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

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