How did Florida's historical intangible tax treat an out-of-state business trust, its exempt-asset fund shares, and municipal lease obligations?

Subject

Valuation - Business Trust

Plain-English summary

Florida confirmed all three requested rulings. The fund's assets were not subject to Florida intangible tax because they lacked Florida taxable situs. Fund shares were fully exempt when the portfolio on the prior calendar year's last business day contained only Florida exempt obligations, U.S. government or agency securities, and cash or cash equivalents.

Municipal lease-purchase obligations and certificates of participation secured by government lease payments were also treated as exempt governmental obligations similar to bonds.

What this means for you

The historical ruling separately addressed fund-level situs, shareholder-level portfolio exemption, and the legal character of lease-financing obligations.

Common questions

Did an out-of-state principal office matter? Yes, as part of the situs facts.

What portfolio composition produced full share exemption? Only the specified exempt Florida, federal, and cash assets at the stated valuation date.

Were municipal lease certificates treated as ordinary taxable investments? No. The ruling treated the described obligations as exempt government debt.

Citations and references

• Fla. Stat. §§ 199.032, 199.103, 199.175(1), 199.185(1)(d), 199.185(1)(f), 199.185(1)(i), and 213.22
• Fla. Admin. Code r. 12C-2.010(1)(j)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C2-001

Original ruling text

Jan 24, 1994

Re: Technical Assistance Advisement No. 94(C)2-001
Intangible Personal Property Tax - Valuation/Exemption
Sections 199.103(2) & 199.185(1)(i), F.S.
Rule 12C-2.010(1)(j), F.A.C.
XXX (Trust)
XXX (Fund)

Dear :

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

Facts

The Trust is an unincorporated business trust organized
under the laws of Massachusetts and is registered with the
Securities and Exchange Commission under the Investment Act of
1940, as amended. The Trust's principal office is located
outside the State of Florida.

The Fund has an investment objective to provide
shareholders with a high level of interest income that is exempt
from federal income tax and the ownership of shares, the value
of which is exempt from the Florida intangible personal property
tax.

In addition to its investments in Florida tax-exempt
securities, the Fund may also invest in municipal lease
obligations and certificates of participation in such
obligations (Lease Obligations).

Requested Rulings

1. The funds are not subject to Florida's intangible
   personal property tax because the assets held by the
   funds do not have a "taxable situs" in Florida.
2. If, on the last business day of the previous calendar

year, the Fund's portfolio of investments consists
solely of Florida tax exempt obligations, U.S.
Government or agency securities, and cash or cash
equivalents, the entire value of a share of the Fund
will be exempt from the Florida intangible tax.

3. Lease Obligations are exempt from Florida's annual
   intangible tax.

Laws and Discussion

Section 199.032, F.S., imposes an annual tax of 2 mills on
the just value of all intangible property, owned by Florida
residents, as of January 1 each calendar year. 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 under s. 199.185,
F.S.

Intangible personal property has a taxable situs in Florida
if it is owned, managed, or controlled by a Florida resident on
January 1 of the tax year as provided in s. 199.175(1), F.S.

Section 199.103(1)(g), F.S., states that the assets of
companies registered under the Investment Company Act of 1940,
are exempt from the intangible personal property tax.

Notes, bonds, and other obligations issued by the State of
Florida or its municipalities, counties, and other taxing
districts shall be exempt from taxation under s. 199.185(1)(d),
F.S. Shares or units of a business trust are exempt if the
portfolio of assets contains only assets which are exempt from
taxation. The net asset value of a business trust with taxable
assets must be proportionately reduced if the portfolio of
assets contains debt obligations of the United States
Government.

Based on Florida Supreme Court opinions, it appears that in
the case of financing arrangements used by governmental units,
whereby the governmental unit is obligated under a leasepurchase arrangement and certificates of participation are

issued secured by the lease payments of the governmental unit,
both the lease-purchase agreement and the certificates of
participation would be considered obligations issued by the
governmental unit similar to bonds. These obligations would
therefore be exempt under s. 199.185 (1)(f), F.S.

Conclusion

Based upon the statutory provisions and the information
provided in your request, all three requested rulings are
answered in the affirmative.

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
Tax Audit Specialist III
Technical Assistance

NCP/mh