Did an out-of-state municipal fund with no Florida office, people, or property owe Florida corporate or intangible taxes?

Subject

Nexus

Plain-English summary

The separate fund was not subject to Florida corporate income tax or the historical intangible personal property tax on the stated facts. It had no Florida office, employees, salespeople, or tangible property, and its principal business location was outside the state.

Its common and preferred shares were fully exempt from intangible tax only when the valuation-date portfolio was 100% exempt. If any portion was taxable, the ruling exempted only the part attributable to direct United States government obligations. Taxable assets held at other times did not affect the valuation-date result.

If the trust added another fund with Florida nexus or the trust itself acquired nexus, a corporate filing requirement would arise for the trust and all its funds. If filing became necessary, the Florida adjustment for exempt interest was the excess of exempt interest earned over exempt-interest dividends attributable to the year.

What this means for you

The ruling separately tested entity nexus, the fund's own exemption, shareholder valuation, and the corporate tax base that would apply if facts later created a filing duty.

Common questions

Q: Did the fund owe Florida corporate tax on the stated facts? No.

Q: Were its shares automatically fully exempt from intangible tax? No. Full exemption required a completely exempt valuation-date portfolio.

Q: Could another fund's Florida nexus matter? Yes. The ruling said nexus anywhere in the trust structure could create filing duties for all funds and the trust.

Citations and references

• Fla. Stat. §§ 199.103(2), 199.185(1)(g), (i) — valuation and intangible-tax exemptions
• Fla. Admin. Code r. 12C-2.010(1)(j) — fund-share portfolio valuation
• Fla. Stat. §§ 220.12(1)(a)2., 220.13(1)(a)2., and ch. 220 — corporate tax base and nexus
• IRC § 852 — investment company taxable income
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 93M-004

Original ruling text

Aug 02, 1993

Re: Technical Assistance Advisement No. 93(M)-004
Intangible Tax - Valuations
Sections 199.103(2), 199.185(1)(g),(i), F.S.
Rule 12C-2.010(1)(j), F.A.C.
Corporate Income and Emergency Excise Taxes - Florida Nexus
Chapter 220, F.S.
XXX (Fund)

Dear :

Your request for a technical assistance advisement has been
received in this office.

Facts

The Fund is a Massachusetts business trust registered under
the Investment Company Act of 1940, as amended, and will operate
as a closed-end, diversified management investment company. The
Fund will seek to achieve its objective by investing in a
portfolio of tax-exempt municipal securities of Florida issuers
including the State of Florida, its counties, municipalities,
political subdivisions, agencies and instrumentalities. The
Fund's Declaration of Trust authorizes the issuance of an
unlimited number of common and preferred shares.

The Fund does not have an office or other place of business
in Florida, nor any employees or salespersons in Florida, nor
any tangible property in Florida. The Trust consists of only
one Fund and no other funds are contemplated. The Fund is the
sole interested party.

Based on the information and documents provided in your
request, you have presented several questions. These questions
and our responses are as follows:

Intangible Tax

Requested Advisements

1. The common and preferred shares of the Fund are and
   will be exempt from Florida intangible personal
   property tax each year that the Fund owns, on January
   1 of that year, a portfolio of investments limited to
   notes, bonds, and other obligations issued by the
   State of Florida or its municipalities, counties, and
   other taxing districts, the United States Government
   and its agencies, instrumentalities, territories, and
   possessions, including without limitation Puerto Rico,
   Guam, American Somoa, Northern Mariana Islands, and
   the U.S. Virgin Islands, and other property exempt
   from Florida intangible personal property tax. If not
   totally exempt, only that portion of the Fund shares
   attributable to net non-exempt assets will be subject
   to intangible personal property tax.
2. The exemption from Florida intangible personal
   property tax described in Advisement 1. above based on
   ownership of exempt assets on January 1 of a calendar
   year still applies notwithstanding that the Fund may
   own or did own non-exempt securities at any time
   thereafter, during the same calendar year, or in the
   preceding calendar year.
3. The Fund is not subject to Florida's intangible
   personal property tax.

Responses

1. This statement is partially correct. Section 199.185
   (1) (i), F.S., exempts from the intangible tax shares
   of a fund whose of assets is 100% exempt from the
   intangible tax. However, if any portion of the Fund
   is taxable, then only the U.S. Government portion is
   exempt (Rule 12C-2.010 (1) (j), F.A.C.).
2. This statement is answered in the positive. As
   provided in s. 199.103 (2), F.S., 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.
3. 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 Fund is outside of Florida and there
are no employees, agents, or representatives of any
kind in Florida. Therefore, the Fund would not be
taxable in Florida.

Corporate Income Tax

Requested Advisements

4. Assuming that the Fund does not have an office or
   other place of business in Florida, nor any employees
   or salespersons in Florida, nor owns or maintains any
   property of any kind in Florida, and that all assets
   owned by the Fund are held and managed outside
   Florida, and that the Fund does not obtain any loans
   secured by real or tangible personal property located
   in Florida, will the Fund become subject to Florida
   corporate income and emergency excise taxes?
5. If the Fund were subject to Florida corporate income
   and emergency excise taxes, will the addition for
   exempt interest provided for in Fla. Stats. s.
   220.12(1)(a)2. be reduced by the amount of exemptinterest dividends attributable to the same taxable
   year. The Department has granted a similar
   determination to another taxpayer in Technical
   Assistance Advisement No. 93 (M)-003.

Responses

4. If the Fund is itself a separate and distinct legal
   entity, question 4 is answered in the negative.
   However, if the Trust acquires any additional funds
   which have nexus with Florida, or if the Trust itself
   acquires nexus with this state, a filing requirement
   will exist for the Fund, including all other funds
   under the Trust, and for the Trust itself.
5. 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)(a)2., F.S., which will be an amount equal
to the excess of the exempt interest earned for the
taxable year over the amount of the exempt-interest
dividends attributable to the year.

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

Lynwood Taylor
Technical Assistant
Technical Assistance

NCP/LT/mh