How did Florida value common shares of a business trust holding a mix of exempt and taxable securities?

Subject

Valuation - Business Trust

Plain-English summary

The trust's common shares were fully exempt when its portfolio consisted only of Florida obligations and other assets exempt from intangible tax. If taxable securities were present at the close of business on the last business day of the previous year, the shares were taxable based on the taxable portion of the portfolio.

The portion attributable to assets exempt from state and local tax under 31 U.S.C. § 3124(a) remained exempt even in a mixed portfolio.

What this means for you

This ruling used a proportional look-through approach for a mixed portfolio. It did not treat one taxable holding as making the entire common-share value taxable, and it did not treat one exempt holding as shielding the entire value.

Common questions

Q: When were common shares fully exempt? When the portfolio consisted solely of exempt assets.

Q: What happened with a mixed year-end portfolio? Tax applied to the portion backed by taxable assets.

Q: Did the ruling expressly decide preferred-share treatment? Its facts mention preferred shares, but its affirmative full-exemption answer specifically describes common shares.

Citations and references

• Fla. Stat. §§ 199.103(2), 199.185(1)(i) — trust-share valuation and exemption
• 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 93C2-006

Original ruling text

Jan 29, 1993

Re: Technical Assistance Advisement No. 93(C)2-006
Intangible Tax - Valuation - Business Trust
Sections 199.103(2) & 199.185(1)(i), F.S.
XXX (Trust)

Dear :

Your letter requesting a technical assistance advisement
has been referred to this office.

Trust was created under the laws of the Commonwealth of
Massachusetts under an agreement and declaration of trust
commonly know as a "Massachusetts business trust". The Trust is
registered under the Investment Company Act of 1940, as amended.
The Trust's objectives are to provide shareholders a high level
of tax exempt income through investment in a portfolio of
investment securities the interest and dividends of which are
exempt from federal income tax and Florida intangible tax. The
Trust intends to achieve its objectives by investing in a
portfolio of tax-exempt securities of the State of Florida, its
political subdivisions, authorities and agencies. Interest in
the Trust will be represented by both common and preferred
shares of the Trust.

Based upon the statements and documents received you have
submitted several questions for response. The questions and our
responses are as follows:

i) Will the shares of the Trust be exempt from the
intangible tax if the portfolio of assets is invested
solely in obligations of the State of Florida, its
political subdivisions, authorities and agencies?

This question is answered in the positive. The common
shares in this type of trust are exempt from tax under Florida
law if the trust's portfolio of assets consists solely of assets
which are exempt from tax [see s. 199.185(1)(i), F.S.].

ii) If the Trust held securities at the close of business
on the last business day of the previous calendar year
which were not exempt securities, as defined by
Section 199.185, Florida Statutes, would the shares of
the Trust be exempt from Florida's intangible personal
property tax?

The shares of the Trust would be subject to tax based on
the portion of the portfolio of assets which are subject to the
intangible tax. (see ss. 199.103(2) & 199.185(1)(i), F.S.) The
portion of the portfolio of assets which consists of assets
exempt from state and local taxation by 31 U.S.C. s.3124(a)
would be exempt from tax.

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 confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

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

JVP/mh