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

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