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