Did nontransferable employee stock options have to be reported for Florida intangible tax?

Subject

Intangible-Tax Valuation of Nontransferable Stock Options

Plain-English summary

The restricted stock-option awards had a just value of $0 and were not reported on the Florida intangible tax return. The plan barred lifetime transfers and allowed only the participant to exercise an award during that participant's life.

The plan permitted transfer only by will or the laws of descent and distribution unless the board determined otherwise. On the facts presented, the Department treated the lack of transferability and third-party exercise rights as eliminating reportable value for this tax.

Changing the plan heading from "nontransferability of awards" to "nontransferability of options" did not change the tax result.

What this means for you

For the historical Florida intangible tax analyzed here, restrictions on transfer and exercise drove the valuation. The ruling did not say that every employee option had zero value; it addressed awards with these specific limitations.

Plan language and actual board authority matter. A plan allowing transfers, pledges, encumbrances, or exercise by someone other than the participant would present different facts.

Common questions

Q: What value did Florida assign to the options? A just value of $0.

Q: Did Florida residents report the awards on the intangible tax return? No, not under the plan terms described in the ruling.

Q: Could the participant transfer the option during life? No. The award could be transferred only by will or the laws of descent and distribution, unless the board determined otherwise.

Q: Did changing the word "awards" to "options" change the answer? No. The Department said the wording change did not alter the tax status.

Q: Can another employer rely on this ruling? No. The advisement binds the Department only for the requester and the particular plan facts described.

Citations and references

• Fla. Stat. § 199.103(4) — valuation of unlisted stock, bonds, and similar instruments
• Fla. Admin. Code r. 12C-2.010(1)(b) — fact-specific valuation of restricted corporate stock
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 98C2-003

Original ruling text

Mar 09, 1998

Re: Technical Assistance Advisement No. 98(C)2-003 Intangible Tax - Taxability of Non Transferable Stock Options Section 199.103, F.S., and Rule 12C-2.010, F.A.C. XXX (hereinafter Company)

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

The Company is incorporated in the State of XXX and has its headquarters in Florida. The Company offers a stock option plan to its executives. Some of the executives reside in Florida. The stock options are restricted and cannot be exercised by anyone other than the participant. The participant cannot transfer or encumber the stock option. The Stock Option Plan specifically states:

Nontransferability of Awards

Except as the Board may otherwise determine, no award may be transferred other than by will or by the laws of descent and distribution, and during a participant's lifetime an award may be exercised only by the participant.

Request for Advisement

You request advice as to whether the stock options provided to the Company's executives under the Company's Stock Option Plan create an intangible tax liability for the executives residing in Florida.

Additionally, you inquire whether the tax status would change if the terms of the Company's Stock Option Plan were described as the "nontransferability of options" rather than the "nontransferability of awards".

Provisions of the Law

Section 199.103(4), F.S., provides that the January 1 valuation, for a corporation's stocks, bonds or similar instruments not listed on any public stock exchange or regularly traded over-the-counter, is based on those factors customarily considered in determining fair market value.

Rule 12C-2.010(1)(b), F.A.C., provides that a corporation's stock which is subject to restrictions shall be valued based on the facts and circumstances of each case.

Conclusion

So long as the award cannot be transferred, and cannot be exercised by anyone other than the participant, the award is deemed to have a just value of $-0-. Accordingly, the award would not be reported on the Florida intangible tax return. The tax status would not change if the terms of the Company's Stock Option Plan were described as the "nontransferability of options" rather than the "nontransferability of awards".

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 Assistance and Dispute Resolution Office of General Counsel

CG/mh