Did selling shares and investing in Florida bonds create Florida tax nexus for an out-of-state business-trust fund?

Subject

Nexus

Plain-English summary

The fund's stated Florida activity did not itself create a corporate-income-tax filing requirement, but the Department could not give a final no-nexus answer without facts about the trust and its other funds. If the trust or any fund under it had Florida nexus, the trust and all funds would have a filing requirement. Buying publicly traded Florida government bonds alone did not create nexus.

The ruling separately concluded that the trust was not subject to Florida intangible tax on the stated facts. It also allowed proportional exemption for shares represented by United States government obligations, full exemption when the remaining portfolio was entirely exempt, continued exemption for qualifying securities bought through forward commitments, and continued ownership treatment for securities under unexercised call options.

What this means for you

The ruling treated the Massachusetts trust as the relevant legal entity. A single fund's limited contacts could not be analyzed in isolation from the trust and its other portfolios. The Department listed Florida offices, property, employees or salespersons, management, and certain Florida-secured private loans as possible nexus activities, while warning the list was not exhaustive.

Common questions

Q: Did sales through independent Florida broker-dealers create nexus on the submitted facts? The ruling said the fund itself would not create a filing requirement under the stated facts, but facts concerning the trust and other funds prevented a final overall answer.

Q: Did Florida government bonds create corporate-income-tax nexus? No, not by themselves. The ruling distinguished publicly traded bonds from private loans secured by Florida real or tangible personal property.

Q: What date controlled intangible-property valuation? The close of business on the last business day of the previous calendar year.

Citations and references

• Fla. Stat. §§ 199.032, 199.103, 199.185(1)(g), (i) — intangible tax, valuation, and exemptions
• Fla. Stat. ch. 220 and § 220.13 — corporate income and emergency excise taxes
• 31 U.S.C. § 3124(a) — United States government obligations
• I.R.C. § 852 — regulated investment companies
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93M-003

Original ruling text

Apr 02, 1993

Re: Technical Assistance Advisement No. 93(M)-003
Intangible Tax - Valuation
Sections 199.103 & 199.185(1)(i), F.S.
Corporate Income Tax - Florida Nexus
Chapter 220, F.S.
XXX (hereinafter referred to as the Trust)
XXX (hereinafter referred to as the Fund)

Dear :

Your request for a Technical Assistance Advisement has been
referred to this office for response. The specific request is
for technical advice on the application of intangible tax and
corporate income tax to a trust organized as a Massachusetts
business trust.

Based on the information submitted seven questions have
been presented for response:

1. Will the Fund as a business entity be subject to
   Florida's intangible personal property tax?
2. Will shares of the Fund be proportionately exempt from
   the Florida intangible tax levied by s. 199.032, F.S.,
   if, on the last business day of the previous calendar
   year, the portfolio of investments contained
   obligations of the U. S. Government, its agencies,
   Puerto Rico, Guam, U.S. Virgin Islands, American Samoa
   and the Northern Mariana Islands?
3. If after extracting the portion of the Fund's net
   asset value which is attributable to U.S. Government
   obligations, the balance of the Fund's net asset value
   consists solely of assets exempt from Florida's
   intangible tax, will the Fund's shares be wholly
   exempt from the intangible tax?
4. Will the Fund be subject to Florida's corporate income
   and emergency excise taxes?
5. Will the Fund's right to purchase securities pursuant

to forward commitments be exempt from the intangible
tax if the securities which are the subject of the
forward commitment are exempt from the intangible tax?

6. Will securities held by the Fund that are subject to
   call options remain exempt from the intangible tax?
7. Is the last business day of the previous calendar year
   the sole exclusive date for determining what portion,
   if any, of the net asset value of shares of the Fund,
   are subject to the Florida intangible tax levied by s.
   199.032, F.S.?

The Trust is a business trust established under the laws of
the Commonwealth of Massachusetts by a Declaration of Trust.
The Florida Fund is an investment portfolio offered by Trust.
The Florida Fund's objective is to provide shareholders a high
level of tax exempt income through investment in a portfolio of
investment obligations the interest of which is exempt from
federal income taxation and Florida intangible property tax.
The Fund intends to achieve its objective by investing in a
portfolio of tax-exempt municipal securities of Florida issuers
including the State, counties, municipalities and political
subdivisions, agencies and instrumentalities of the State of
Florida, as well as obligations of territories and possessions
of the United States.

