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

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