How did Florida value shares of an out-of-state investment trust holding exempt obligations and temporary taxable assets?

Plain-English summary

The trust's year-end portfolio composition controlled the shareholder tax result.

Shares were fully exempt when the portfolio consisted entirely of exempt assets on the last business day of the year. If any taxable asset remained, direct U.S. government and territorial obligations could be removed, but the remaining net asset value was taxable. Taxable assets held earlier in the year did not count if sold before year-end.

What this means for you

The ruling used a year-end snapshot and did not generally apportion a mixed portfolio asset by asset beyond the stated federal-obligation exclusion.

Common questions

Q: Was an all-exempt portfolio fully exempt?
A: Yes.

Q: What if taxable assets remained at year-end?
A: The remaining net asset value was taxable after the allowed federal-obligation exclusion.

Q: Did taxable assets sold before year-end count?
A: No.

Citations and references

• Fla. Stat. §§ 199.032, 199.103, and 199.185(1)(g), (i) — annual tax, valuation, and exemptions
• 31 U.S.C. § 3124(a) — federal-obligation exemption
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-015

Original ruling text

Apr 07, 1995

Re: Technical Assistance Advisement 95(C)2-015
Intangible Tax - Valuation
Sections 199.103 & 199.185(1)(i), F.S.
XXX (The Trust)

Dear :

Your request for a Technical Assistance Advisement has been
referred to this office for response. The specific request is
for technical advice on the application of intangible tax to a
trust organized as a Massachusetts type business trust under the
laws of Pennsylvania.

Based on the information submitted four questions have been
presented for response:

1. Will the Trust be subject to Florida's intangible
   personal property tax?
2. Will shares of the Trust be 100% exempt from the
   Florida intangible tax levied by s. 199.032, F.S., if,
   on the last business day of the previous calendar
   year, the portfolio of investments consists solely of
   tax-exempt obligations of Florida, the U.S.
   Government, their counties, municipalities, agencies
   or other political subdivisions, Puerto Rico, Guam, or
   U.S. Virgin Islands.
3. If on the last day of the previous calendar year the
   Trust has a small portion of its assets invested
   temporarily in certain non-exempt assets will the
   portion of the net asset value represented by tax
   exempt obligations of Florida, the U.S. Government, or
   their municipalities, agencies or political
   subdivisions, Puerto Rico, Guam, or U.S. Virgin
   Islands be exempt from the Florida intangible tax
   levied by s. 199.032, F.S.
4. If the Trust held, at any time during the year,
   intangible personal property in its portfolio of

assets that was not exempt from the Florida annual
intangible personal property tax, would shares of the
Trust be exempt from the annual intangible personal
property tax if, by the close of business on the last
business day of such calendar year, the Trust held
only exempt assets within the meaning of s. 199.185,
F.S.?

Statement of Facts

The Trust is a no-load, open-end nondiversified business
trust established under the laws of the Commonwealth of
Pennsylvania by a Declaration of Trust. The Trust's objective
is to provide shareholders a high level of tax exempt income
through investment in a portfolio of investment obligations the
interest of which is exempt from federal income taxation and
Florida intangible property tax. The Trust intends to achieve
its objective by investing in a portfolio of tax-exempt
municipal securities of Florida issuers including the state,
counties, municipalities and political subdivisions, agencies
and instrumentalities of the State of Florida, as well as
obligations of territories and possessions of the United States.

Provisions of Law

The applicable provisions of the Florida Statutes impose an
annual tax of 2 mills on the just value of all intangible
property, owned by Florida residents, as of January 1 of each
calendar year (s. 199.032, F.S.) The tax is based upon the
value of the intangible property as prescribed by s. 199.103(2),
F.S. This subsection requires that shares of corporations,
mutual funds, money market funds or trusts be valued at their
net asset value unless exempt by s. 199.185(1)(i), F.S.

Your first question is responded to positively. Section
199.185(1)(g), F.S., exempts the assets owned by a company
organized under the Investment Company Act of 1940. Further,
the principal business location of The Trust is outside of
Florida. Therefore, only the intangible property arising out of
the business conducted in Florida with Florida customers by
employees, agents or representatives of the Trust could be

taxable.

Your second question is responded to positively. Section
199.185(1)(i), F.S., exempts, from the intangible tax, shares of
a trust whose portfolio of assets is 100% exempt from intangible
tax.

Your third question is answered in the negative. Prior to
1987 Attorney General's Opinion #064-143 advised the Department
to apportion the value of funds organized as trusts, taxing only
the portion consisting of taxable assets. In 1987 and 1988,
Chapter 199, F.S., was amended to tax these types of funds at
net asset value and to provide an exemption for shares of a
trust whose portfolio consists solely of assets exempt from the
intangible tax. These amendments succeed Attorney General's
Opinion #064-143. Also governing the taxation of these types of
funds is 31 U.S.C. s. 3124(a) which provides that stocks and
obligations of the United States Government are exempt from
taxation by a State. The exemption applies to each form of
taxation that would require the obligation, the interest on the
obligation, or both to be considered in computing a tax, except
for a nondiscriminatory franchise tax or other nonproperty tax.

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

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

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

If the remaining portion of the net asset value of the
Trust, after removing the portion attributable to United States

Government obligations, represents any asset which is taxable
under Florida law, then the remaining portion of the net asset
value of the Trust is subject to tax.

Should the Trust have any portion of its portfolio invested
in taxable assets on January 1 of any tax year, only the portion
of the net asset value which is made up of direct obligations of
the United States Government, or territories and possessions of
the United States Government, may be removed from the net asset
value. The remaining net asset value would be subject to tax.

The fourth question is also answered in the positive. The
date prescribed for valuation of all intangible personal
property is as of the close of business on the last business day
of the previous calendar year (s. 199.103, F.S.) If the Trust
held taxable assets in its portfolio during any part of the
year, but sold them prior to the close of business at calendar
year-end, such assets would not be considered when determining
the tax value of the shares of the Trust.

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