The Fund will not have an office or other place of business
in Florida. The Fund will not have employees or salespersons in
Florida. Furthermore, the Fund will not own or maintain any
property of any kind in Florida. All assets owned by the Fund
will be held and managed outside of Florida. Shares of the Fund
will be sold in Florida primarily by independent investment
broker dealers who purchase such shares pursuant to sales
contracts with Colonial Investment Services, Inc., the Fund's
principal underwriter.

Discussion of Law

Intangible Tax

The applicable provisions of the Florida Statutes impose an
annual tax of 2 mills (effective January 1, 1993) on the just

value of all intangible property, owned by Florida residents, as
of January 1 of each calendar year (s. 199.032, F.S.) The tax
is based upon the value of the intangible property as prescribed
by s. 199.103(2), F.S. This subsection requires that shares of
corporations, mutual funds, money market funds or trusts be
valued at their net asset value unless exempt by s.
199.185(1)(i), F.S.

CORPORATE INCOME TAX

The determination of whether a filing requirement exists
for the Fund is dependent on whether a filing requirement exists
for the Trust. The Fund intends to qualify as a regulated
investment company for federal tax purposes and would,
therefore, file a separate federal tax return. However, the
Fund is not a separate legal entity. If any of the funds under
the Trust have nexus with Florida, or if the Trust itself has
nexus, a filing requirement will exist for the Fund, all other
funds under the Trust, and the Trust. Nexus will be created by
any of the following activities: an office or other place of
business in Florida; owning or leasing any property within
Florida; employees or a salesperson in Florida; management
within Florida; loans secured by mortgages, deeds of trust, or
other liens upon real or tangible personal property located
within this state. (It should be noted that this list is not
intended to be all inclusive.)

Investment in "Florida Bonds" including general obligation
bonds ("GOs"), revenue bonds ("RBs"), and industrial revenue
bonds ("IRBs") will not in itself subject the Fund to Florida
corporate income tax. While these bonds may be secured, the
investment in these publicly traded bonds is to be distinguished
from a private loan secured by a mortgage, deed of trust, or
other lien upon real or tangible personal property located
within Florida.

If a filing requirement exists, the Fund's "taxable
income", the starting point in determining Florida tax due, will
be investment company taxable income, as defined by s. 852,
I.R.C. Taxable income will be adjusted by the additions and
subtractions provided by s. 220.13(1), F.S. The addition for

exempt interest, as provided for in s. 220.13(1)(a)2., F.S.,
will be an amount equal to the excess of the exempt interest
earned for the taxable year over the amount of the exemptinterest dividends attributable to the year.

Response to Questions

Your first question is responded to negatively. Section
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 of The Trust is outside of
Florida. The Trust does not have any employees, agents or
representatives of any kind in Florida. Therefore, the Trust
would not be taxable in Florida.

Your second question is responded to positively. Title 31,
section 3124(a), U.S.C., exempts from the intangible tax the
portion of trust shares which is represented by U.S. Government
debt obligations.

Your third question is answered in the positive. Section
199.185(1)(i), F.S., exempts from the intangible tax shares of a
trust whose portfolio of assets is 100% exempt form the
intangible tax.

The answer to your fourth question concerning whether the
Fund will be subject to Florida's corporate income and emergency
excise taxes cannot be determined from the information provided.
A filing requirement for Florida corporate income tax will not
be created by the Fund. However, if the Trust or any of the
other funds under the trust have nexus, then the Fund, all other
funds under the Trust, and the Trust will be subject to
Florida's corporate income and emergency excise taxes.

Your fifth question is answered in the positive. Forward
commitments are purchases of securities with the delivery of the
security to be at a date in the future. If the security
purchased through the forward commitment is exempt, it remains
exempt.

Your sixth question is also answered in the positive.

Securities covered by call options remain the property of the
Fund until such time as the call option is exercised.

Your seventh question is answered in the positive. 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(2), 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,

Joan L. Eckert
Tax Audit Specialist III
Technical Assistance

J.V. Parramore, Jr.
Tax Law Specialist
Technical Assistance

JLE/JVP/mh