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