How did Florida's former intangible tax apply to an out-of-state business trust, its fund, and shares backed by government obligations?

Subject

Valuation - Business Trust

Plain-English summary

The trust and fund were not subject to Florida intangible tax at the entity level because they had no presence in Florida. The ruling separately addressed the tax treatment of the fund's shares based on its valuation-date portfolio.

Shares were fully exempt when the portfolio consisted solely of exempt Florida municipal, United States government or agency, territorial, and cash-equivalent assets. If the fund held nonexempt securities, the U.S.-government-debt portion remained exempt and the nonexempt portion was taxable.

The Department also said issues guaranteed by the United States did not receive the same state-tax immunity as issues of the United States government.

What this means for you

The historical analysis separated the fund's own Florida presence from shareholder valuation. It also distinguished securities issued by the United States from securities carrying only a federal guarantee.

Common questions

Q: Did the trust or fund owe entity-level intangible tax? No, because neither had a Florida presence.

Q: When were fund shares fully exempt? When the portfolio contained only exempt assets.

Q: What happened with a mixed portfolio? The U.S.-government portion was exempt and the nonexempt portion was taxable.

Q: Was a federal guarantee treated the same as U.S. issuance? No.

Citations and references

• Fla. Stat. §§ 199.103(2) and 199.185(1)(i) — valuation and investment-fund exemption
• Fla. Admin. Code r. 12C-2.010(1)(j) — qualifying fund-share exemption
• 31 U.S.C. § 3124(a) — federal-obligation exemption, as cited in the ruling
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93C2-021

Original ruling text

Jul 14, 1993

Re: Technical Assistance Advisement No. 93(C)2-021
Intangible Tax - Valuation - Business Trust
Sections 199.103(2) & 199.185(1)(i), F.S.
Rule 12C-2.010(1)(j), F.A.C.
XXX (Trust)
XXX (Fund)

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
divided into several portfolios one of which is the Fund. The
Fund'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
Fund intends to achieve its objectives by investing in a
portfolio of tax-exempt securities of the State of Florida, its
political subdivisions and authorities. The Fund may also invest
in obligations of the U.S. 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 Trust or the Fund be subject to Florida's
intangible tax if the Fund's assets, on the annual
valuation date, consist solely of obligations of the
U.S. Government, its agencies, instrumentalities,
territories or possessions and in obligations that are
issued by the State of Florida and its political
subdivisions, agencies and instrumentalities?

The response to this question is in the negative. The
Trust and the Fund have no presence in the State of Florida.
Therefore, neither the Trust nor the Fund is subject to the
intangible tax.

ii) Will the shares of the Fund be exempt from the
intangible tax if the portfolio of assets is invested
solely in Florida Municipal Bonds, U.S. Government or
its agencies securities, territorial obligations and
cash or cash equivalents?

This question is answered in the positive. Shares in this
type of fund are exempt from tax under Florida law if the Fund's
portfolio of assets consists solely of assets which are exempt
from tax (see s. 199.185(1)(i), F.S., and Rule 12C2.010(1)(j),F.A.C.).

iii) If the Fund held securities at the close of business
on the last business day of previous calendar year
which were not exempt securities, as defined by s.
199.185, F.S., would the shares of the fund be exempt
from Florida's intangible personal property tax?

This question is answered in the negative. Only the
portion of the Fund's portfolio which is made up of U.S.
Government debt obligations will be exempt. The portion of the
Fund's portfolio which contains nonexempt assets will be subject
to tax (see Title 31 s. 3124a, USC, ss. 199.103 & 199.185(1)(i),
F.S., and Rule 12C-2.010(1)(j), F.A.C.).

iv) How would the response to the questions above change
if the Fund held assets guaranteed by the full faith
and credit of the United States rather than issued by
the U.S. Government?

Issues which are guaranteed by the United States rather
than backed by the full faith and credit of the U. S. Government
do not have an immunity from taxation by state governments as do
the issues of the United States Government. (Also see response
to questions above.)

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.
Tax Law Specialist
Technical Assistance

JVP/mh