How did Florida value mutual-fund shares for the 1994 annual intangible tax?

Subject

Valuation - Business Trust

Plain-English summary

For the annual intangible tax described in this 1994 ruling, the fund-share valuation and exemption depended on the fund's holdings on January 1. Investments held at other times during the year were not included in that annual valuation.

The Department confirmed a proportional exemption for fund shares to the extent the January 1 portfolio held qualifying obligations of the United States and specified territories or their governmental issuers. If the remainder of the January 1 portfolio also consisted of exempt investments, the shares could be wholly exempt for that year.

The ruling cautioned that bonds issued by a private entity and merely collateralized by government obligations were not treated as bonds issued by the governmental entity.

What this means for you

This page records a historical tax regime and the Department's 1994 administrative position. The operative distinction in the ruling was between qualifying government-issued obligations and private obligations backed by government collateral.

Common questions

What date controlled the annual valuation? January 1 of the tax year.

Could fund shares receive only a partial exemption? Yes. The ruling allowed exemption in proportion to qualifying exempt investments in the January 1 portfolio.

Did government collateral make a private issuer's bonds government obligations? No, according to the Department's stated position.

Citations and references

• I.R.C. § 851(h), as stated in the advisement
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94C2-020

Original ruling text

Sep 13, 1994

Re: Technical Assistance Advisement 94(C)2-020
Valuation - Business Trust
XXX (Company)
XXX (Collective referred to as the Fund or Funds)

Dear :

Your letter requesting a Technical Assistance Advisement
has been received. Specifically your request asks about the
valuation of a business trust for intangible tax purposes.

The following information has been presented for
consideration:

The Company is organized as a Massachusetts business trust
and is registered under the Investment Company Act of 1940
as an open-end management investment company, commonly
known as a "mutual fund." The Company currently has eight
series including the Funds and may add additional series in
the future. The assets of each Fund are segregated and
each Fund's portfolio of investments will be separately
managed. Each share of a Fund represents an interest in the
net assets of that Fund and is entitled to such dividends
and distribution from that Fund as are declared by the
Company's trustees.

Each Fund will be treated as a separate corporation for
federal tax purposes pursuant to section 851 (h) of the
Internal Revenue Code of 1986, as amended (the Code), and
each Fund intends to qualify for each taxable year as a
regulated investment company under Part I of Subchapter M
of the Code. Under rule of the United States Securities and
Exchange Commission, the Company, as an open-end management
investment company must redeem the shares of each Fund at
net asset value pursuant to a shareholder's request.

The investment objective of each Fund is to seek as high a

level of current interest income, exempt from regular
federal income tax, as is consistent with the preservation
of capital and liquidity. Each Fund's shares are also
intended to be exempt from the Florida Intangible Tax.
Under normal circumstances, each Fund intends to invest at
least 80% of its portfolio of investments in obligations,
the interest of which is exempt from the regular federal
income tax. In addition, each Fund will ordinarily invest
at least 65% of its portfolio of investments in obligations
issued by or on behalf of the State of Florida, its
political subdivisions, agencies and instrumentalities, and
U.S. possessions and territories, the interest on which is
exempt from regular federal income tax. The remaining 35%
of each Fund's investment portfolio may be invested in (i)
U.S. Government securities, and (ii) obligations issued by
other states and their political subdivisions. For
liquidity purposes, one Fund may invest up to 5% of its
total assets in shares of the other Fund.

Based upon the information submitted for consideration it
is requested the Department confirm that the following
statements are the current administrative position of the
Department with regard to the valuation of the shares of a
business trust:

1. The annual Intangible Tax is based solely upon
   intangible investments owned on January 1 of each year
   and intangible investments owned at any time other
   than January 1 of each year are not taken into account
   for purposes of the annual Intangible Tax.
2. Notes, bonds and other obligations issued by the
   following are exempt from the Intangible Tax: (i) the
   U.S. Government or its agencies and instrumentalities;
   (ii) the Government of Puerto Rico or by its
   authority; (iii) the Government of the Virgin Islands
   or any municipality thereof; (iv) the Government of
   Guam or by its authority; (v) the Government of
   American Samoa; and (vi) the Government of the
   Northern Mariana Islands or by its authority.
3. Shares of a Fund will be exempt from the Intangible
   tax for a given year, on a proportionate basis, to the

extent that the Fund's portfolio of investments
consists of investments described in request number 2
on January 1 of that year. If the remaining portion
of the Fund's portfolio of investments on January 1 of
a given year, after removing any investments described
in request number 2, consist of investments exempt
from the Intangible Tax, then shares of that Fund will
be wholly exempt from the Intangible Tax for that
year.

The Department, by this letter is confirming the positions
as stated above with regard to the valuation of shares of a
business trust for intangible tax purposes. With specific
regard to request number 2, caution should be given to
investments such as bonds which are deemed to be issued on
behalf of a governmental entity. It is the position of this
Department that these bonds are not the issue of the
governmental entity, but are bonds issued by a private entity
and collateralized by governmental obligations.

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