Under Florida's 1996 intangible tax, how were stock, a Nevada partnership interest, and a revocable-trust interest treated?

Plain-English summary

Florida separated the tax treatment of corporate stock, a Nevada limited-partnership interest, and the Florida resident's revocable-trust interest.

The revocable trust planned to contribute 99% of its Florida-corporation stock to a Nevada limited partnership and the remaining 1% through a Nevada S corporation that served as general partner. The trust's common stock remained taxable, while its limited-partnership interest was exempt because the partnership was not SEC-registered.

The resident beneficiary could revoke the trust, so he had a taxable beneficial interest. But when the trust held only the exempt limited-partnership interest, neither he nor the trust had to file because no tax was due.

Location of management mattered: if the Florida resident personally implemented investment decisions, the Nevada partnership and/or corporation would become subject to Florida tax. Nevada-based employees or an independent Nevada contractor did not create Florida situs.

What this means for you

• Corporate stock and partnership interests received different treatment.
• The non-SEC partnership-interest exemption was central.
• A revocation right created a taxable beneficial interest, but tax still depended on taxable trust corpus.
• Nevada operations had to remain implemented outside Florida to avoid situs.

Common questions

Q: Was the trust's corporation stock taxable? A: Yes.

Q: Was its Nevada limited-partnership interest taxable? A: No, because the partnership was not SEC-registered.

Q: Did the resident have a taxable beneficial interest? A: Yes, because he could revoke the trust.

Q: Did he have to file when the trust held only the exempt partnership interest? A: No.

Citations and references

• Fla. Stat. § 199.023(3) — definition of person
• Fla. Stat. § 199.052(1), (5) — filing and trust responsibility
• Fla. Stat. § 199.175(1), (2) — Florida taxable situs
• Fla. Stat. § 199.185(1)(c) — partnership-interest exemption
• Fla. Admin. Code rr. 12C-2.002(1)(c), 12C-2.006(3) — trust interests and situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-015

Original ruling text

Feb 08, 1996

Re: Technical Assistance Advisement No. 96(C)2-015 Intangible Personal Property Tax Taxable Situs XXX ("Individual") XXX ("Trust") XXX ("Corporation A")

Dear:

Your request for a technical assistance advisement has been referred to this office for response.

STATEMENT OF FACTS PERTAINING TO ALL ISSUES

The facts that you have presented to the Department are as follows:

Individual is the current President of the Board of Directors of Corporation A, a privately held Florida corporation. His shares of stock in Corporation A are held by a Revocable Inter Vivos Trust, a living trust, in which he is the trustee and the beneficiary. Individual, in his capacity as trustee, proposes the formation of a Nevada limited partnership (denoted as "Partnership 1") which shall maintain its principal place of business in Nevada. The limited partnership will not be registered with the Securities and Exchange Commission pursuant to the Securities Act of 1933.

Under the proposed structure, the Trust will contribute 99% of its common stock ownership in Corporation A to Partnership 1, in return for a 99% limited partnership interest. The remaining 1% of the Trust's common stock in Corporation A will be contributed to an S corporation, formed under the corporate laws of Nevada ("Corporation 1"). Corporation 1 will subsequently contribute the Corporation A stock to Partnership 1 in exchange for a 1% general partnership interest in Partnership 1.

Individual will be President, and the Trust the sole shareholder, of Corporation 1, which will maintain its corporate offices in Nevada. Partnership 1 will function as an investment partnership in Nevada with authority to buy and sell the stock. As general partner, Corporation 1 will be authorized to manage Partnership 1. While in Nevada, Individual will make decisions regarding the stock held by Partnership 1 in his capacity as President of Corporation 1. These decisions will be implemented by Individual as President, or by Person(s) or agents employed by the Partnership, at its business location in Nevada where the permanent books and records will be maintained and all mail will be received. Copies of all the relevant mail will be sent to Individual. He will keep records which reflect the current market value of assets belonging to Partnership 1 and Corporation 1. These records will not be the permanent books and records of Corporation 1, nor Partnership 1, but will be for Individual's personal use.

