Was a regulated nuclear-plant decommissioning trust subject to Florida intangible personal property tax?

Plain-English summary

Florida found that neither the nuclear-decommissioning trust nor its assets were subject to annual intangible personal property tax, and no Florida return was required for them.

The Florida utility had created an irrevocable Massachusetts trust to fund dismantling and cleanup after its nuclear plant ceased operating. Contributions came through regulated utility rates, earnings stayed in the fund, and disbursements were limited to decommissioning and trust administration.

Although the utility could appoint and remove trustees and choose independent investment managers, NRC, FERC, and Florida PSC rules prevented it from managing the fund day to day or directing specific investments. The Department therefore found no taxable beneficial interest for the utility. The Massachusetts trustee, outside investment management, and lack of Florida functions also left the trust without Florida legal, commercial, or business situs.

What this means for you

The decision relied on regulatory separation, restricted fund use, outside domicile, and absence of Florida asset management—not merely the fund's decommissioning label.

Common questions

Q: Did the utility's trustee-appointment power create tax? Not when the cited regulations constrained actual control.

Q: Could the utility use trust earnings for its own expenses? No.

Q: Was a Florida intangible-tax return required for the trust assets? No.

Citations and references

• Fla. Stat. §§ 199.023(3), 199.052(1) and (6), and 199.175 — persons, trust interests, and taxable situs
• Fla. Admin. Code r. 12C-2.006(4) — grantor rights and trust interests
• 10 C.F.R. §§ 50.2 and 50.75 and 18 C.F.R. §§ 35.32–35.33 — decommissioning requirements cited in the ruling
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99C2-008

Original ruling text

SUMMARY

QUESTION: Is a trust, established by a Florida Grantor, and
required by federal regulation, for the purposes
decommissioning a nuclear power subject to Florida's
intangible personal property tax?

ANSWER - Based on Facts Below: A trust established for the
purpose of decommissioning a nuclear power, that is
regulated by the United States Nuclear Regulatory
commission, the Federal Energy Regulatory Commission, the
Florida Public Service Commission and the United States
Internal Revenue Code, is not subject to Florida's
intangible personal property tax. Likewise, the assets of
the trust would not be required to be included on any
Florida intangible personal property tax return.

Dec 21, 1999

Re: Technical Assistance Advisement No. 99(C)2-008
Intangible Tax - Trust
Sections 199.052(5) & (6), F.S.
XXX (Trust)
XXX (Trustee)
XXX (Parent or Parent and Subsidiaries)
XXX (Utility)

Dear :

This letter is in response to your request for a Technical
Assistance Advisement (TAA) for the referenced trust. The
following summary is from the information contained in the TAA
request.

Utility is an electric utility providing service to
customers in several counties throughout Florida. Among
the facilities which Utility uses to generate electricity
is a nuclear power plant. Utility is subject to regulation

by a variety of state and federal agencies, including the
United States Nuclear Regulatory Commission (NRC), the
Federal Energy Regulatory Commission (FERC), and the
Florida Public Service Commission (PSC). Pursuant to the
regulations promulgated by these government agencies,
Utility is required to provide for funding the cost of
"decommissioning" the nuclear power plant at the end of its
useful life. Utility's license to operate the nuclear
facility will expire in approximately twenty five years.
It is expected that decommissioning cost will be incurred
for an additional fifteen years after the license to
operate has expired.

On XX, 1994, Utility entered into an Amended and Restated
Trust with Trustee. The Trust is irrevocable, and is
intended only to make assured provisions for all, or a
great portion of, the expenses associated with the
decommissioning of the nuclear power plant to be paid
following cession of commercial operation of the unit.

The duration of the Trust extends until the decommissioning
is complete or until the funds are exhausted and the
Utility has no further obligation to make deposits in the
Trust. Neither Utility nor any affiliate has a current
right to income from the Trust Assets. The Trust was
created under and is governed by the laws of Massachusetts.
Disbursement of funds from the Trust is restricted to the
payment of decommissioning expenses and Trust
administrative expenses.

The Utility is empowered to appoint Independent Investment
Managers to make investment decisions. The Trustee is
relieved of the normal investment duties of a trustee.
Through an Investment Committee contemplated in the Trust
Agreement, Utility contracts with independent Managers.
Utility has entered into agreements with two Investment
Managers. Neither Investment Manager is organized under
Florida law, and neither has its principal place of
business in Florida. Neither the Investment Managers nor
Trustee performs any function with respect to the Trust
assets from a Florida location.

The Investment Management Agreement contemplates the
control of Trust assets by the Investment Managers. Within
investment guidelines provided to an Investment Manager,
the latter has full investment authority and discretion and
may purchase, sell or exchange assets for the Trust as it
shall best determine. Title to investments is to be held
in the name of the Trust or the Trust's custodial bank or
its nominee.

The PSC and FERC allow Utility to include in its rates
amounts needed to fund the Trust. Each month, Utility
contributes these funds to the Trust. The funds are
forwarded to the Trustee, and Utility designates the
amounts to be deposited in the Qualified and Nonqualified
funds in accordance with parameters established by the
Internal Revenue Service for qualified funds. Utility may
also direct that the cash be temporarily placed in a money
market fund until the Investment Managers decide how it is
to be invested.

Neither Utility nor any of its affiliates receive income
from the Trust. Earnings are reinvested. From time to
time Utility issues authorization to the Trustee for the
payment of Trust administrative expenses. No portion of
the principal or earnings of the Trust are used to pay any
expenses of Utility. Disbursements from the Trust are
itemized in periodic reports to regulatory agencies.

