How were shares of a tax-exempt-securities business trust valued for Florida's annual intangible tax?

Subject

Valuation

Plain-English summary

The exemption depended on the fund's assets at the close of the last business day of the year, not simply on whether their income was federally tax-exempt. Direct U.S. government obligations were exempt. If every remaining portfolio asset was also exempt under Florida law, the remaining fund value was exempt; if any taxable asset appeared in that remaining portion, the whole remaining portion was taxable.

Taxable assets held earlier in the year did not prevent exemption if the fund held only exempt assets at the valuation date. The trust itself normally lacked Florida situs, though receivables arising from Florida employees, agents, or representatives could be taxable.

What this means for you

The ruling used a strict asset-composition test. U.S.-guaranteed obligations were not automatically treated as direct U.S. obligations, and a single taxable asset could affect the non-direct-federal portion of fund value.

Common questions

Did federal income-tax exemption automatically mean Florida property-tax exemption? No.

What date controlled? The close of the last business day of the prior calendar year.

Could earlier taxable holdings be cured by year-end? Yes, if only exempt assets remained at the valuation date.

Citations and references

• Fla. Stat. §§ 199.032, 199.103, 199.175, 199.185, and 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C2-011

Original ruling text

Jun 02, 1994

Re: Technical Assistance Advisement No. 94(C)2-011 Intangible Tax - Valuation XXX (Trust)

Dear :

Your letter requesting a Technical Assistance Advisement has been received and examined by this office. The request is based upon the following:

Trust was created under the laws of the Commonwealth of Massachusetts under an agreement and declaration of trust commonly know as a "Massachusetts business trust." The Trust is registered under the Investment Company Act of 1940, as amended. The Trust's objectives are to provide shareholders a high level of tax exempt income through investment in a portfolio of investment securities, the interest and dividends of which are exempt from federal income tax and Florida intangible tax. The Trust intends to achieve its objectives by investing in a portfolio of tax-exempt securities of the State of Florida, its political subdivisions and authorities. The Trust may also invest in obligations of the U.S. Government, its agencies, territories and possessions.

Based upon the statements and documents received you have submitted several questions for response. The questions and our responses are as following:

1) Will the Trust be deemed to have a taxable situs in the state of Florida within the meaning of s. 199.175, F.S.?

Response: Under normal circumstances the Trust will not be liable for Florida's intangible tax. However, should the Trust have employees, agents or representatives within the State of Florida any

account receivable arising out of their business activity would be subject to tax in Florida.

2) Will shares of the Trust owned by a person domiciled in the State of Florida be 100% exempt from Florida's annual intangible personal property tax levied pursuant to s. 199.032, F.S., as amended and supplemented, if, on January 1 of any year, the portfolio of investments consists:

(a) solely of Florida obligations on which all of the interest is excluded from gross income for federal income tax purposes; or

(b) solely of cash, Florida obligations, U.S. obligations, whether or not such U.S. obligations are deemed under federal law to be U.S. obligations of, or obligations guaranteed by, the United State Government, and Non-Florida Municipal obligations (which by federal law are exempt from state and local taxation)?

Response: The exclusion from income tax does not in and of itself provide an exemption from a property tax. Under the United States Code and Florida Statutes direct obligations of the United States Government are exempt from Florida's intangible tax. Obligations guaranteed as to principal and interest by the United States Government are not direct obligations of the United States and therefore are not exempted from taxation by state and local governments by the United Stated Code or Florida Statutes.

Applying the Federal Statute and Florida Statute to the Trust requires that the following guidelines be used to determine what portion, if any, of the net asset value of the Trust will be exempt from taxation:

The portion of the net asset value of the Trust that is attributable to direct obligations of the United States Government is exempt from taxation.

If the remaining portion of the net asset value of the Trust, after removing the portion representing United States Government obligations, represents assets that are themselves exempt from Florida's intangible tax; then this portion of the net asset value of the Trust's portfolio is also exempt from tax.

If the remaining portion of the net asset value of the Trust, after removing the portion attributable to United States Government obligations, represents any asset that is taxable under Florida law, then the remaining portion of the net asset value of the Trust is subject to tax.

Should the Trust have any portion of its portfolio invested in taxable assets on January 1 of any tax year, only the portion of the net asset value made up of direct obligations of the United States Government, or territories and possessions of the United States Government may be removed from the net asset value. The remaining net asset value would be subject to tax.

3) Would the answer to question 2(a) above be the same if not all of the interest on such Florida obligations were excluded from gross income for Federal income tax purposes?

Response: Yes. (See response to question 2.)

4) If the Trust held, at any time during the year, intangible personal property in its portfolio of assets that was not exempt from the Florida annual intangible personal property tax, would the shares of the Trust be exempt from the annual intangible personal property tax, if by the close of business on the last business day of such calendar year, the Trust held only exempt assets within the meaning of s. 199.185, F.S.

Response: 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, F.S.) The shares of the Trust would be exempt from tax based upon the conditions described.

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

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