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