Did temporary receivable entries from an investment trust's securities and beneficial-interest sales count as taxable assets in its Florida portfolio?

Plain-English summary

The trust's receivable entries were not subject to Florida intangible tax.

The entries arose while sales of portfolio investments and trust beneficial interests awaited settlement. Securities regulations allowed five days between entering a sale and closing it, requiring the trust to record the unsettled transaction.

The Department found that these entries were accounting control accounts rather than enforceable obligations for payment. If a purchaser failed to pay, the trust had no recourse against that party.

What this means for you

The balance-sheet label did not decide the tax result. The ruling examined whether the entry created a legally enforceable money obligation and how it arose in the settlement process.

Common questions

Q: Were receivables for investments sold taxable?
A: No.

Q: Were receivables for beneficial interests sold taxable?
A: No.

Q: Why were they not treated as ordinary receivables?
A: They were temporary accounting controls, and the trust had no recourse if the purchaser did not pay.

Q: Why could a receivable affect the trust?
A: A taxable portfolio asset could affect the exemption for the trust's shares or units.

Citations and references

• Fla. Stat. §§ 199.103(2) and 199.185(1)(i) — trust-unit taxation and all-exempt-portfolio exemption
• Fla. Admin. Code rr. 12C-2.002(1)(a) and 12C-2.010(1)(h), (j) — receivables and trust valuation
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-017

Original ruling text

May 19, 1995

Re: Technical Assistance Advisement 95(C)2-017
Intangible Tax; Trust
XXX (Trust)

Dear :

Your letter requesting a Technical Assistance Advisement
has been received by this office. This request deals with the
taxation of account receivables owned by Trust and incorporates
by reference, Technical Assistance Advisement 91(C)2-001.

Statement of Facts

Trust's statement of assets and liabilities sets out in the
accounting records the following assets: Receivables for
Investments Sold and Receivables for Shares of Beneficial
Interest Sold. Receivables for Investments Sold represent sales
by Trust of obligations held in its Florida Series portfolio.
Receivables for Shares of Beneficial Interest Sold represent
sales by Trust of shares in the Florida Series portfolio. It is
the taxable status of these accounts that is the subject of this
request for technical advice.

Provisions of Law

Section 199.103(2), F.S., provides that shares or units of
companies or trusts, mutual funds, money market funds and unit
investment trusts, which are not exempt under s. 199.185(1)(i),
F.S., are subject to the intangible tax. Under section
199.185(1)(i), F.S., shares or units of a trust, whose portfolio
of assets consists solely of assets that are exempt from
Florida's intangible tax, are themselves exempt from tax. Rule
12C-2.010(1)(j), F.A.C., outlines the methodology for valuing
shares of a fund that is organized as a trust. This rule
provides that, after the removal of any U.S. Government
obligations, if any portion of the remaining portfolio of assets
contains an asset subject to Florida's intangible tax, all of

the remaining portion of the portfolio is subject to tax. Rule
12C-2.002(1)(a) and Rule 12C-2.010(1)(h), F.A.C., provide for
the taxation and valuation of accounts receivable for intangible
tax purposes.

Discussion of Issues

In TAA 91(C)2-001 it was determined that the shares of
Trust would be exempt from the intangible tax if the portfolio
of assets on January 1 of each year consists solely of assets
exempt from the intangible tax. The issue here is whether the
accounts receivable shown in the portfolio of assets of Trust
are true accounts receivable or a control account that is
displayed for accounting purposes as an account receivable. The
selling of securities that are part of the portfolio of
investments and the selling of shares of Trust must be accounted
for to accurately reflect the business of Trust. Security and
Exchange Commission (SEC) regulations provide a 5 day period
between the date a purchase or sale of a security is entered
into and the date that the purchase or sale must be closed.
This necessitates the creation of accounts receivable. The
receivables that are created by these types of transactions are
not enforceable obligations for the payment of money. Should
the party purchasing the portfolio asset or shares of Trust fail
to pay, Trust has no recourse against the party. Therefore, it
is the opinion of this office that the accounts receivable that
are part of the portfolio of assets of Trust are not subject to
Florida's intangible 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

JVP/mh