Did temporary receivable entries from an investment fund's securities and share sales make its otherwise exempt portfolio subject to Florida intangible tax?

Plain-English summary

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

The entries arose from securities sold, fund shares sold, and interest on exempt Florida or U.S. territorial obligations. Securities regulations allowed a five-day period to close purchases and sales, which required the fund to record the unsettled transactions.

For the investments-sold and shares-sold entries, the Department found that the fund had no recourse against a purchaser that failed to pay. They therefore were accounting control accounts rather than enforceable obligations for payment.

What this means for you

The label “accounts receivable” on a balance sheet did not control. The Department examined whether the entries created enforceable money obligations and how they arose from the fund's settlement process.

Common questions

Q: Were receivables for investments sold taxable?
A: No, because they were not enforceable payment obligations under the stated settlement arrangement.

Q: Were receivables for fund shares sold taxable?
A: No, for the same reason.

Q: What did the interest receivables relate to?
A: Coupon payments on exempt Florida or U.S. territorial obligations.

Q: Why did these entries matter?
A: A taxable asset in the portfolio could have affected the exemption for the fund's shares.

Citations and references

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

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-019

Original ruling text

May 26, 1995

Re: Technical Assistance Advisement No. 95(C)2-019
Intangible Personal Property Tax; Accounts Receivable
XXX (Fund)

Dear :

This is in response to your recent request for a technical
assistance advisement. This request deals with the taxation of
accounts receivable owned by Fund, and supplements, as well as
incorporating by reference, Technical Assistance Advisement
90(C)2-004.

Statement of Facts

In addition to the Fund's typical portfolio of investments,
the statement of assets includes a small percentage of
receivables. These receivables are: Receivables for Investments
Sold, Receivables for Fund Shares Sold, and Interest
Receivables. Interest Receivables relate only to coupon payments
from an exempt Florida or U.S. Territorial obligation.
Receivables for Investments Sold represent sales by Fund of
obligations held in its Florida Series portfolio. Receivables
for Fund Shares Sold represent sales by Fund 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 where the shares are not exempt under s.
199.185(1)(i), F.S., are subject to the intangible tax. Under
s. 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 method of
valuing shares of a fund that is organized as a trust. This
rule provides that after the removal of any U.S. Government
obligation if any portion of the remaining portfolio of assets
contains an asset subject to Florida's intangible tax, all the
remaining portion of the portfolio is subject to tax. Rules
12C-2.002(1)(a) and 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 90(C)2-004 it was determined that the shares of Fund
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 Fund 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
selling shares of Fund must be accounted for to accurately
reflect the business of Fund. 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 Fund fail to pay,
Fund 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 Fund are not subject to
Florida's intangible personal property 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,

Nadine C. Posey
Senior Tax Specialist
Technical Assistance

NCP/mh