Did a Florida-domiciled trustee's management and control give a bankruptcy-created trust's intangible assets Florida taxable situs?

Plain-English summary

The Florida-domiciled trustee's management and control created Florida taxable situs for the trust assets.

The trust was created by a federal bankruptcy court to liquidate assets and pay creditors. Although the corporation was organized in Delaware and reportedly had no current office, operations, or management functions elsewhere, its remaining cash and securities were held in Florida accounts and the trustee acted in Florida as assignee for the corporation, estate, and trust. The Department concluded that the trustee's Florida domicile and control made the trust subject to Florida intangible personal property tax.

What this means for you

Out-of-state formation did not prevent Florida situs where a Florida-domiciled fiduciary managed or controlled the intangible assets.

Common questions

Q: What created Florida taxable situs? A: The Florida-domiciled trustee's management or control of the trust assets.

Q: Did the trustee act only for the trust? A: No. The ruling described the trustee as assignee acting for the corporation, estate, and trust.

Q: Did the published ruling specify what facts had to change to avoid tax in later years? A: No. It listed that request but concluded only that the trust was taxable on the stated facts.

Citations and references

• Fla. Stat. § 199.052(1) — return and tax duty for Florida-situs intangibles
• Fla. Stat. § 199.175(1) — taxable situs through Florida domicile and ownership, management, or control
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-001

Original ruling text

Jan 23, 1995

Re: Technical Assistance Advisement No. 95(C)2-001 Intangible Tax - Taxable Situs Sections 199.052 & 199.175, F.S. XXX (Trust) XXX (Corporation) XXX (Estate)

Dear :

Your letter requesting a Technical Assistance Advisement has been received and reviewed by this office. A summarization of the information provided appears below:

The Trust was created in 1985 by a Federal Bankruptcy court, as part of a plan of reorganization, in order to liquidate the assets of the Trust, the corporation and the Estate. The plan required the trustee to liquidate the real estate and distribute all of the trust property to the creditors of the various estates. The plan that was adopted was submitted by the largest creditor, but it did not address whether the trustee had to file income tax returns, or pay any of income taxes due at the federal or state level.

Shortly after the plan was confirmed, as required by the plan, the trustee caused the Trust property to be conveyed to the largest creditor, for cash and cancellation of the creditor's mortgage claims. The proceeds from the sale were used to pay off third party creditors. Prior to the plan of confirmation, Corporation also sold properties located in Virginia, and these proceeds also went to the creditors. In 1987, Corporation filed a consolidated tax return for the fiscal year ended July 31, 1985; however, the debtors requested the trustee to pay the taxes. In late 1987, the trustee requested declaratory relief from the Bankruptcy court with respect to his obligations. The U.S. Government and the debtors opposed the trustee's

action, claiming the trustee was responsible for filing returns and paying the tax. All of the lower courts and the Court of Appeals agreed with the trustee. Eventually, the case was appealed to the U.S. Supreme Court. The court reversed and ruled that the trustee must file the required federal income tax returns and pay the taxes due from both the Estate and Corporation. The Supreme Court ruled that the trustee is an assignee of the assets of the debtors. Therefore, the assignee is to file such federal tax returns as Corporation and Estate would have been required to file. The requirement to file a federal return also makes the trustee liable to pay the federal and state taxes for the Corporation out of the available trust assets. The effect of the ruling for federal tax purposes is to consider Corporation as a taxpayer, and the trustee has the fiduciary responsibility to file its corporate returns as the assignee of all the corporate assets.

After the Supreme Court decision, the trustee entered into lengthy negotiations with the federal government and state governments in an attempt to quantify and measure the income and other tax liabilities of each taxpayer for the years 1985-1993. The settlements with Florida covered all tax liabilities for Corporation and Trust through the years ended July 31, 1993 and December 31, 1993, respectively.

In the years covered by the settlement agreement with Florida, Corporation has nexus (commercial domicile and business domicile). It conducted business in Florida. To the best of the requester's knowledge Corporation is a registered Delaware corporation, currently with no office, operations or management functions in any state. Corporation currently owns a limited number of assets, which are being held in Florida bank and investment accounts naming the assignee. Corporation's current assets consist of cash, demand deposit accounts, certificates of deposit, and repurchase agreements and other securities. All are located exclusively within bank accounts and brokerage accounts located in Florida. There is a significant amount of time spent litigating various matters, including creditor claims, professional fee

awards, etc. All claims are being litigated in federal courts in Florida.

Request

Based upon the above information the following requests for technical advice have been made:

1. Whether the activities of Corporation in and of
   itself, without considering the assignee, would subject Corporation to the Florida intangible tax?
2. Do the activities of the assignee create commercial
   domicile for Corporation, and if not, do they create a Florida business situs for Corporation's assets?
3. If Corporation is subject to the Florida intangible
   personal property tax, based on the above two questions, what facts would need to change so as to not subject it to the Florida intangible personal property tax for 1995 and years thereafter?

Provisions of Law

Section 199.052(1), F.S., provides that every person in this state who owns, manages or has control of intangible property that has a taxable situs in this state shall file a return and pay the tax on the intangible property.

Section 199.175, F.S., provides that intangible property has a taxable situs in this state when it is owned, managed or controlled by a person domiciled in this state.

Discussion of Law

The request for a Technical Assistance Advisement put forth the proposition that Corporation, Estate and Trust have no taxable situs in Florida. This position is based upon Corporation's state of incorporation, the domicile of the individual for whom Estate was created and the fact that the Trust was created under the Bankruptcy court direction. To the extent that the parties involved have direct activities in Florida outside the activities of the Trust, the proposed

nontaxable conclusion might be correct. However, to take such a position one would have to ignore the presence and activities of the Trustee in Florida. Section 199.052(1), F.S., states that all persons domiciled in Florida who own manage or control intangible property having a taxable situs in Florida must file a return. Section 199.175(1), F.S., states that intangible property shall have a taxable situs in this state when it is owned, managed, or controlled by a person domiciled in this state. The Trustee is domiciled in Florida. Therefore, the Trustee having management or control of the Trust assets creates a taxable situs for the Trust. As assignee the Trustee also acts on behalf of Corporation, Estate and the Trust. It is, therefore, the opinion of this office that the Trust is subject to Florida's intangible personal property tax.

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

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