Could a Florida intangible-tax filer discount publicly traded shares whose sale was restricted by SEC Rule 144 because the filer was a company director?

Plain-English summary

A 25% discount from current market value was not unreasonable for the director's restricted shares. The taxpayer served on the board of a publicly traded NASDAQ company and owned 2% of its outstanding common stock. SEC restrictions on insider sales limited the taxpayer's ability to market the shares and reduced the value the taxpayer could receive.

Florida's rule allowed restricted stock to be valued below full market value based on the facts and circumstances creating the restriction. The Department cautioned that a TAA generally does not determine the factual just value of property, and the stated discount no longer applied once the stock's restricted status or other material facts changed.

What this means for you

The ruling did not create a universal 25% restricted-stock discount. It accepted that figure for one director, one ownership position, and the particular sales restrictions described in the request.

Valuation depends on the restriction in effect on the relevant assessment date. A later change in insider status, marketability, ownership, or the restriction itself requires a fresh analysis.

Common questions

Q: Were the shares publicly traded? Yes. The company traded on NASDAQ, but the director's insider status limited the ability to sell the shares.

Q: What discount did the Department accept? It said 25% off current market value was not unreasonable on the stated facts.

Q: Did the TAA determine the shares' exact just value? No. It said a TAA generally is not the mechanism for making that kind of factual valuation finding.

Q: Could the taxpayer keep using the discount after the restrictions changed? No. The ruling said the discount did not apply after the stock's restricted status changed and might cease to apply when factual information changed.

Citations and references

• Fla. Stat. § 199.103 — just-value rules for shares of stock
• Fla. Admin. Code r. 12C-2.001(3) — definition of just value
• Fla. Admin. Code r. 12C-2.002(1)(y) — restricted stock may be valued below full market value based on its restrictions
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 97C2-009

Original ruling text

Nov 13, 1997

Re: Technical Assistance Advisement No. 97(C)2-009
Intangible Tax - Valuation - Restricted Stock
Section 199.103, F.S.
Rules 12C-2.001(3) & 12C-2.002(1)(y), F.A.C.
XXX (Company)

Dear :

Your letter requesting a Technical Assistance Advisement
has been received by this office. You have asked if a person
under SEC Rule 144 restrictions may reduce the market value of
their shares of stock.

Currently you are serving as a member of the Board of
Directors of Company, a publicly held company traded on the
NASDAQ Stock Exchange. Your present stock ownership amounts to
2% of the outstanding common stock of the company.

Section 199.103, F.S., requires that all shares of stock be
valued at their just value as of January 1 of each tax year.
Shares of stock that are regularly listed on an exchange or
traded over-the-counter are to be taxed at the closing market
value on the last business day of the previous calendar year.
Shares of stock not regularly traded on an exchange or traded
over-the-counter are to be valued based upon those factors
customarily considered in determining fair market value.

Rule 12C-2.001(3), F.A.C., defines "Just Value" to be the
price that a stock would bring if offered for sale by a person
who desires to sell but is not compelled to sell, and bought by
one willing to buy but not compelled to buy, with both seeking
to maximize their gains and neither being in a position to take
advantage of the other. Rule 12C-2.002(1)(y), F.A.C., provides
that restricted stock may be valued at less than full market
value based upon the facts and circumstances creating the
restriction.

As a current member of the board of a publicly traded
company, Security and Exchange Commission rules restrict your
ability to market the shares of this company. Because of your
position as an insider, any stock trading would be limited,
thereby reducing the value received for shares that might
otherwise be traded on the market.

A technical assistance advisement is generally not a
mechanism to provide a finding of fact, such as what the just
value of an item of intangible personal property is.

However, it is the opinion of this office that, based on
all the information provided, a discount of 25% off the current
market value is not unreasonable when reporting your shares of
the company stock. This does not apply after the restricted
status of the stock changed. At the time of any change of the
factual information, you may no longer be entitled to this
discount.

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
Technical Assistance and Dispute
Resolution
Office of General Counsel

JVP/mh