How did Florida's revised ruling determine the exempt share value of an out-of-state business trust?

Subject

Valuation - Business Trust

Plain-English summary

The trust itself was not subject to Florida intangible tax, and its shares received exemption treatment based on the year-end portfolio. The trust had no Florida location, employees, agents, or representatives and operated principally outside Florida.

The portion of net asset value attributable to direct United States government and territorial obligations was exempt. After removing that portion, the entire remainder was exempt only if every remaining asset was exempt under Florida law. If the remainder contained any taxable asset, the ruling treated that remaining value as taxable.

The close of business on the last business day of the preceding year was the sole valuation point. This revised ruling superseded TAA 93C2-001.

What this means for you

The ruling did not use a fully proportional approach for every asset. It carved out specified federal and territorial obligations first, then applied an all-exempt test to the rest of the portfolio.

Common questions

Q: Was the out-of-state trust itself taxable? No, on the stated Investment Company Act and Florida-contact facts.

Q: Did one taxable asset affect the whole remaining portfolio? Yes. After the federal and territorial carve-out, any taxable asset made the remaining net asset value taxable.

Q: Which date controlled? The last business day of the previous calendar year.

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 93C2-001R

Original ruling text

Status: Supersedes TAA 93C2-001, January 5, 1993

Jan 27, 1993

Re: Technical Assistance Advisement 93(C)2-001R (Revised)
Intangible Tax - Valuation - Business Trust
Sections 199.103 & 199.185(1)(i), F.S.
XXX (Trust)

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 business trust under the laws of
Massachusetts.

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

1. Will the Trust be subject to Florida's intangible
   personal property tax?
2. Will the shares of the Trust be exempt from the
   intangible tax on a proportionate basis to the extent
   such shares represent interests in obligations of the
   United States Government, its agencies, or its
   instrumentalities?
3. 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, the U.S.
   Government, their counties, municipalities, agencies
   or other political subdivisions, Puerto Rico, Guam, or
   U.S. Virgin Islands.
4. 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 non-diversified business trust established
under the laws of the Commonwealth of Massachusetts by a
Declaration of Trust. The Trust'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. The Trust
will have no location, employees, agents or representatives in
the State of Florida. Further, the principal business location
of the Trust is outside of Florida. Therefore, the Trust will
not be subject to the intangible tax.

Your second and third questions are answered in the
positive. 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. Also governing the taxation of
these type funds is Title 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 fourth 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