Under Florida's 1996 intangible tax, who had to report assets in foreign-situs trusts and foreign entities controlled by Florida residents?

Plain-English summary

Florida placed the 1996 intangible-tax filing duties on the Florida residents and the entities they controlled, not on the foreign trustee.

Two Florida residents created foreign-situs irrevocable trusts for their own benefit. Although distributions were discretionary and the trusts could not be revoked, each grantor could remove and replace the trustee at will. The Department treated that power as control under section 199.052(1). The foreign trustee did not have to file, but each resident had to report the assets held for that resident's benefit and pay any tax due. Later distributions did not change the result because the residents were treated as controlling the assets before, during, and after the trusts.

The residents also operated a foreign corporation that served as general partner of a foreign limited partnership. Because the corporation's officers lived in Florida, it had no employees outside Florida, and the partnership had no employees, the Department found control of both entities rested in Florida. Both entities had filing duties. The residents' partnership interests themselves were exempt unless the partnership was registered with the SEC.

What this means for you

• A trust's foreign situs did not end the residents' filing duties when they retained power to replace the trustee.
• The Department treated practical control of the corporation and partnership as located in Florida.
• The entities' own filing duties were separate from the statutory exemption for the residents' partnership interests.

Common questions

Q: Did the foreign trustee have to file a Florida return? A: No, because the trusts and trustee were outside Florida.

Q: Why did the Florida beneficiaries have to report the trust assets? A: Their power to remove and appoint trustees meant they retained control of the assets.

Q: Did a later trust distribution change the January filing result? A: No. The Department said the residents' control existed throughout the arrangement.

Q: Were the residents' limited-partnership interests taxable? A: Not unless the partnership was registered with the SEC.

Citations and references

• Fla. Stat. § 199.032 — annual intangible tax
• Fla. Stat. § 199.052(1), (5), (6) — filing duties and trust interests
• Fla. Stat. § 199.185(1)(c) — partnership-interest exemption
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-050

Original ruling text

Apr 17, 1996

Re: TAA 96(C)2-050
Intangible Personal Property Tax - Imposition of Intangible Tax on Trust, Corporation, and Limited Partnership Assets XXX, hereinafter referred to as "A"; XXX, hereinafter referred to as "B"; XXX, Trustee, hereinafter referred to as "C"; XXX, hereinafter referred to as "D"; XXX, hereinafter referred to as "E"

Dear:

Your letter of XXX, requested a Technical Assistance Advisement on the effect of assets deposited in trusts, and those controlled by a corporation and a limited partnership, on the intangible personal property tax liabilities of the trust beneficiaries, corporate stockholders, limited partners, as well as the corporation and limited partnership. This response to your request constitutes a Technical Assistance Advisement under Chapter 12-11, Florida Administrative Code, and is issued to you under the authority of s. 213.22, Florida Statutes.

FACTS

Your letter states that prior to January 1, 1996, "A" and "B" intend to establish irrevocable trusts. Pursuant to the irrevocable trust agreements enacted by "A" and "B," who are individuals, intangible assets which would be subject to Florida's intangible tax will be placed in trust for the benefit of "A" and "B." After January 1, 1996, the trustee may distribute some of the trust assets to "A" and "B." The trustee, "C," does not have offices in Florida; the beneficiaries do not have a current right to income, as the trustee has been granted full discretion for distributions of income and principal; nor do the beneficiaries have the right to revoke the trusts. If either "A" or "B" dies before the end of the trust term, the assets held in their irrevocable trust will be paid to their revocable trust, or if no revocable trust

exists, to their estate.

The trusts terminate thirteen months after their creation. If the beneficiaries wish to extend the existence of the trusts, they must notify the trustee in writing, within 30 days prior to the expiration date. Both "A" and "B" are residents of Florida, and "C" is a resident of XXX. The situs of the irrevocable trusts is XXX.

Article X., section A., of the trust agreements allows the grantors, "A" and "B," to remove the trustee of their respective trusts at any time, and replace the trustee with any qualified individual, bank or trust company the grantor wishes to nominate. Additionally, "A" and "B" have formed "D," a XXX corporation. "A" is president, and "B" is secretary and treasurer, of "D." Furthermore, "D", as general partner, and "A" and "B," as limited partners, have formed "E," a XXX limited partnership. "E" has an office in XXX. "E's" mail is received, and its books and records are maintained there. "A" and "B" will make investment decisions for "E", the partnership, in their capacity as officers of "D." The investment decisions will be carried out by agents of "E" outside of Florida. All of "D's" and "E's" operations, other than the making of investment decisions, will be conducted at their offices outside of Florida. "A" and "B" will report the value of their stock in "D" on their Florida intangible personal property tax return.

