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