Did an out-of-state municipal-bond fund with no Florida office, employees, property, or secured loans have Florida corporate or intangible-tax obligations?

Subject

Nexus

Plain-English summary

The fund did not have to file a Florida corporate return if it remained a separate legal entity with no direct Florida nexus. It had no Florida office, employees, salespeople, or property, and its assets were held and managed outside Florida.

The result would change if the trust added a fund with Florida nexus or the fund acquired assets or loans secured by Florida real estate. The Department specifically said ownership of bonds secured by Florida real estate created corporate-tax nexus and a filing requirement for the fund, including the trust's other funds.

Under the historical intangible-tax rules, the Investment Company Act fund itself was exempt. Its common and preferred shares were fully exempt when the valuation-date portfolio was entirely exempt; if any part was taxable, only the United States government portion received the stated partial exemption.

What this means for you

The ruling treated entity separateness, in-state activity, Florida real-estate security, and the exact valuation-date portfolio as distinct questions. It applied tax laws in effect in 1993 and should be read historically.

Common questions

Q: Did the fund have to file a Florida corporate return on the stated facts? No.

Q: What fact would create nexus under the ruling? Acquiring Florida-real-estate-secured bonds or loans, or adding another fund with Florida nexus.

Q: Were the fund shares always fully exempt from intangible tax? No. Full exemption depended on holding an entirely exempt portfolio on the valuation date.

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 exemption
• Fla. Stat. §§ 220.12(1)(a)2., 220.13(1), 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-007

Original ruling text

Nov 17, 1993

Re: Technical Assistance Advisement No. 93(M)-007
Intangible Tax - Valuations and Exemptions
Sections 199.103(2) and 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 by 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. The
Trust consists of only one Fund and no other funds are
contemplated. The Fund is the sole interest party.

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

Intangible Tax

Requested Advisement

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 assets other than the U.S. Government
portion will be subject to intangible personal
property tax.

2. The exemption from Florida intangible personal
   property tax described in question 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 calendar year.
3. The Fund is not subject to Florida's intangible
   personal property tax.

Responses

1. This statement is correct. Section 199.185(1)(i),
   F.S., exempts from tax shares of a fund whose
   portfolio 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. (see
   Rule 12C-2.010(1)(j), F.A.C.)
2. This statement is correct. As provided in s.
   199.103(2), F.S., the date prescribed for valuation of
   all intangible property is as of the close of business
   on the last day of business 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 place of business
of the Fund is outside of Florida. Therefore, the
Fund would not be subject to intangible personal
property tax.

Corporate Income Tax

Requested Advisement

4. Assuming that the Fund does not have an office or
   place of business 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 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 exempt
   interest dividends attributable to the same 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, and has no direct nexus with this state, a
   Florida corporate return would not be required.
   However, if the Fund acquires any additional funds
   which have nexus with Florida, or if the Fund itself
   acquires assets or loans secured by Florida real
   estate, a filing requirement will exist for the Fund,
   including all other funds under the Trust. For
   purposes of this determination, ownership of bonds
   which are secured by Florida real estate will create
   taxable nexus under the Florida corporate code.
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 in s. 852, I.R.C., including any additions and
subtractions required under this section of the
federal code. Taxable income for Florida corporate
income tax purposes will be adjusted by the additions
and subtractions contained in s. 220.13(1), F.S.,
after starting with the taxable income amount
determined under the federal code.

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,

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

Rodney K. Felix
Tax Audit Supervisor III
Technical Assistance

JVP/RKF