How much of an investment trust's shares was exempt from Florida intangible tax when its portfolio contained federal, territorial, and other exempt securities?

Plain-English summary

Trust-share value attributable to direct U.S. and territorial obligations was exempt from Florida intangible tax.

After removing that exempt portion, the remaining net asset value was exempt only if the remaining portfolio consisted entirely of assets otherwise exempt under Florida law. If that remaining portfolio included any taxable asset, the ruling treated the remaining share value as taxable.

The valuation snapshot was the close of business on the last business day of the prior calendar year—described in the ruling as the assets held on January 1. Holdings at other times during the prior year did not affect that year's exempt status.

What this means for you

The ruling used both asset classification and a fixed valuation date. Historical trading during the year did not replace the year-end portfolio test.

Common questions

Q: Were direct U.S. government obligations exempt?
A: Yes, and the ruling also identified specified U.S. territorial obligations as exempt.

Q: What happened if the nonfederal remainder contained one taxable asset?
A: The remaining portion of the trust's net asset value was taxable under the ruling's stated test.

Q: Did nonexempt holdings earlier in the year matter if only exempt securities remained at valuation?
A: No. The valuation-date holdings controlled.

Citations and references

• Fla. Stat. §§ 199.103 and 199.185(1)(d), (i) — valuation and exemptions
• Fla. Admin. Code r. 12C-2.010(1)(j) — trust shares invested in exempt assets
• 31 U.S.C. § 3124(a) — United States obligations
• 48 U.S.C. §§ 745, 1403, 1423a, 1670, and 1681 — territorial obligations
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-010

Original ruling text

Mar 16, 1995

Re: Technical Assistance Advisement No. 95(C)2-010
Intangible Tax - Valuation
Sections 199.103(2) & 199.185(1)(i), F.S.
The following named trusts are hereinafter referred to
collectively as the "Trust" - XXX

Dear :

Your letter requesting a technical assistance advisement
has been referred to this office.

Trust was created under the laws of the Commonwealth of
Massachusetts under an agreement and declaration of trust
commonly know as a "Massachusetts business trust". The Trust is
registered under the Investment Company Act of 1940, as amended.
The Trust's objectives are to provide shareholders a high level
of tax exempt income through investment in a portfolio of
investment securities the interest and dividends of which are
exempt from federal income tax and Florida intangible tax. The
Trust intends to achieve it objectives by investing in a
portfolio of tax-exempt securities of the State of Florida, its
political subdivisions, authorities and corporations and/or the
U.S. Government, its agencies, political subdivisions or
territories or possessions.

Based upon the statements and documents received you have
submitted two questions for response. The questions and our
responses following:

i) Will the shares of the Trust be exempt from the
intangible tax on a proportionate basis to the extent
such shares represent interest in obligations of the
United States or its agencies, instrumentalities, or
territories?

This question is answered in the positive. This type of
trust is governed by Federal and Florida law for purposes

of valuation. Obligations of the United States Government
are exempt from state property taxes under 31 U.S.C. s.
3124(a). Obligations issued by the governments of Puerto
Rico, Guam, U.S. Virgin Islands, American Soma, and the
Northern Mariana Islands are exempt from state and local
taxation by Title 48 ss. 745, 1403, 1423a, 1670 & 1681,
U.S.C. Under Florida law shares of a trust whose portfolio
of assets is solely invested in assets which are exempt
from tax are themselves exempt from tax [see s.
199.185(1)(i) and Rule 12C-2.010(1)(j), F.A.C.].

Applying the Federal Statutes and Florida Statutes to the
Trusts requires that the following guidelines be used to
determine what portion, if any, of the net asset value of
the Trusts will be exempt from taxation:

The portion of the net asset value of each Trust that is
attributed to direct obligations of the United States
Government is exempt from taxation.

If the remaining portion of the net asset value of the
Trusts after removing the portion representing United
States Government and territorial obligations, represents
assets which are themselves exempt from Florida's
intangible tax, then this portion of the net assets of the
Trusts' portfolios is also exempt from tax.

If the remaining portion of the net asset value of the
Trusts, after removing the portion attributable to United
States Government and territorial obligations, represents
any asset which is taxable under Florida law, then the
remaining portion of the net asset value of the Trusts is
subject to the intangible tax.

ii) If the Trust held non-exempt securities at anytime
during the previous calendar year, but on the last
business day of such calendar year held solely exempt
securities, as defined by section 199.185(1)(d),
Florida Statutes, would the shares of the Trust be
exempt from Florida's intangible personal property
tax?

Yes. The date of valuation is prescribed as the close of
business on the last business day of the previous calendar
year. Only the assets held in the portfolio of the Trust
on January 1 are to be valued. Therefore, investments made
by the Trust at other times during the previous calendar
year have no effect on the exempt status of the Trust on
January 1 of each year (see s. 199.103, F.S.).

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 confidential
information, we request you notify the undersigned in writing
within 15 days of any deletions you wish made to the request or
this response.

Sincerely,

J.V. Parramore, Jr.
Technical Assistant
Technical Assistance

JVP/mh