How should restricted company stock be valued for Florida intangible-tax purposes after a put option expired but a right of first refusal remained?

Plain-English summary

The stock was to be valued using the factors customarily considered in determining fair market value. The Department did not select a particular formula, accept a stated agreement price, or authorize a specific discount.

The stock purchase agreement had originally included a put option, but that option expired on the third anniversary of the acquisition. The investor could sell on the open market after first giving the named shareholder or officer a right of first refusal on terms at least as favorable.

What this means for you

Transfer restrictions are part of the facts, but this ruling does not say that a right of first refusal automatically produces any particular valuation reduction. A taxpayer still needs a supportable fair-market-value analysis using customary valuation factors.

Common questions

Q: Did the Department use the expired put-option price? No specific use of that price was approved.

Q: Did the right of first refusal set the stock's taxable value? No. The ruling gave only the general fair-market-value standard.

Q: Did Florida approve a marketability or minority discount? No. The advisement did not decide any particular discount.

Q: What was the actual holding? Determine value from the factors customarily used to establish fair market value.

Citations and references

• Fla. Stat. § 199.103(7) — valuation using factors customarily considered in determining fair market value
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97C2-005

Original ruling text

Aug 21, 1997

Re: Technical Assistance Advisement No. 97(C)2-005 Intangible Tax - Stock Valuation s. 199.103, F.S. XXX (hereinafter Investor) XXX (hereinafter Shareholder/Officer) XXX (hereinafter Company Stock)

Dear :

Your letter requesting a Technical Assistance Advisement has been referred to this office for response. The specific scenario for which advice has been requested is summarized below.

Statement of the Facts

Particular company stock was purchased subject to terms and restrictions of the stock purchase agreement. The agreement provided for the initial shares to be sold based on the Put Option. The Put Option expired the third anniversary after the acquisition date of the initial shares. The agreement does not restrict the sale of the stock on the open market providing the investor offers the individual named in the agreement, first right of refusal. The offer on the open market can not be more favorable than offered in the first right of refusal.

Provision of the Law

Pursuant to s. 199.103(7), F.S., the valuation would be determined on the basis of those factors customarily considered for determining the fair market value.

Conclusion

Based on the facts and circumstances, the valuation for the stock in question would be determined on the basis of those factors customarily considered for determining the fair market

value.

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,

Celestine Grantham
Senior Tax Specialist
Technical Tax Policy and Dispute Resolution Office of General Counsel

CG/mh