How did Florida's former intangible tax apply to out-of-state investment funds, hub trusts, and shareholder units backed by exempt government obligations?

Subject

Valuation - Business Trust - Filing Requirements

Plain-English summary

The funds and hub trusts were not subject to Florida intangible tax on their own assets because they were organized, located, controlled, and managed outside Florida. They therefore lacked the Florida organization or commercial domicile needed to give their intangible property a taxable Florida situs.

Shareholders' fund units were fully exempt when the fund invested entirely in a hub trust whose portfolio consisted solely of exempt government obligations. If a hub trust held any taxable asset on January 1, the ruling allowed exclusion of the portion attributable to direct obligations of the United States government or its territories and possessions, while the remaining net asset value was taxable.

If the non-U.S.-government portion itself consisted entirely of other assets exempt under Florida law, that portion also remained exempt.

What this means for you

The historical ruling separated entity-level situs from shareholder-level portfolio valuation. Control location and the exact valuation-date asset mix were both decisive.

Common questions

Q: Did the out-of-state funds and hub trusts owe entity-level intangible tax? No, on the stated domicile and management facts.

Q: When were shareholder units fully exempt? When the underlying portfolio consisted solely of exempt assets.

Q: What happened if the portfolio included a taxable asset on January 1? Only the direct U.S.-government portion received the stated exclusion; the remaining net asset value was taxable.

Citations and references

• Fla. Stat. § 199.175(1)(b) — commercial domicile and taxable situs
• Fla. Stat. § 199.185(1)(i) — exemption for qualifying investment-trust units
• Fla. Stat. §§ 199.052 and 199.103 — filing and valuation provisions cited in the ruling
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93C2-022

Original ruling text

Jul 20, 1993

Re: Technical Assistance Advisement No. 93(C)2-022
Intangible Tax - Valuation - Business Trust - Filing
Requirements
Sections 199.052, 199.175, 199.103, 199.185, F.S.
XXX (Funds)
XXX (Trusts)

Dear:

This is in response to your recent request for a technical
assistance advisement.

Facts

The Funds and Trusts are managed by XXX (Company).

The Trusts are Massachusetts business trusts registered
with the Securities and Exchange Commission (SEC) under the
Investment Company Act of 1940, as amended, as open-end
management investment companies.

Each of the Funds is expected to convert to a Hub and Spoke
structure, which is a registered service mark of XXX. Each Fund
would be a spoke and invest in a XXX common law trust, which
would be a hub (Hub Trust), that would be primarily controlled
and managed in Massachusetts. Substantially all of the
investable assets of each Fund would be represented by its
interest in the Hub Trust. Each Hub Trust would have the same
investment objective as the Fund investing therein and would
invest in exempt government obligations. It is expected that
each Hub Trust will qualify as a partnership for federal income
tax purposes.

Rulings Requested

1. The Funds and the Hub Trusts will not be subject to the
   intangibles tax on their assets;

2. Shareholders of each Fund will not be subject to the
intangibles tax on their shares in each Fund, provided that
each Fund's portfolio of assets consists entirely of an
interest in a Hub Trust whose portfolio of assets consists
solely of exempt government obligations; and

3. If on the last day of any calendar year a Hub Trust owns
   any assets not exempt from the intangibles tax, then with
   regard to a Fund whose assets consist of an interest in
   such Hub Trust, the portion of the Fund's net asset value
   representing assets subject to the intangibles tax will be
   determined as follows:

The portion of the net asset value of a 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 a
trust, after removing the portion attributable to
United States Government obligations, represents
assets which are taxable under Florida law, then the
remaining portion of the net asset value of the trust
is subject to tax.

Discussion and Law

In the first scenario, the intangible tax applies only to
intangible personal property having a taxable situs in Florida.
Intangible personal property owned by a trust (each Hub Trust is
formed as a trust and the Funds are a series of trusts) has a
taxable situs in Florida only if the trust is (a) a business
trust organized under the laws of the State of Florida, or (b) a
trust with a commercial domicile in Florida. The Funds are
series of trusts organized under the laws of a state other than
Florida. In addition, the Hub Trusts are also organized under
the laws of a state other than Florida.

Section 199.175(1)(b), F.S., provides that a business or
other artificial entity acquires its commercial domicile in this
state when it maintains its chief or principal office in this
state where executive or management functions are performed or
where the course of business operations are determined. The

Funds do not have commercial domicile in Florida because they
are, and would remain after conversion to the Hub and Spoke
structure, located, controlled and managed in a state other than
Florida. Likewise, the Hub Trusts will be controlled and
managed in a state other than Florida.

The second scenario is covered under s. 199.185(1)(i),
F.S., which states that units of a unit investment trust
organized under an agreement or declaration of trust and
registered under the Investment Company Act of 1940, as amended,
whose portfolio of assets consists solely of assets exempt under
this section (199.185), are exempt from the Florida intangible
personal property tax.

Concerning the third scenario, 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 excluding 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 excluding 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 its territories and possessions
may be excluded from the net asset value. The balance of the

net asset value would be subject to tax.

Conclusion

Based on the statutory provisions and the information
provided, we concur with the three requested rulings as
presented in part II of your letter.

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,

Nadine C. Posey
Technical Assistant
Technical Assistance

NCP/mh