How did Florida's revised ruling tax shares of a municipal fund that temporarily held a taxable asset at year-end?

Subject

Valuation - Business Trust

Plain-English summary

The trust itself was exempt, but a temporary taxable asset held at year-end made the fund's remaining net asset value taxable after specified federal and territorial obligations were removed. Full share exemption required a portfolio consisting entirely of exempt assets.

The ruling said federal income-tax treatment of interest did not by itself determine property-tax exemption. Direct United States government and territorial obligations received the federal carve-out; after that, any taxable asset caused the rest of net asset value to be taxed.

The close of business on the last business day of the preceding year was the sole valuation point. This revision superseded TAA 92C2-017.

What this means for you

The revised ruling rejected general proportional apportionment for the remaining portfolio. Even a small temporary taxable holding at year-end could expose all remaining value after the federal carve-out.

Common questions

Q: Did tax-exempt federal income automatically mean property-tax exemption? No.

Q: What if the portfolio was entirely exempt at year-end? The shares were fully exempt.

Q: What if one taxable asset remained? Only direct federal and territorial obligations were removed; the remaining net asset value was taxable.

Citations and references

• Fla. Stat. §§ 199.032, 199.103, 199.185(1)(g), (i) — former intangible tax and exemptions
• 31 U.S.C. § 3124(a) — United States government obligations
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 92C2-017R

Original ruling text

Status: Supersedes TAA 92C2-017, November 4, 1992

Jan 07, 1993

Re: TAA 92(C)2-017R (Revised)
Intangible Tax - Valuation - Business Trust
Sections 199.103 & 199.185(1)(i), F.S.
XXX (The Trust)
XXX (Florida Fund)

Dear

Your request for a Technical Assistance Advisement has been
referred to this office for response. The specific request is
for technical advice on the application of intangible tax to a
trust organized as a Massachusetts business trust.

Based on the information submitted five questions have been
presented for response:

1. Will the Trust be subject to Florida's intangible
   personal property tax?
2. Will shares of the Trust be 100% exempt from the
   Florida intangible tax levied by s. 199.032, F.S., if,
   on the last business day of the previous calendar
   year, the portfolio of investments consists solely of
   tax-exempt obligations of Florida, their counties,
   municipalities, agencies or other political
   subdivisions, the U.S. Government, Puerto Rico, Guam,
   or U.S. Virgin Islands?
3. Would the answer to item 2. above be different if a
   portion of the interest from the Florida obligations
   were not excluded from gross income for federal income
   tax purposes?
4. If on the last day of the previous calendar year the
   Trust has a small portion of its assets invested
   temporarily in certain non-exempt assets will the
   portion of the net asset value represented by tax
   exempt obligations of Florida, or their

municipalities, agencies or political subdivisions,
the U.S. Government, Puerto Rico, Guam, or U.S. Virgin
Islands be exempt from the Florida intangible tax
levied by s. 199.032, F.S.?

5. Is the last business day of the previous calendar year
   the sole exclusive date for determining what portion,
   if any, of the net asset value of shares of the Trust
   is subject to the Florida intangible tax levied by s.
   199.032, F.S.?

The Trust is a business trust established under the laws of
the Commonwealth of Massachusetts by a Declaration of Trust.
The Florida Fund is one of seven non-diversified investment
portfolios offered by Trust. The Florida Fund's objective is to
provide shareholders a high level of tax exempt income through
investment in a portfolio of investment obligations the interest
of which is exempt from federal income taxation and Florida
intangible property tax. The Trust intends to achieve its
objective by investing in a portfolio of tax-exempt municipal
securities of Florida issuers including the State, counties,
municipalities and political subdivisions, agencies and
instrumentalities of the State of Florida, as well as
obligations of territories and possessions of the United States.

The applicable provisions of the Florida statutes impose an
annual tax of 1.5 mills (2 mills effective January 1, 1993) on
the just value of all intangible property, owned by Florida
residents, as of January 1 of each calendar year (s. 199.032,
F.S.). The tax is based upon the value of the intangible
property as prescribed by s. 199.103(2), F.S. This subsection
requires that shares of corporations, mutual funds, money market
funds or trusts be valued at their net asset value unless exempt
by s. 199.185(1)(i), F.S.

Your first question is responded to negatively. Section
199.185(1)(g), F.S., exempts the assets owned by a company
organized under the Investment Company Act of 1940. Further,
the principal business location of The Trust is outside of
Florida. No business is conducted in Florida with Florida
customers by employees, agents or representatives of the Trust.
Therefore, the Trust is not subject to the intangible tax.

Your second question is responded to positively. Section
199.185(1)(i), F.S., exempts from the intangible tax shares of a
trust whose portfolio of assets are 100% exempt from intangible
tax.

Your third question is answered in the negative. The
exclusion from income tax does not in and of itself provide an
exemption from a property tax.

Your fourth question is answered in the negative. Prior to
1987, Attorney General's Opinion #064-143 advised the Department
to apportion the value of funds organized as a trust, taxing
only the portion consisting of taxable assets. In 1987 and
1988, Chapter 199, F.S., was amended to tax these types of funds
at net asset value and to provide an exemption for shares of a
trust whose portfolio consists solely of assets exempt from the
intangible tax. These amendments succeed Attorney General's
Opinion #064-143. Also governing the taxation of these types of
funds is 31 U.S.C. s. 3124(a), which provides that stocks and
obligations of the United States Government are exempt from
taxation by a State. The exemption applies to each form of
taxation that would require the obligation, the interest on the
obligation, or both to be considered in computing a tax, except
for a nondiscriminatory franchise tax or other nonproperty tax.

Applying the Federal Statute and Florida Statute to the
Trust requires that the following guidelines be used to
determine what portion, if any, of the net asset value of the
Trust will be exempt from taxation:

The portion of the net asset value of the Trust that is
attributable to direct obligations of the United States
Government is exempt from taxation.

If the remaining portion of the net asset value of the
Trust, after removing the portion representing United
States Government obligations, represents assets which are
themselves exempt from Florida's intangible tax; then this
portion of the net asset value of the Trust's portfolio is
also exempt from tax.

If the remaining portion of the net asset value of the
Trust, after removing the portion attributable to United
States Government obligations, represents any asset which
is taxable under Florida law, then the remaining portion of
the net asset value of the Trust is subject to tax.

Should the Trust have any portion of its portfolio invested
in taxable assets on January 1 of any tax year, only the portion
of the net asset value which is made up of direct obligations of
the United States Government, or territories and possessions of
the United States Government may be removed from the net asset
value. The remaining net asset value would be subject to tax.

The fifth question is also answered in the positive. The
date prescribed for valuation of all intangible personal
property is as of the close of business on the last business day
of the previous calendar year (s. 199.103, F.S.).

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 than
expressed in this response.

You are further advised that this response and your request
are public records under Chapter 119, F.S., which are subject to
disclosure to the public under the conditions of s. 213.22, F.S.
Your name, address, and any other details which might lead to
identification of the taxpayer must be deleted by the Department
before disclosure. In an effort to protect the confidentiality
of such information, we request you notify the undersigned in
writing within 15 days of any deletions you wish made to the
request or the response.

Sincerely,

J.V. Parramore, Jr.
Technical Assistant
Technical Assistance

JVP/mh