When were shares of an out-of-state business trust holding government obligations exempt from Florida intangible tax?

Subject

Valuation - Business Trust

Plain-English summary

The fund's shares could be exempt based on the securities held in its portfolio on the January 1 valuation date, and the fund itself was not subject to tax because it lacked Florida taxable situs. The Massachusetts business trust had an out-of-state business address and no Florida agent.

For valuation, the portion attributable to direct United States and specified territorial obligations was exempt. After removing that portion, the balance was exempt if the remaining portfolio assets were themselves exempt from Florida intangible tax. If that remaining portfolio included any taxable asset, the ruling treated the remaining portion of net asset value as taxable.

The Department also said nonexempt securities held earlier in the preceding year did not defeat the exemption when the portfolio held solely exempt securities at the prescribed year-end valuation point.

What this means for you

This ruling used a snapshot rather than an all-year portfolio test. The result depended both on the fund's exact holdings at the valuation date and on whether the fund itself had taxable situs in Florida.

Common questions

Q: Were direct United States government obligations exempt? Yes. The portion of net asset value attributed to those obligations was exempt.

Q: Did holding a taxable security earlier in the year automatically make the shares taxable? No. The ruling looked to the portfolio at the prescribed valuation point for the following January 1 tax date.

Q: Why did the fund itself owe no intangible tax? Its business address was outside Florida and it had no agent in the state, so the Department found no Florida taxable situs.

Citations and references

• Fla. Stat. §§ 199.103 and 199.185(1)(i) — valuation and exempt trust shares
• Fla. Stat. § 199.175 — taxable situs
• 31 U.S.C. § 3124(a) — federal obligations
• 48 U.S.C. §§ 745, 1403, 1423a, 1670, and 1681 — territorial obligations
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93C2-012

Original ruling text

Apr 02, 1993

Re: Technical Assistance Advisement No. 93(C)2-012
Intangible Tax - Valuation - Business Trust
Sections 199.103(2) & 199.185(1)(i), F.S.
XXX (Fund)

Dear :

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

The Fund 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 Fund is
registered under the Investment Company Act of 1940, as amended.
The Fund's objective is 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
Fund intends to achieve its objective by investing in a
portfolio of tax-exempt municipal securities of Florida issuers
including the State, its counties, municipalities and political
subdivisions, agencies and instrumentalities of the State of
Florida, as well as obligations of the United States Government,
its agencies, instrumentalities, territories or possessions.

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

i) Will the shares of the Fund be exempt from the
intangible tax each year that the Fund owns, on
January 1 of the year, a portfolio of investments
which consist of obligations of the State of Florida,
its counties, municipalities and political
subdivisions, agencies and instrumentalities of the
State of Florida as well as obligations of the United
States or its agencies, instrumentalities, or

territories?

This question is answered in the positive. This type of
fund is governed by Federal and Florida law for purposes of
valuation. Obligations of the United States Government are
exempt from state property taxes under 31 U.S.C. s.3124(a).
Obligations issued by the governments of Puerto Rico, Guam, U.S.
Virgin Islands, American Soma and the Northern Mariana Islands
are exempt from state and local taxation by Title 48 ss. 745,
1403, 1423a, 1670 & 1681, U.S.C. Under Florida law shares of a
trust whose portfolio of assets is solely invested assets which
are exempt from tax are themselves exempt from tax [see s.
199.185(1)(i)].

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

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

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

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

ii) If the Fund held non-exempt securities at anytime
during the previous calendar year, but on the last
business day of such calendar year held solely exempt
securities, as defined by section 199.185(1)(d),

Florida Statutes, would the shares of the Florida Fund
be exempt from Florida's intangible personal property
tax?

Yes. The date of valuation is prescribed as the close of
business on the last business day of the previous calendar year.
Only the assets held in the portfolio of the Fund on January 1
are to be valued. Therefore, investments made by the Fund at
other times during the previous calendar year have no effect on
the exempt status of the Fund on January 1 of each year (see s.
199.103, F.S.).

iii) Is the Fund subject to the intangible tax?

No. The Fund has no taxable situs in this State. The
Fund's business address is outside of Florida and it has no
agent in the State. (see s. 199.175, 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 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.
Tax Law Specialist
Statutory Compliance Section

JVP/mh