the Subsidiary
and intercompany accounts would be eliminated from the
intangible tax base.

This response constitutes a Technical Assistance Advisement
under s. 213.22, F.S., which is binding on the Department only
under the facts and circumstances described in the request for
this advice, as specified in s. 213.22. Our response is
predicated on those facts and the specific situation summarized
above. You are advised that subsequent statutory or
administrative rule changes or judicial interpretations of the
statutes or rules upon which this advice is based may subject
similar future transactions to a different treatment from that
which is expressed in this response.

You are further advised that this response, your request
and related backup are public records under Chapter 119, F.S.,
and are subject to disclosure to the public under the conditions
of s. 213.22, F.S. Confidential information must be deleted
before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

Joy B. Eldred, C.P.A.
Tax Law Specialist
Technical Assistance and Dispute Resolution
Office of the General Counsel

JBE/mh