Were shares of a business trust exempt from Florida intangible tax when its valuation-date portfolio held only exempt securities?

Subject

Valuation - Business Trust

Plain-English summary

The fund's shares were exempt from Florida intangible personal property tax when its portfolio held only exempt assets on the valuation date. The fund planned to invest in Florida municipal securities and other securities exempt from federal income tax and Florida intangible tax.

The Department used a portfolio test. Direct United States government and territorial obligations were exempt. If the rest of the portfolio also consisted entirely of exempt assets, that portion was exempt too. If any taxable asset remained in that portion, the remaining net asset value was taxable.

Only the valuation-date holdings mattered. Nonexempt securities held earlier in the prior calendar year did not defeat the exemption if the fund held solely exempt securities at the close of the last business day of that year.

What this means for you

Under this historical tax regime, the exemption depended on the fund's exact asset mix at the statutory valuation point, not on every investment held during the year.

Common questions

Q: Were shares exempt when the fund held only exempt securities on the valuation date? Yes.

Q: Did a nonexempt investment held earlier in the year automatically make the shares taxable? No.

Q: What if the valuation-date portfolio included a taxable asset? After separately exempting the United States government and territorial portion, the ruling treated the remaining net asset value as taxable.

Citations and references

• Fla. Stat. § 199.103(2) — valuation date for intangible property
• Fla. Stat. § 199.185(1)(i) — fund shares backed by exempt assets
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93C2-031

Original ruling text

Dec 08, 1993

Re: Technical Assistance Advisement No. 93(C)2-031
Intangible Tax - Valuation - Business Trust
Sections 199.103(2) & 199.185(1)(i), Florida Statutes
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.

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?

This question is answered in the positive. Under Florida

law shares of a trust whose portfolio of assets is solely
invested in assets which are exempt from tax are themselves
exempt from tax [see Section 199.185(1)(i), Florida Statutes.]

Applying the 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, 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 affect on
the exempt status of the Fund on January 1 of each year (see
Section 199.103, Florida Statutes).

This response constitutes a Technical Assistance Advisement
under Section 213.22, Florida Statutes, which is binding on the
Department only under the facts and circumstances described in
the request for this advice as specified in Section 213.22,
Florida Statutes. 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, Florida Statutes, which
are subject to disclosure to the public under the conditions of
Section 213.22, Florida Statutes. 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