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

JVP/mh