Did a Florida resident or an out-of-state trustee owe Florida intangible tax on closely held stock placed in the described irrevocable trust?

Plain-English summary

Florida concluded that neither the resident grantor-beneficiary nor the nonresident trustee owed annual intangible tax on the closely held stock placed in the described trust.

The irrevocable trust would be created near year-end and terminate on January 2. Its sole trustee was not a Florida resident, had no Florida office or commercial domicile, and was required to hold and manage the trust assets outside Florida. On those facts, the trust had no Florida taxable situs, so the trustee did not have to file a Florida return or pay tax on the stock.

The Florida resident was the sole beneficiary but lacked the rights that would create a taxable beneficial interest. The trustee had complete discretion over distributions. The resident had no enforceable current-income right, no power to revoke or withdraw assets, no general power of appointment, and no right to change or appoint successor beneficiaries.

What this means for you

Florida grantors and beneficiaries

Being the sole beneficiary did not by itself create the taxable interest described by the statute and rule. The Department focused on enforceable income rights and powers over the trust or its beneficiaries.

Trustees and trust administrators

The situs result depended on a sole nonresident trustee managing and holding the assets outside Florida, with no Florida office or commercial domicile. Different trustee residence, recordkeeping, or management facts were not approved.

Accountants and tax professionals

Analyze the trust and beneficiary separately. The ruling first determined the trust's situs, then examined whether the Florida resident had a taxable beneficial interest in the foreign trust.

Common questions

Q: Did the trust have Florida taxable situs?
A: No. Its sole trustee was outside Florida and managed and held the assets outside the state.

Q: Did the Florida resident owe tax because the resident was the sole beneficiary?
A: No. The resident lacked an enforceable current-income right and the specified powers over the trust, corpus, and successor beneficiaries.

Q: Could the trustee make distributions to the resident?
A: Yes, but only in the trustee's discretion; the trustee was not required to distribute income or principal.

Q: Did the trustee have to file a Florida intangible-tax return?
A: No on the stated facts, because the trust had no Florida situs.

Q: Can another trust rely on this TAA?
A: Not automatically. The advisement states that it binds the Department only under the facts and circumstances described in the request, and later legal changes or judicial interpretations may produce a different result.

Citations and references

• Fla. Stat. § 199.032 — annual intangible personal property tax
• Fla. Stat. § 199.175(1), (1)(a)3. — trust domicile and Florida taxable situs
• Fla. Stat. § 199.052(6) — return obligation for a taxable beneficial interest
• Fla. Stat. § 199.023(7) — taxable beneficial interest in a foreign trust
• Fla. Admin. Code r. 12C-2.002 — taxable beneficial interests
• Fla. Admin. Code r. 12C-2.006(3) — trust situs
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 96C2-130

Original ruling text

Dec 09, 1996

Re: Technical Assistance Advisement No. 96(C)2-130
Florida Intangible Tax; Trust
Section 199.032, F.S.
XXX; Grantor/Taxpayer
XXX; Trustee
XXX; Successor Trustee

Dear :

Your letter dated October 2, 1996, requests a Technical
Assistance Advisement regarding the applicability of Florida
intangible tax pursuant to s. 199.032, F.S., under the facts and
documents set forth herein. This request is made pursuant to
Chapter 12-11, F.A.C., and is issued to you under the authority
of s. 213.22, F.S.

Statement of Facts

The Taxpayer is a domiciliary of Florida. The Taxpayer
currently owns closely held stock which the Taxpayer includes on
his annual intangible tax return and upon which annual
intangible tax is paid.

The Taxpayer proposes to create an irrevocable Trust which
will be created on or about the last business day of the year
and will terminate on January 2, of the following year. The
shares of closely-held stock owned by Taxpayer will be
physically transferred to the Trustee of the Trust on the date
each Trust is created and will be physically transferred back to
the Taxpayer upon the termination of each Trust. The Trustee is
an individual who is not a resident of the State of Florida.
The Trustee has no offices or commercial domicile within the
State of Florida. Further, the Trustee will exercise no
management or control over the assets of the Trust within the
State of Florida. If at any time there is no Trustee acting or
appointed to act hereunder, the appointed Trustee shall serve as
successor Trustee.