Based upon the information set out above the following issues have been raised:

ISSUES

1. This issue concerns whether, under these facts, the
   involvement of Individual as officer of Corporation 1, the general partner of Partnership 1, and in the decision making related to the Corporation A stock, cause the intangible property owned by Partnership 1 to have a taxable situs in Florida?
2. From time to time, Corporation 1 and Partnership 1, may
   contract with an independent contractor based in Nevada for various management services. Provided that the independent contractor is not a Florida resident, will the intangible assets managed by the independent contractor have a taxable situs in Florida?
3. Will the just value of the common stock owned by the Trust,
   be subject to the Florida intangible tax?
4. Will the just value of the limited partnership interest
   owned by the Trust, be subject to Florida intangible tax?
5. Will Individual's beneficial interest in the Trust be
   exempt from the Florida intangible tax to the extent the

just value of the limited partnership interest owned by the Trust is exempt from tax?

LAW AND DISCUSSION

Subsection 199.052(1), F.S., states that every person who, on January 1 of each year, owns or has management or control of intangible property having a taxable situs in this state must file a return and pay the tax.

Subsection 199.023(3), F.S, defines person to include any individual, firm, partnership, joint adventure, syndicate, or other group or combination acting as a unit, association, corporation, estate, trust, business trust, trustee...

Subsection 199.052(5), F.S., provides that the trustee of a Florida-situs trust is primarily responsible for returning the trust's intangible personal property and paying the annual tax on it.

Rule 12C-2.002(1)(c), F.A.C., defines beneficial interest in a trust to be one or more valuable property rights in a trust. A taxable beneficial interest in a trust is the current right to income coupled with the right to invade the corpus of the trust; or the right to revoke the trust; or the right to appoint successor beneficiaries without limitation. A beneficial interest in a trust is taxable only to the extent the trust corpus consists of property subject to the annual tax.

Rule 12C-2.006(3), F.A.C., provides that the taxable situs of a trust shall be in Florida if the trustee's usual place of business, where books and records pertaining to the trust are kept, is in Florida...

Subsection 199.175(1), F.S., states that intangible personal property shall have a taxable situs in this state when it is owned, managed, or controlled by any person domiciled in this state on January 1 of the tax year. This subsection goes on to state that a person domiciled in this state means a natural person who is a legal resident of this state or a corporation, partnership or trust, that has established a commercial domicile

in this state. A commercial domicile is established in this state when the entity maintains its principal office in the state where executive or management functions are performed or the course of business operations are determined.

Corporations that are not Florida domiciled are generally subject to annual tax only on intangibles that have a business situs in Florida. (s. 199.175(1)(b), F.S.)

Subsection 199.175(2), F.S., states that intangible personal property shall have a taxable situs in this state when it is deemed to have a business situs in this state and it is owned, managed or controlled by a person transacting business in this state. The subsection provides that business is transacted in this state when it is regularly transacted from an office, plant, home or other business location in this state or by employees, representatives or agents of the business with customers in this state.

Paragraph 199.185(1)(c), F.S., provides that general partnership and limited partnership interests are exempt from Florida intangible tax unless the limited partnership is registered with the Securities and Exchange Commission pursuant to the Securities Act of 1933.

CONCLUSION

Based on the facts as presented and the statutory provisions cited above, our response follows:

1. Individual is a Florida resident. If he implements
   decisions instead of a Nevada based employee, Partnership 1 and/or Corporation 1 will be subject to Florida Intangible tax.
2. The independent contractor based in Nevada will not be
   subject to Florida Intangible tax.
3. The just value of the common stock owned by the Trust will
   be subject to the Florida intangible tax.
4. The just value of the limited partnership interest owned by
   the Trust is exempt from intangible tax.
5. Individual has the right to revoke the trust. Therefore,

as current income beneficiary he has a taxable beneficial interest. However, because the trust will hold only an interest in a limited partnership, he will not have to file a return. Also, Individual as trustee, will not be required to file a return for the trust, since no tax will be due.

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,

Mary Ella Ingram
Tax Law Specialist
Tax Policy and Dispute Resolution

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