Did a nominee company owe Florida annual intangible tax on claim-expense-fund assets it held as agent for an exempt insurer?

Plain-English summary

The nominee company did not owe annual intangible tax on the claim-expense-fund assets it held for the insurer. The principal was a licensed motor-vehicle service-agreement company that qualified as an insurer and was exempt from the tax.

The nominee itself did not qualify for the insurer exemption. But its agreement limited it to holding the assets as agent for the principal, for the principal's insurance obligations. Florida's agent rule would normally make an agent pay if its principal failed to do so; here the exempt principal had no tax or filing obligation, so the nominee was effectively exempt too.

What this means for you

The result followed the principal's exemption and the nominee's limited agency role. It did not establish that every affiliate or asset-holding company qualified as an insurer in its own right.

Common questions

Q: Was the nominee itself an insurer? No.

Q: Why was no annual intangible tax due? Its principal qualified as an exempt insurer, and the nominee held the assets solely as that principal's agent.

Q: What were the assets for? A claim-expense fund supporting obligations under motor-vehicle service agreements and related insurance arrangements.

Citations and references

• Fla. Stat. §§ 199.032, 199.185(8), and 199.052(9) — annual intangible tax, insurer exemption, and agent filing rule
• Fla. Stat. §§ 624.03 and 624.80 — insurer definitions
• Fla. Stat. §§ 628.4615 and 634.011 — specialty insurer and motor-vehicle service agreements
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02C2-005

Original ruling text

SUMMARY

QUESTION: Is the annual intangible tax due on the
intangible assets held by a company acting as agent for an
insurer?

ANSWER - Based of Facts Below: A company acting as an agent
would normally be required to pay the annual tax on the
intangible assets of its principal, if the principal failed
to do so. In this case, the insurance company is exempt
from the annual intangible tax, and has no filing
requirement. Therefore, the agent is effectively exempt
from the annual intangible tax under s. 199.052(9), F.S.,
since it is acting as agent for an insurer, and all of the
insurer's assets intangible assets are exempt under s.
199.185(8), F.S.

Mar 18, 2002

Re: Technical Assistance Advisement No. 02C2-005
Intangible Tax
Taxability of Intangible Assets of an Insurer held by a
Nominee Company
Sections 199.185, 199.032, 199.052, 624.03, 624.80,
628.4615, 634.011, F.S.
XXX (Company A)
XXX (Company B)
XXX (Company C)

Dear :

This is in response to your recent request for a technical
assistance advisement pertaining to the applicability of the
Florida annual intangible tax on assets held by a nominee
company of an insurer.

FACTS PRESENTED BY THE PETITIONER

Companies A, B, and C, all Florida corporations, are wholly
owned subsidiaries of a Delaware corporation. Company C sells
automobile mechanical failure service contracts to consumers,
which are claim-based contracts creating a potential liability
for Company C. Company C is required to be licensed under
Chapter 634, F.S., and is subject to regulation by the
Department of Insurance. As a warranty provider, Company C is
required to either set up reserves for potential claim
obligations, or insure the obligations through a property and
casualty insurer carrier in the form of contractual liability
insurance. Company C has elected to insure its potential claim
obligations through a related entity, Company B. Company B, a
licensed property and casualty insurer, which offers contractual
liability insurance, has issued policies of coverage to Company
C for its potential claims obligations.

Pursuant to the insurance policy issued by Company B to
Company C, Company C must maintain a Claim Expense Fund, which
has been established through a related entity pursuant to a
Nominee Agreement. The related entity, Company A, holds assets
only for the purposes of honoring the insurance contract
obligations of Company C in the form of the Claim Expense Fund.
Under the Nominee Agreement, Company A is unable to transfer,
pledge, or sell any of the assets that it holds as the Claim
Expense Fund (the intangibles) without Company C's permission,
and then only as nominee of Company C. The intangible assets
are held by Company A for the sole benefit of Company C in order
to honor the reinsurance policy requirements with Company B.
Companies B and C are subject to Florida Department of Insurance
requirements, and they file the required annual holding company
registration information along with their parent company. The
intangible assets are shown as part of the assets of the
insurance company registration filing.

Requested Ruling

You request the issuance of a Technical Assistance
Advisement determining that no annual intangible tax is due on
the intangible assets held by Company A as Nominee for Company
C, since Company C is an insurer and is exempt from the
intangible tax under s. 199.185(8), F.S.

Discussion and Law

Section 199.185(8) F.S., provides that every insurer, as
defined in s. 624.03, F.S., is exempt from the intangible tax
imposed by s. 199.032, F.S. Under s. 624.03, F.S., an "insurer"
includes "every person engaged as indemnitor, surety, or
contractor in the business of entering into contracts of
insurance or of annuity". Furthermore, s. 624.80(1), F.S.,
states:

"Insurer" means and includes every person defined in s.
624.03 as limited to:

(b) Any specialty insurer as that term is defined in s.
628.4615.

Section 628.4615(1)(a), F.S., includes within the
definition of "specialty insurer" a motor vehicle service
agreement company licensed to issue "motor vehicle service
agreements" as those terms are defined in s. 634.011(7) and (8),
F.S. According to the terms of the Nominee Agreement and the
information provided in the request, Company C is a licensed
motor vehicle service agreement company issuing motor vehicle
service insurance agreements. Company C is therefore exempt from
the intangible tax under Chapter 199, F.S., since it qualifies
as an "insurer" under s. 624.03, F.S. Company A, the Nominee of
Company C, does not meet the definition of an insurer, and it
cannot qualify for the exemption under 199.185(8), F.S.
However, s. 199.052(9), states:

Where an agent other than a trustee has control or
management of intangible personal property, the principal
is primarily responsible for returning such property and
paying the annual tax on it, but the agent shall return
such property on behalf of the principal and pay the annual
tax on it if the principal fails to do so. The department
may in any case require the agent to file an informational
return.

Per the Nominee Agreement provided with your request,

Company A has been appointed agent for Company C for the limited
purpose of holding its intangible assets pursuant to the
obligations of Company A under a contract of insurance with
Company B, in order to provide a claims expense fund to insure
Company C's insurance exposure for potential claims and
obligations under the warranty service agreements provided to
Company C's customers.

DEPARTMENT'S RESPONSE

Company A, in acting as agent for Company C, would normally
be required to pay the annual tax on the intangible assets of
its principal (Company C), if Company C failed to do so. In
this case, Company C is exempt from the annual intangible tax,
since it is an insurer, and has no filing requirement.
Therefore, Company A is effectively exempt from the annual
intangible tax under s. 199.052(9), F.S., since it is acting as
an agent for Company C, and all of Company C's intangible assets
are exempt.

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, F.S. 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

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