How did Florida's former intangible tax apply to shares of a business trust holding exempt and non-exempt securities?

Subject

Valuation - Business Trust

Plain-English summary

The trust's shares were fully exempt when its portfolio consisted solely of exempt government obligations. The described Massachusetts business trust was registered under the Investment Company Act of 1940 and intended to invest in Florida and federal government obligations exempt from the former Florida intangible tax.

If the trust held non-exempt securities at the close of the last business day of the prior calendar year, the shares were not wholly exempt. The taxable portion of the portfolio made a corresponding portion of the shares taxable, while the portion backed by exempt assets remained exempt.

What this means for you

The ruling used a look-through approach to the portfolio. The shares' exemption followed the mix of exempt and taxable securities at the relevant valuation point rather than the trust's general tax-exempt investment objective.

Common questions

Q: Were shares fully exempt when every portfolio asset was exempt? Yes.

Q: Did one non-exempt portfolio holding make the entire share value taxable? No. The ruling allocated tax according to the taxable portion of the portfolio.

Q: Was the trust's investment objective enough by itself? No. The actual portfolio composition at the valuation point controlled.

Citations and references

• Fla. Stat. § 199.103(2) — former annual-tax portfolio valuation
• Fla. Stat. § 199.185(1)(i) — business-trust share exemption for exempt assets
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93C2-014

Original ruling text

Apr 20, 1993

Re: Technical Assistance Advisement No. 93(C)2-014
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 it objectives by investing in a
portfolio of tax-exempt securities of the States Florida its
political subdivisions, authorities and corporations. The Trust
may also invest in obligations of the United States Government,
its agencies, territories and 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 Trust be exempt from the
intangible tax if the portfolio of assets is invested
solely in obligations of the States Florida, its
political subdivisions, authorities corporations and
the United States Government, its agencies,
territories and possessions?

This question is answered in the positive. 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)]

ii) If the Trust held securities at the close of business
on the last business of 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 is subject to the
intangible tax. The portion of the portfolio of assets which
consists of exempt assets is exempt from tax. (see ss. 199.103 &
199.185(1)(i), 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

Technical Assistance

JVP/mh