How did Florida's annual intangible tax apply to a municipal-bond fund and its shares when the portfolio sometimes held taxable assets?

Subject

Valuation - Business Trust

Plain-English summary

The fund itself was exempt, but its shares were fully exempt only when the portfolio held 100% exempt assets on the valuation date. The fund was an out-of-state Investment Company Act business trust investing principally in municipal obligations.

If any taxable asset remained at the close of the last business day of the prior calendar year, only the net asset value attributable to direct United States government obligations was exempt; the rest was taxable. Taxable assets held earlier in the year but sold before that valuation point did not create tax.

This September 20 revised ruling expressly superseded TAA 93C2-024 from five days earlier and changed the earlier document's explicit answer to the third question from positive to negative.

What this means for you

The annual result followed the exact valuation-date portfolio, not every asset held during the year. The revised document is the operative version of this historical ruling.

Common questions

Q: Was the investment fund itself taxed? No.

Q: Were its shares always exempt? No. Full exemption required a completely exempt valuation-date portfolio.

Q: Did taxable assets sold before the valuation date matter? No, according to the revised ruling.

Citations and references

• Fla. Stat. § 199.103(2) — fund-share valuation date
• Fla. Stat. § 199.185(1)(g), (i) — investment-company assets and exempt-portfolio shares
• Fla. Admin. Code r. 12C-2.010(1)(j)3. — taxable assets in a trust portfolio
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93C2-024R

Original ruling text

Status: Supersedes TAA 93C2-024, September 15, 1993

Sep 20, 1993

Re: Technical Assistance Advisement No. 93(C)2-024R (Revised)
Florida Intangible Tax - Valuation/Exemption
Sections 199.103(2) & 199.185(1)(i), F.S.
Rule 12C-2.010(1)(j)
XXX (Fund)

Dear :

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

Facts

The Fund is organized as a Massachusetts business trust
pursuant to the Declaration of Trust and the Amended Declaration
of Trust and is governed by the laws of the Commonwealth of
Massachusetts.

The Fund is an open-end, nondiversified management
investment company whose primary investment objective is to seek
a high level of current interest income exempt from Federal
income tax for individual investors.

Under normal market conditions, the Fund attempts to invest
100% of its total assets in municipal bonds, municipal notes,
tax-exempt commercial paper and other debt obligations issued by
or on behalf of the State of Florida or its political
subdivisions, other states and the District of Columbia, their
political subdivisions, or any commonwealth, territory or
possession (including Puerto Rico, the U.S. Virgin Islands and
Guam) of the United States, or their respective agencies,
instrumentalities or authorities, the interest from which is not
subject to Federal income tax.

From time to time, a portion of the Fund's assets will be
invested in assets that are not exempt from Florida's intangible
personal property tax. However, the Fund anticipates that on
the last business day of each calendar year the Fund's assets
will consist solely of assets exempt from Florida's intangible
personal property tax.

Issues

(1) Whether the Fund, or the shares of the Fund, are
subject to Florida's intangible personal property tax?
(2) If on December 31 of any year the Fund holds assets
that are subject to Florida intangible personal
property tax, will the Fund or the shares of the Fund
be subject to intangible personal property tax based
on the just valuation of that property?
(3) If the Fund holds assets subject to Florida intangible
personal property tax in a particular year but does
not hold any of those assets on December 31 of any
particular year, will the Fund or the shares of the
Fund be subject to intangible personal property tax in
any amount?

Laws and Discussion

Section 199.103(2), F.S., provides that shares or units of
companies or trusts registered under the Investment Company Act
of 1940, as amended, including mutual funds, money market funds
and unit investment trusts where such shares or units are not
exempt under s. 199.185, F.S., shall be valued at the net asset
value of such shares or units on the last business day of the
previous calendar year. As provided in s. 199.185(1)(i), F.S.,
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 are exempt from the
intangible personal property tax. Furthermore, s.
199.185(1)(g), F. S., states that the assets of a corporation
registered under the Investment Company Act of 1940, 15 U.S.C.
s. 80a-1-52, as amended, are exempt from intangible tax.

Conclusion

To answer your first question, s. 199.185(1)(g), F.S.,
exempts the assets owned by a company organized under the
Investment Company Act of 1940. Further, the principal business
location is outside Florida. Therefore, the Fund is not subject
to the intangible personal property tax. However, the shares of
the Fund may be subject to the intangible tax depending upon the
contents of the portfolio of assets. Shares of the Fund whose
portfolio of assets is 100% exempt under s. 199.185, F.S., would
not be subject to the intangible tax.

Your second question is answered under Rule 12C-2.010(1)(j)
3., F.A.C., which states that if the remaining portion of the
net asset value of the trust, after removing the portion
attributable to United States Government obligations, represents
any asset which is taxable under the law, then the remaining
portion of the net asset value of the trust is subject to tax.
Therefore, if any portion of the net asset value on December 31
is subject to the intangible tax, only the United States
Government obligations are exempt.

The third question is answered in the negative. The date
prescribed for valuation of all intangible personal property is
as of the close of business on the last business day of the
previous calendar year (s. 199.103, 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 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