Was the cash-collateral asset recorded by a securities-lending intermediary subject to Florida intangible personal property tax?

Plain-English summary

The intermediary did not owe Florida intangible tax on the collateral-cash asset recorded on its books.

The company arranged short-term exchanges in which one party supplied cash and another lent securities. The intermediary simultaneously passed the cash to the securities lender as collateral and later arranged the reverse exchange.

Although the intermediary recorded an asset and liability for financial-reporting purposes, ownership of the securities stayed with the lender. The recorded asset was a cash deposit, and the cited statutes treated money as exempt from intangible tax.

The Department expressly limited its conclusion to the intermediary and did not decide the surrounding parties' transactions.

What this means for you

The ruling classified the specific recorded asset by its substance as cash collateral. It did not grant a blanket exemption for every securities-lending arrangement.

Common questions

Q: What asset appeared on the intermediary's books? A: A collateral cash deposit securing the return of securities.

Q: Who owned the loaned securities? A: Ownership remained with the securities lender.

Q: Was the cash deposit taxable?
A: No. It was exempt money under the cited provisions.

Q: Did the ruling decide the other parties' tax treatment? A: No. It specifically addressed only the middleman.

Citations and references

• Fla. Stat. § 199.023(2) — definition of money
• Fla. Stat. § 199.185(1) — money exemption
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-018

Original ruling text

May 23, 1995

Re: Technical Assistance Advisement No. 95(C)2-018 Florida Intangible Personal Property Tax - Middleman Arranging for the Borrowing of Stock/Securities in Exchange for Cash XXX (Company)

Dear :

This is in response to your recent request for a technical assistance advisement.

Facts

Company is in the business of acting as middleman for financial organizations, brokerage houses and corporations whereby it will arrange for stock/securities to be borrowed in exchange for cash collateral. The parties involved are:

(1) "A" - who is requesting shares of stock or securities in exchange for cash. (2) "B" - who is lending shares of stock or securities in exchange for cash. (3) Company - who is acting as middleman.

The Company arranges for a simultaneous exchange of stock/securities and cash with "A" and "B". The exchange is for a very short period (from one to a few days). At the end of this time, Company arranges for the reverse exchange. There are separate contractual arrangements between "A" and "B" and Company in which Company is obligated to both parties for repayment of the cash and stock/securities.

The stock or securities loaned and borrowed are not reflected on Company's financial statements as their ownership remains with "B". However, Company is required for financial purposes to record an asset and liability because of the obligations. The asset is a collateral cash deposit, for the

cash it deposits with "B" as collateral for the return of securities; and the liability is for Company's obligation to return cash to "A" when "A" returns the securities.

Statutory Reference

Section 199.023(2), F.S., provides that "Money" includes, without limitation, United States legal tender, certificates of deposit, cashier's and certified checks, bills of exchange, drafts, the cash equivalent of annuities and life insurance policies and similar instruments, which are held by a taxpayer, or deposited with or held by a banking organization or any other person. Money is listed in s. 199.185(1), F.S., as exempt from the Florida intangible personal property tax.

Issue

Since the asset is a collateral cash deposit, for the return of securities; and the liability is for the Company's obligation to return cash to "A" when "A" returns the securities, we believe that the asset on the Company's books at the end of the calendar year is exempt from taxation as a cash deposit.

Conclusion

Based on the above scenario, Company would not be subject to Florida intangible personal property tax on the transactions shown on his books. This response specifically addresses the middleman and not the surrounding transactions.

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,

Nadine C. Posey
Senior Tax Specialist
Technical Assistance

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