The Trust instrument provides that the Taxpayer will be the
sole beneficiary of the Trust. During the term of the Trust,
the Trustee will have discretionary authority to make income or
principal distributions to the Taxpayer, but is not required to
do so. By the terms of the Trust, the Taxpayer has no right to
revoke the Trust, no enforceable right to current income, no
right to appoint successor beneficiaries or other general powers
of appointment over any portion of the Trust, and no right to
withdraw assets from the Trust. If the Taxpayer should die
during the term of the Trust, the corpus and any income from the
Trust will be paid to the Trustee of the Taxpayer's Revocable
Trust, or if none then to the Taxpayer's estate.

Requested Ruling

You request that we affirm the following:

1. Will the Taxpayer be required to pay annual intangible
   tax on the closely-held stock transferred to the
   Trust?
2. Will the Trustee be required to pay Florida annual
   intangible tax on the closely-held stock transferred
   to the Trust?
3. Will the Taxpayer be required to pay Florida annual
   intangible tax on the equitable share of the Trust's
   intangible personal property?

Provision of the Law

Section 199.032, F.S., imposes an annual tax of 2 mills on
all intangible property that is owned, managed or controlled by
a person domiciled or having a taxable situs in Florida.

Intangible personal property shall have a taxable situs in
this state when it is managed or controlled by any person
domiciled in this state on January 1 of the tax year. (See s.
199.175(1), F.S.). A trust is deemed to be domiciled in this
state if the trustee is domiciled in this state. (See s.
199.175(1)(a)3., F.S.) The taxable situs of a trust shall be in
Florida if the trustee's usual place of business where the books

and records pertaining to the trust are kept is in Florida. If
the trustee has no principal place of business then situs is
determined by whether management and control exists in Florida,
or by the residence of the trustee. (See Rule 12C-2.006(3),
F.A.C.)

When there is no taxable situs in Florida, a beneficiary of
a trust having a taxable beneficial interest in the trust may be
responsible for filing a return for taxable trust assets. (See
s. 199.052(6), F.S. and Rule 12C-2.002 (1)(ee), F.A.C.) A
resident has a taxable beneficial interest in a foreign trust if
the resident has a vested interest in the trust, even if subject
to divestment, which includes at least a current right to income
and either a power to revoke the trust, or a general power of
appointment. (See s. 199.023(7), F.S.)

By rule, 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.
(See Rule 12C-2.002, F.A.C.).

Conclusion

The Taxpayer has no enforceable right to current income of
the Trust. The out-of-state Trustee has the full discretion for
distribution of income to the Taxpayer, but is not required to
do so. The Taxpayer retains no power of appointment over any
portion of the Trust, has no right to revoke the Trust, has no
right to change the beneficiaries of the Trust or appoint
successor beneficiaries, and no right to withdraw assets from
the Trust. Therefore, pursuant to the statutory and
administrative provisions, the Taxpayer has no taxable
beneficial interest in the Trust.

When there is a sole Trustee who is not a resident of the
State of Florida who manages and holds the Trust's assets at all
times outside of the State of Florida as required by the Trust,
then the Trust has no Florida situs and the Trustee is not

required to file a return or pay the annual intangible tax on
the assets of the trust.

Therefore, based on the provisions of the statutes and the
provisions of the Trust, neither the Taxpayer nor the Trustee
are liable for the Florida intangible tax on the closely-held
stock transferred to the Trust. Also the Taxpayer is not liable
for the Florida intangible tax on the equitable share of the
Trust's intangible personal property.

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,

Baldan E. Sulker
Senior Tax Specialist
Tax Policy and Dispute Resolution
Office of General Counsel
BES/mh