How did Florida apply its intangible tax to out-of-state investment funds whose portfolio held exempt government obligations or a mix of exempt and taxable assets?

Plain-English summary

The out-of-state funds and portfolio were not themselves subject to Florida intangible tax, and shareholder units could be exempt when the underlying portfolio held only exempt assets.

The funds and portfolio were trusts organized outside Florida and primarily managed outside Florida. The ruling therefore found no Florida taxable situs for their assets.

For shareholders, units of a qualifying trust registered under the Investment Company Act of 1940 were exempt when the portfolio consisted solely of assets exempt under section 199.185.

If a fund held any taxable assets on January 1, the Department said the fund should use its net asset value on the last business day of the prior calendar year. Only the portion attributable to direct obligations of the United States government or its territories and possessions could be excluded; the remaining net asset value was taxable.

What this means for you

The ruling separated the situs of the out-of-state fund entities from the valuation of Florida shareholders' units. Portfolio composition mattered: an all-exempt portfolio qualified for the stated exemption, while a mixed portfolio triggered taxation of the balance after the permitted federal-obligation exclusion.

Common questions

Q: Were the funds and portfolio required to pay Florida intangible tax on their assets? A: No. They were organized outside Florida and did not have a Florida commercial domicile under the facts presented.

Q: When were shareholder units exempt? A: When the qualifying registered trust's portfolio consisted solely of assets exempt under section 199.185.

Q: How was a mixed portfolio valued? A: At net asset value on the last business day of the previous calendar year, excluding only the portion attributable to direct U.S. government or territorial obligations.

Citations and references

• Fla. Stat. §§ 199.052, 199.103, and 199.175 — filing and valuation provisions cited in the ruling
• Fla. Stat. § 199.185(1)(i) — qualifying investment-trust-unit exemption
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 95C2-024

Original ruling text

Jul 25, 1995

Re: Technical Assistance Advisement No. 95(C)2-024 Intangible Tax - Filing Requirements - Valuation Sections 199.052, 199.175, 199.103, 199.185, F.S. XXX (Trust) XXX (Funds) XXX (Portfolio)

Dear :

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

Facts

The Trust and the Funds are managed by XXX (Company).

The Trust is a Massachusetts business trust registered with the Securities and Exchange Commission (SEC) under the Investment Company Act of 1940, as amended, as an open-end management investment company.

Each Fund will invest its assets in the Portfolio. The Portfolio is a non-diversified open-end investment company organized and primarily managed in states other than Florida. The Funds and the Portfolio are structured according to a Hub and Spoke structure, whereby substantially all of the assets of each Fund will be represented by its interest in the Portfolio, and the Portfolio, in turn, will have the same investment objective as the Fund investing its assets in exempt government obligations.

Requested Advisements

1. The Funds and the Portfolio will not be subject to the
   intangible tax on their assets;
2. Shareholders of each Fund will not be subject to the
   intangible tax on their shares in each Fund, provided

that each Fund's portfolio of assets consists entirely of its interest in the Portfolio, whose assets consist solely of exempt government obligation; and

3. If on the last day of any calendar year the Portfolio
   owns any assets not exempt from the intangible tax, then with regard to a Fund whose assets consist of an interest in the Portfolio, the portion of the Fund's net asset value representing assets subject to the intangible tax will be determined as follows:

The portion of the net asset value of a trust that is attributable to direct obligations of the United States Government is exempt from taxation.

If the remaining portion of the net asset value of a trust, after removing the portion representing United States Government obligations, represents assets which are themselves exempt from Florida's intangible tax, then this portion of the net asset value of the trust's portfolio is also exempt.

If the remaining portion of the net asset value of the trust, after removing the portion attributable to United State Government obligations, represents any asset which is taxable under Florida law, then the remaining portion of the net asset value of the trust is subject to tax.

Discussion and Law

With respect to the first scenario, the intangible tax applies only to intangible property having a taxable situs in Florida. Intangible personal property owned by a trust has taxable situs in Florida only if the trust is (i) a business trust organized under the laws of the State of Florida, or (ii) a trust with a commercial domicile in Florida. The Funds and the Portfolio are a series of trusts organized under the laws of a state other than Florida.

The second scenario is covered under s. 199.185(1)(i), F.S., which provides that units of a unit investment trust organized under an agreement or declaration of trust and

registered under the Investment Company Act of 1940, as amended, whose portfolio of assets consists solely of assets exempt under s. 199.185, are exempt from the Florida intangible personal property tax.

Concerning the third scenario, shares or units of companies or trusts registered under the Investment Company Act of 1940, as amended, including mutual funds and unit investment trusts where such shares or funds are not exempt under s. 199.185, shall be valued at the net asset value of such shares or units on the last business day of the previous calendar year. Should a Fund have any portion of its assets invested in taxable assets on January 1 of any tax year, only the portion of the net asset value which is made up of direct obligations of the United States Government, or its territories and possessions, may be excluded from the net asset value. The balance of the net asset value would be subject to tax.

Based upon statutory provisions and the information provided in your letter, the requested rulings are answered in the affirmative.

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