QUESTIONS

1. Will "C," the trustee of the irrevocable trusts discussed
   above, be liable for reporting the trust assets by filing a Florida intangible personal property tax return?
2. Will "A" be liable for reporting the assets placed in trust
   for his benefit by filing a Florida intangible personal property tax return?
3. Will "B" be liable for reporting the assets placed in trust
   for her benefit by filing a Florida intangible personal property tax return?
4. Will distributions of trust assets to "A" and "B" after
   January 1, 1996, result in "A" or "B" being subject to

intangible personal property tax filing requirements?

5. Will "D" or "E" be subject to intangible personal property
   tax filing requirements as a result of their activities?
6. Will "A" and "B" be required to file a Florida intangible
   personal property tax return, reporting their interests in "E"?

DISCUSSION AND ANALYSIS OF LAW

Section 199.032, F.S., states in part:

An annual tax of 2 mills is hereby imposed on each dollar of the just valuation of all intangible personal property which has a taxable situs in this state,...

Section 199.052, F.S., states in part:

(1) An annual intangible tax return must be filed with the department by every corporation authorized to do business in this state or doing business in this state and by every person, regardless of domicile, who on January 1 owns, controls, or manages intangible personal property which has a taxable situs in this state....

(5) 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. The trust's beneficiaries, however, may individually return their equitable shares of the trust's intangible personal property and pay the tax on such shares, in which case the trustee need not return such property or pay such tax, although the department may require the trustee to file an informational return.

(6) Each Florida resident with a beneficial interest, as defined in s. 199.023(7), in a foreign-situs trust, that is, a trust with situs outside of this state, is primarily responsible for returning the resident's equitable share of the trust's intangible personal property and paying the annual tax on it. The trustee of a foreign trust may return and pay the tax on the equitable shares of all

Florida residents having beneficial interests, in which case the residents need not return such property or pay such tax. (Emphasis Added)

The intent of the statutes referenced above is to impose a tax on all intangible personal property having a taxable situs in Florida. An intangible personal property tax return is to be filed by all corporations or persons owning, controlling or managing intangible personal property with a taxable situs in Florida.

Trustees of Florida-situs trusts are responsible for reporting the intangible personal property held by the trust and paying the annual tax on it, although the beneficiaries may do so individually. Additionally, Florida residents with a beneficial interest in a foreign-situs trust are responsible for reporting and paying the tax on their equitable shares of intangible personal property held by these trusts.

Based on the statutes referenced above, the grantors, who are also the beneficiaries, of the trusts before the Department have control of the trust assets. This is evidenced by Article X., section A., of the trust agreement which allows the grantors to remove and replace trustees at will, giving the grantors control as provided by subsection 199.052(1), F.S.

Accordingly, the answers to your specific questions follow:

1. Subsection 199.052(5), F.S., requires the trustee of a
   Florida-situs trust to file a Florida intangible personal property tax return reporting the trust assets, and to pay any tax liability thereon. Because the irrevocable trusts discussed above have situs in XXX, and "C" is a resident of XXX, "C" will not be required to file a Florida intangible personal property tax return reporting the trust assets, nor will "C" be responsible for any tax liability related to the trust assets.
2. "A" will be responsible for reporting the assets placed in
   trust for his benefit by filing a Florida intangible personal property tax return, and remitting any tax due thereon. Based upon the statutes referenced above, "A"

retains control of the assets deposited in trust for his benefit, exhibited by his power to dismiss and appoint trustees, as provided by Article X., section A., of the trust agreement.

3. "B" will also be responsible for reporting the assets
   placed in trust for her benefit by filing a Florida intangible personal property tax return, and remitting any tax due thereon, for the same reason discussed in the response to question two, above.
4. The distributions of trust assets to "A" and "B" after
   January 1, 1996, will have no effect on the imposition of intangible personal property tax filing requirements on "A" or "B." "A" and "B" were subject to intangible tax filing requirements prior to placing the intangible assets in trust, while the assets were held in trust, and following any distributions of assets from the trusts, under the facts presented. As discussed in the responses to questions two and three, "A" and "B" retained control of the trust assets, as required by subsection 199.052(1), F.S. Accordingly, they were never exempt from the intangible tax filing requirements, before, during, or after the assets were placed in trust, or after the assets were distributed to them by the trustee.
5. Based on the facts presented in your letter, both "D" and
   "E" will be subject to Florida's intangible personal property tax filing requirements. The corporate officers of "D" reside in Florida, and it has no employees outside of Florida. Similarly, "E" has no employees and its general partner, "D," is domiciled in Florida. Therefore, control of both "D" and "E" rests in Florida, causing "D" and "E" to be subject to Florida's intangible personal property tax, as stated in subsection 199.052(1), F.S.
6. "A" and "B" will not be required to file a Florida
   intangible personal property tax return, reporting their interests in "E" unless "E" is registered with the Securities and Exchange Commission (SEC). Paragraph 199.185(1)(c), F.S., exempts from Florida's intangible personal property tax, both general and limited partnership interests other than interests in partnerships registered with the SEC.

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 based 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,

Suzanne C. Paul
Tax Policy and Dispute
Resolution

SCP/kk
Control No.: 24229