Under Florida's 1996 intangible tax, did investment assets retain Florida taxable situs after a Florida resident transferred them to a Texas partnership operated in Texas?

Plain-English summary

Florida concluded that the proposed Texas investment partnership and its assets had no Florida taxable situs under the 1996 intangible-tax rules.

The Florida resident planned to transfer 99% of his Florida-company stock to a Texas limited partnership for a 99% limited-partnership interest. A Texas S corporation, wholly owned by the resident, would contribute the remaining 1% and serve as general partner. The partnership's office, records, mail, employees or agents, and implementation of investment decisions were in Texas; the resident made partnership decisions while in Texas.

The Department said the transferred portfolio would no longer be owned, managed, or controlled by the resident in Florida. The partnership interest was exempt because the limited partnership was not registered with the SEC. The partnership and S corporation therefore had no Florida taxable situs on these facts. The resident nevertheless had to file a Florida intangible-tax return for his other taxable property, including the value of his S-corporation stock.

What this means for you

• The Department focused on where the entities' management and operations were actually carried out.
• A non-SEC-registered limited-partnership interest was exempt under the cited 1996 statute.
• Ownership of stock in the S corporation remained separately reportable by the Florida resident.

Common questions

Q: Did the resident's Florida domicile alone give the partnership assets Florida situs?
A: No, because the ruling found that the partnership's management and operations occurred in Texas.

Q: Was the resident's limited-partnership interest taxable?
A: No, because the partnership was not registered with the SEC.

Q: Did the resident still have a Florida filing obligation?
A: Yes. He had to report his taxable intangible property, including his S-corporation stock.

Citations and references

• Fla. Stat. § 199.052(1) — return filing for taxable intangible property
• Fla. Stat. § 199.175 — taxable situs
• Fla. Stat. § 199.185(1)(c) — partnership-interest exemption
• Fla. Stat. § 199.042 — payment with return
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-046

Original ruling text

Apr 16, 1996

Re: Technical Assistance Advisement 96(C)2-046
Intangible Tax - Taxable Situs
Sections 199.052 and 199.175, F.S.
XXX (Taxpayer)
XXX (Florida Company)

Dear :

Your letter requesting technical advice on the taxability
of a non-Florida partnership, having its principal place of
business in the state of its creation, has been received and
examined by this office. The scenario presented for
consideration is summarized below:

FACTS

Taxpayer is the current President and a member of the Board
of Directors of Florida Company, a Florida publicly traded
corporation. Presently, Taxpayer has approximately 24%
ownership interest in said entity. Taxpayer is a resident of
Florida and he is currently subject to intangible tax on the
just valuation of his ownership interest in the company.

Taxpayer is proposing to establish a Texas Limited
Partnership, and its principal place of business will be
maintained in Texas. The limited partnership will not be
registered with the Securities and Exchange Commission.

Taxpayer will contribute 99% of his common stock ownership
in Florida Company to the Texas Partnership in exchange for a
99% limited partnership interest in Texas Partnership. The
remaining 1% of common stock in Florida Company will be
contributed to an S Corporation formed under the corporate laws
of Texas. The S Corporation will in turn contribute its 1%
common stock of Florida Company to the Texas Partnership in
exchange for a 1% general partnership interest.

Taxpayer will be President and the sole shareholder of the
S Corporation, and the latter will maintain its corporate
offices in Texas. The Texas Partnership will function as an
investment partnership in Texas with authority to buy and sell
marketable securities. The S Corporation, as general partner,
will be authorized to manage the Partnership. While in Texas,
the Taxpayer, as the President of the S Corporation, will make
investment decisions for the Partnership. These investment
decisions will be effected by person(s) or agents employed by
the Partnership, at its business location in Texas where the
permanent books and records of the Partnership will be
maintained and all its mail will be received.

The investment assets owned by the Partnership will be held
in custodianship in Massachusetts. Partnership will send copies
of its mail to the Taxpayer, including brokerage account
information.

LAW AND DISCUSSION

Subsection 199.052(1), F.S., requires that every person
domiciled in this state that owns, manages or controls
intangible property having a business situs in the state, must
file an intangible tax return. Section 199.175, F.S., states
that intangible property shall have a taxable situs in this
state when it is owned by a person domiciled in this state or it
arose out of business transacted in this state by employees,
agents or representatives of any kind from a location within
this state or with customers in this state. Paragraph
199.185(1)(c), F.S., provides that the interest of a general
partner in any partnership is exempt from the intangible tax.

Interest in a partnership either general or limited, other
than the interest of a limited partner in a limited partnership
registered with the Securities Exchange Commission, is exempt
from the intangible tax.

Once Taxpayer's portfolio is transferred to the limited
partnership, in a state other than Florida, and is no longer
owned, managed, or controlled by the Taxpayer it would not be
subject to the Florida intangible tax. As for Taxpayer's

interest in the Partnership, there is no intangible tax due on
this interest. Only an interest as a limited partner in a
limited partnership, registered with the Securities and Exchange
Commission (SEC), is subject to tax. Limited partnership
interests in limited partnerships not registered with the SEC
are exempt from the intangible tax. (See s. 199.185(1)(c),
F.S.). Assets owned by a foreign limited partnership will not
be attributed to the Taxpayer for Florida intangible tax
purposes.

Based upon the information provided, S Corporation and
Partnership have no taxable situs for intangible tax in Florida.
Even though Taxpayer makes decisions about investments as the
officer of the S Corporation, which in turn makes investments as
the general partner of Partnership, the action of S Corporation
and Partnership is carried out at the principal place of
business for these entities.

Section 199.052, F.S., requires that every resident of this
state that owns intangible property shall file a return and list
all taxable intangible property owned by the resident. The
payment of tax must accompany the return when filed. (See s.
199.042, F.S.) Taxpayer, a resident of Florida, must file an
intangible tax return and list all taxable intangible property
owned by him, including the just value of the common stock
ownership in S Corporation.

REQUESTED ADVISEMENT

You have requested technical advice on your responses to
the following potential issues that might arise in connection
with the proposed transactions described above:

Issue 1. Under these facts, will the involvement of
Taxpayer as an officer of Corporation 1, the general partner of
Partnership 1, in the buying and selling of marketable
securities, cause the intangible property owned by partnership 1
to have a taxable situs in Florida?

Your Response: No. The presence of an officer of the
corporation in Florida (as resident) will not create a

taxable situs for the intangible assets of any of the
entities described above.

Issue 2. From time to time, Corporation 1 and Partnership 1
may contract with an independent contractor based in Texas for
investment management services of the marketable securities held
by each entity. 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?

Your Response: No. Provided an individual residing outside
of Florida has management or control of intangible property
belonging to an entity domiciled outside of Florida, the
intangible property will not be subject to intangible tax
in Florida.

Issue 3. Will the just value of the common stock owned by
Taxpayer in Corporation 1 be subject to Florida intangible tax?

Your Response: Yes. Subsection 199.175(1), F.S., cited
above.

Issue 4. Will the just value of the limited partnership
interest owned by the Taxpayer be subject to Florida intangible
tax?

Your Response: No. Paragraph 199.185(1)(c), F.S., cited
above.

CONCLUSION

In summary, S Corporation and Partnership are not subject
to the intangible tax. Taxpayer is required to report the stock
he owns of S Corporation. Taxpayer's interest in Partnership is
not subject to the intangible 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,

Moses O. Daramola
Senior Tax Specialist
Tax Policy & Dispute Resolution
Office of General Counsel

MOD/md