Could a Florida company insider discount SEC Rule 144 restricted stock below market value for annual intangible tax?

Subject

Valuation/Restricted Stock

Plain-English summary

The shareholder could reduce current market value by 25% when reporting the restricted shares. The Department found that the person's founder, board-chair, insider, and 13% control position subjected the shares to SEC Rule 144 marketing limits that reduced realizable value.

The ruling warned that a change in the facts could end eligibility for the discount.

What this means for you

The 25% figure was not presented as a general discount for every restricted security. It was tied to the specific control-person facts and marketability restriction described in the request.

Common questions

Did the ruling use the quoted market price without adjustment? No.

What discount was allowed? 25%.

Was the discount permanent? No. A factual change could remove it.

Citations and references

• Fla. Stat. §§ 199.103 and 213.22
• Fla. Admin. Code rr. 12C-2.001(3) and 12C-2.002(1)(y)
• SEC Rule 144

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C2-014

Original ruling text

Jun 27, 1994

Re: Technical Assistance Advisement No. 94(C)2-014
Intangible Tax - Valuation/Restricted Stock
Section 199.103, F.S.
Rules 12C-2.001(3) & 12C-2.002(1)(y), F.A.C.

Dear :

Your letter requesting a Technical Assistance Advisement
has been received by this office. You have asked if a person
under SEC Rule 144 restrictions may reduce the market value of
their shares of stock.

Statement of Facts

Currently you are serving as Chairman of the Board of
Directors for XXX, a publicly held company traded on the NASDAQ
Stock Exchange. You are also a founder of the company and have
served as a member of the Board of Directors since 1985. Your
present stock ownership amounts to 13% of the outstanding common
stock of the company.

Provisions of Law

Section 199.103, F.S., requires that all shares of stock be
valued at their just value as of January 1 of each tax year.
Shares of stock that are regularly listed on an exchange or
traded over-the-counter are to be taxed at the closing market
value on the last business day of the previous calendar year.
Shares of stock not regularly traded on an exchange or traded
over-the-counter are to be valued based upon those factors
customarily considered in determining fair market value.

Rule 12C-2.001(3), F.A.C., defines "Just Value" to be the
price that a stock would bring if offered for sale by a person
who desires to sell but is not compelled to sell, and bought by
one willing to buy but not compelled to buy, with both seeking
to maximize their gains and neither being in a position to take

advantage of the other. Rule 12C-2.002(1)(y), F.A.C., provides
that restricted stock may be valued at less than full market
value based upon the facts and circumstances creating the
restriction.

Discussion of Law

As founder and current chairman of the board of a publicly
traded company, Security and Exchange Rule 144 restricts your
ability to market the shares of this company. Because of your
position as an insider, any stock trading would be limited,
thereby reducing the value received for shares that might
otherwise be traded on the market.

It is the opinion of this office that as a control person
of the company you would be entitled to a discount of 25% off
the current market value when reporting your shares of the
company stock. At the time of any change of the factual
information, you may no longer be entitled to this discount.

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