How did Florida's historical intangible tax treat shares of a business-trust fund holding exempt and taxable portfolio assets?

Subject

Valuation - Business Trust

Plain-English summary

Fund shares were fully exempt for a calendar year if the portfolio consisted solely of exempt assets on January 1. That was true even if the portfolio held taxable assets on another date during that year or the prior year.

If the January 1 portfolio was not wholly exempt, the shares used their net asset value on the prior calendar year's last business day, reduced proportionately for U.S. government debt. Florida also confirmed that obligations of Puerto Rico, Guam, the U.S. Virgin Islands, American Samoa, and the Northern Mariana Islands were exempt for this purpose.

What this means for you

The historical result depended on a date-specific portfolio test. Full exemption used January 1 composition, while partial federal-obligation relief used the prior year-end net asset value.

Common questions

Did taxable assets held on other dates defeat full exemption? No, if the portfolio held only exempt assets on January 1.

How were shares valued when the portfolio was not wholly exempt? At prior-year-end net asset value, with the confirmed proportional reduction.

Did territorial obligations count with exempt government debt? Yes, for the listed U.S. territories and possessions.

Citations and references

• Fla. Stat. §§ 199.103(2), 199.185(1)(d), 199.185(1)(i), and 213.22
• Fla. Admin. Code rr. 12C-2.003(8) and 12C-2.010(1)(j)

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C2-006

Original ruling text

Feb 22, 1994

Re: Technical Assistance Advisement No. 94(C)2-006
Intangible Personal Property Tax - Valuation/Exemption
Sections 199.103(2) & 199.185(1)(d) & (i), F.S.
Rules 12C-2.003(8) & 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 organized as a Massachusetts business trust
which is registered with the Securities and Exchange Commission
as an open-end investment company under the Investment Company
Act of 1940, as amended (the "1940 Act"). The Trust currently
consists of eight separate portfolios, including the Fund. The
Fund is a non-diversified company under the 1940 Act. The Fund
is a separate corporation for federal income tax purposes
pursuant to s. 851(h) of the Internal Revenue Code of 1986, as
amended. Two classes of shares will be offered by the Fund
(Class A and Class B). The investment objective of the Fund is
to seek a high level of current interest income, exempt from
federal income tax and intended to be exempt from intangible
tax.

Advisements Requested

1. For any given calendar year, shares of the Fund,
   regardless of class, will be exempt from the Florida
   intangible personal property tax if, on January 1 of
   that calendar year, the portfolio assets of the Fund
   consisted solely of assets that were exempt from the
   tax, including (a) Florida obligations, (b) debt
   obligations issued by the U.S. Government or its

agencies, and (c) money, including money market
accounts offered by banks which are deposits of money,
and this is so even though on any other date during
that calendar year, or the prior calendar year, the
Fund's portfolio assets may consist of assets that are
not exempt from the tax.

2. For any given calendar year if, on January 1 of that
   calendar year, the Fund's portfolio assets did not
   consist solely of assets which were exempt from the
   Florida intangible personal property tax, the net
   asset value of the Fund's shares (regardless of class)
   determined as of the last business day of the prior
   calendar year will be proportionately reduced by that
   portion of the net asset value which as of such last
   business day is comprised of debt obligations of the
   U.S. Government.
3. For purposes of (1) and (2) above, obligations of the
   U.S. Government include obligations issued by U.S.
   territories and possessions.

Discussion and Law

Section 199.103(2), F.S., provides that shares or units of
companies or trusts registered under the Investment Company Act
of 1940, as amended, including mutual funds, money market funds
and unit investment trusts where such shares or units are not
exempt under s. 199.185, F.S., shall be valued at the net asset
value of such shares or units on the last business day of the
previous calendar year. As provided in s. 199.185(1)(i), F.S.,
units of a unit investment trust organized under an agreement or
declaration of trust and registered under the Investment Company
Act of 1940, as amended, whose portfolio of assets consists
solely of assets exempt under this section are exempt from the
intangible personal property tax. Furthermore, Rule 12C2.003(8), F.A.C., states that 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.

Obligations issued by the governments of Puerto Rico, Guam,
U.S. Virgin Islands, American Samoa and the Northern Mariana
Islands are exempt from state and local taxation by Title 48 ss.
745, 1403, 1423a, 1670 and 1681, U.S.C., respectively.

Conclusion

Based upon the statutory provisions and the information
provided in your letter, your three requested advisements are
confirmed as stated.

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