Were the accounts labeled receivables in an investment fund's portfolio subject to Florida intangible personal property tax?

Subject

Accounts Receivable

Plain-English summary

The Department concluded that the accounts labeled receivables in the fund's portfolio were not subject to Florida intangible personal property tax. The fund's asset statement included receivables for investments sold, fund shares sold, and interest.

The ruling focused its analysis on the entries created when the fund agreed to sell portfolio securities or its own shares. Securities regulations allowed three days between entering a purchase or sale and closing it, so the fund needed temporary receivable accounts to reflect the transactions accurately.

The Department found that these entries were not true accounts receivable because they were not enforceable obligations for payment. If a purchaser did not pay, the fund had no recourse against that purchaser. The accounts therefore functioned as accounting controls rather than taxable receivables.

That classification mattered to the fund's broader exemption. The ruling explained that shares in a trust whose portfolio consisted solely of assets exempt from Florida intangible tax could themselves be exempt, while a taxable portfolio asset could make the remaining non-federal portion of the portfolio taxable under the cited valuation rule.

What this means for you

Under the statutory and regulatory regime applied in 1997, the label used on a financial statement did not by itself determine intangible-tax treatment. The Department looked at whether the entry represented an enforceable right to payment.

For investment funds, settlement accounting could therefore differ from a conventional trade account receivable. The ruling's result depended on the stated lack of recourse against a purchaser who failed to close or pay.

Common questions

Q: What receivable categories appeared on the fund's statement? Receivables for investments sold, receivables for fund shares sold, and interest receivables relating to unpaid coupon payments.

Q: Why were temporary sale receivables created? The ruling said securities regulations provided a three-day period between entering a purchase or sale and closing it, requiring accounting entries during settlement.

Q: Why were the entries not treated as true accounts receivable? They were not enforceable payment obligations, and the fund had no recourse if the purchaser failed to pay.

Q: Did the ruling separately analyze the interest-receivable category? It identified interest receivables in the facts, but its operative discussion focused on receivables created by securities and fund-share sales. Its conclusion referred collectively to the accounts titled receivables in the portfolio.

Citations and references

• Fla. Stat. § 199.103(2) — tax treatment of shares or units of companies, trusts, mutual funds, money market funds, and unit investment trusts
• Fla. Stat. § 199.185(1)(i) — exemption for trust shares whose portfolio consists solely of exempt assets
• Fla. Admin. Code R. 12C-2.010(1)(j) — valuation of fund shares when the fund is organized as a trust
• Fla. Admin. Code R. 12C-2.002(1)(a) and 12C-2.010(1)(h) — taxation and valuation of accounts receivable
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97C2-002

Original ruling text

May 09, 1997

Re: Technical Assistance Advisement No. 97(C)2-002
Intangible Personal Property Tax; Accounts Receivable
XXX (Fund)

Dear :

This is in response to your request for a technical
assistance advisement. This request deals with the taxation of
specific accounts entitled "Receivables".

Statement of Facts

In addition to the Fund's typical portfolio of investments,
the statement of assets includes a small percentage of
"receivables". These receivables are: Receivables for
Investments Sold, Receivables for Fund Shares Sold, and Interest
Receivables.

Interest Receivables relate only to coupon payments from
obligations, not yet received. Receivables for Investments Sold
represent agreements to sell securities held in Funds portfolio,
but not delivered. Receivables for Fund Shares Sold represent
sales by Fund of shares in the Florida Series portfolio. It is
the taxable status of these accounts that is the subject of this
request for technical advice.

Provisions of Law

Section 199.103(2), F.S., provides that shares or units of
companies or trusts, mutual funds, money market funds and unit
investment trusts where the shares are not exempt under s.
199.185(1)(i), F.S., are subject to the intangible tax. Under
s. 199.185(1)(i), F.S., shares or units of a trust, whose
portfolio of assets consists solely of assets that are exempt
from Florida's intangible tax, are themselves exempt from tax.

Rule 12C-2.010(1)(j), F.A.C., outlines the method of

valuing shares of a fund that is organized as a trust. This
rule provides that, after the removal of any U.S. Government
obligation, if any portion of the remaining portfolio of assets
contains an asset subject to Florida's intangible tax, all the
remaining portion of the portfolio is subject to tax. Rules
12C-2.002(1)(a) and 12C-2.010(1)(h), F.A.C., provide for the
taxation and valuation of accounts receivable for intangible tax
purposes.

Discussion of Issues

It has previously been determined that the shares of Fund
would be exempt from the intangible tax if the portfolio of
assets on January 1 of each year consists solely of assets
exempt from the intangible tax. The issue here is whether the
accounts entitled "receivables", shown in the portfolio of
assets of Fund, are true accounts receivable or a control
account that is displayed for accounting purposes as an account
receivable. The selling of securities that are part of the
portfolio of investments and selling shares of Fund must be
accounted for to accurately reflect the business of Fund.
Security and Exchange Commission (SEC) regulations provide a
3-day period between the date a purchase or sale of a security
is entered into and the date that the purchase or sale must be
closed. This necessitates the creation of accounts receivable.
The receivables that are created by these types of transactions
are not enforceable obligations for the payment of money.
Should the party purchasing the portfolio asset or shares of
Fund fail to pay, Fund has no recourse against the party.
Therefore, it is the opinion of this office that the accounts
entitled "receivables" that are part of the portfolio of assets
of Fund are not subject to Florida's intangible personal
property 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,

J.V. Parramore, Jr.
Tax Law Specialist
Tax Policy and Dispute Resolution

JVP/mh