Federal Regulatory Provisions

NRC regulations require that every utility holding a
license to operate a nuclear power plant to certify to the NRC
"that financial assurance for decommissioning will be provided"
in a prescribed minimum amount. (See 10 CFR s.50.75(b).)
Decommissioning is defined in 10 CFR s. 50.2, as:

Decommissioning means to remove a facility or site safely
from service and reduce residual radioactivity to a level
that permits--(1) Release of the property for unrestricted
use and termination of the license; or (2) Release of the

property under restricted conditions and termination of the
license.

NRC rules provide three alternatives by which a utility may
demonstrate financial assurance for decommissioning of a nuclear
facility. One of the methods is an external sinking fund. An
external sinking fund is defined in 10 CFR s. 50.75(e)(1)(ii)
as:

An external sinking fund is a fund established and
maintained by setting funds aside periodically in an
account segregated from the licensee assets and outside
licensee's administrative control in which the total amount
of funds would be sufficient to pay decommissioning cost at
the time termination of operations is expected. An
external sinking fund may be in the form of a trust, escrow
account, government fund, certificate of deposit or deposit
of government securities.

The FERC, in 1995, adopted new rules entitled Regulations
Governing Nuclear Plant Decommissioning Trust Funds. These new
rules (18 CFR s. 35.32 & s. 35.33) contained the following
provisions governing the use of trust funds for nuclear
decommissioning.

*

The fund must be an external fund in the United States,
established pursuant to a written trust agreement, that is
independent of the utility, its subsidiaries, affiliates or
associates.

*

The utility may provide overall investment policy to the
Trustee or Investment Manager, but it may do so only in
writing, and neither the utility nor its subsidiaries,
affiliates or associates may serve as Investment Manager or
otherwise engage in day-to-day management of the Fund or
mandate decisions.

*

Absent the express authorization of the Commission, no part
of the assets of the Fund may be used for, or diverted to,
any purposes other than to fund the cost of decommissioning
the nuclear power plant to which the Fund relates, and to

pay administrative cost and other incidental expenses,
including taxes, of the Fund.

*

If the Fund balances exceed the amount actually expended
for decommissioning after decommissioning has been
completed, the utility shall return the excess
jurisdictional amount to ratepayers, in a manner the
Commission determines.

*

A utility should monitor the performance of all fiduciaries
of the Fund and, if necessary, replace them if they are not
properly performing assigned responsibilities.

Florida Statutory and Regulatory Provisions

Section 199.023(3), F.S., defines "person" to include
individuals, corporations, trusts and trustees.

Section 199.052(1), F.S., requires that every person that
owns, manages or controls intangible personal property that has
a taxable situs in this state must file a return describing the
property and its just value.

Section 199.052(6), F.S., states that every resident that
has a beneficial interest in a foreign situs trust must return
their equitable share of the trust's intangible assets.

Section 199.175, F.S., states that intangible personal
property has a taxable situs in this State when it is owned,
managed or controlled by a person legally or commercially
domiciled in this State or when the intangible personal property
has a business situs in this State.

Rule 12C-2.006(4), F.A.C., provides that a grantor that has
reserved certain rights, with regard to the trust, such as: i)
the right to remove and designate trustees; or ii) the right to
revoke the trust, has a taxable interest in the trust assets.

Conclusion

Based solely upon the Florida Statutes, it appears that the

Utility has a taxable interest in Trust. Utility cannot revoke
the Trust, but it can appoint trustees and remove trustees.
Utility can even appoint Investment Managers to invest and
reinvest the assets of the Trust. However, when the federal and
State utility regulations are examined, it is found that the
activity of Utility, with regard to the Trust, is actively
regulated by NRC, FERC, and PSC. The regulations of these
government agencies require that Utility make periodic
contributions to the Trust, submit for approval the annual
accruals, comply with the prescribed accounting treatment, make
periodic decommissioning studies, make periodic reports of
contribution and disbursements, establish a minimum funding
rate, prohibit the use of Trust funds for purposes other than
legitimate decommissioning activities, make periodic submissions
of estimated decommissioning cost, and submit updated
decommissioning plans. These regulations specifically provide
that Utility may provide general investment policy, but only in
writing, and it may not engage in the day-to-day management of
the Trust and it may not make specific investment decisions.
Therefore, based upon the combined Federal and State
regulations, it is the opinion of this office that Utility does
not have a taxable interest in the Trust.

As for the Trust and Trustee, there is no business situs or
legal or commercial domicile in Florida. Trustee is a
Massachusetts corporation with its principal place of business
in Massachusetts. Trust, by virtue of Trustee's domicile is
also domiciled in Massachusetts. Both Trust and Trustee are not
subject to Florida's intangible personal property tax, because
they are domiciled in Massachusetts.

Neither the trust nor its assets are subject to the
intangible personal property tax provided in Ch. 199, F.S., and
no intangible personal property tax return is required with
respect thereto.

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, your request
and related backup documents are public records under Chapter
119, F.S., and are subject to disclosure to the public under the
conditions of s. 213.22, F.S. Confidential information must be
deleted before public disclosure. In an effort to protect
confidentiality, we request you provide the undersigned with an
edited copy of your request for Technical Assistance Advisement,
the backup material and this response, deleting names, addresses
and any other details which might lead to identification of the
taxpayer. Your response should be received by the Department
within 15 days of the date of this letter.

Sincerely,

J.V. Parramore, Jr.
Tax Law Specialist
Technical Assistance and Dispute Resolution
Office Of General Counsel

JVP/mh