Was a seller's certificate in a revolving master trust holding trade receivables exempt from Florida intangible tax?

Subject

Sale of Accounts Receivable Transferred to a Master Trust

Plain-English summary

The seller's certificate was an exempt intangible if the common-law master trust was registered under the Investment Company Act of 1940. The Department classified the trust as a business trust and treated the certificate as an undivided interest in its assets. Those assets were trade accounts receivable that were themselves exempt under section 199.185(1)(l).

Because the Department determined that the arrangement was a business trust with ownership certificates, it did not answer the taxpayer's alternative question premised on treating the transfer as a borrowing transaction.

What this means for you

The exemption depended on both the trust's underlying exempt receivables and the stated federal registration condition. The Department did not extend its answer to a differently characterized borrowing arrangement.

Common questions

Q: Was the seller's certificate exempt? Yes, if the trust was registered under the Investment Company Act of 1940.

Q: Why did the underlying assets matter? The trust held accounts receivable that section 199.185(1)(l) exempted.

Q: Did the Department decide the borrowing alternative? No. Its business-trust determination made that question inapplicable.

Citations and references

• Fla. Stat. § 199.185(1)(j) — business-trust interest exemption
• Fla. Stat. § 199.185(1)(l) — accounts-receivable exemption
• Fla. Admin. Code r. 12C-2.003(8) — exempt intangible property
• Investment Company Act of 1940 — trust-registration condition
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 01C2-004

Original ruling text

SUMMARY

QUESTION: If the transfer of the accounts receivable from
Company A to Company is considered a borrowing transaction
for state and local income and franchise tax purposes, will
the accounts receivable deemed to be retained Company B be
taxable for Florida intangible tax purposes? Also, if the
transfer to the trust is considered a sale, does the
Seller's Certificate representing Company B's interest in
the Trust constitute a taxable intangible?

ANSWER - Based on Facts Below: At the taxpayer's request,
the Department has made the determination that the Trust in
question meets all of the qualifications of a business
trust, and therefore the answer to the first question is
not applicable since it does not fit within the parameters
of the determination. As the transfer to the trust is
determined to be a sale, the Seller's Certificate
representing Company B's interest in the Trust is an exempt
intangible if the Trust is registered under the Investment
Company Act of 1940, since the assets of the Trust consist
of accounts receivable that are themselves exempt.

Oct 16, 2001

Re: Technical Assistance Advisement No. 01C2-004
Intangible Personal Property Tax
Sale of Accounts Receivable Transferred to a Master Trust
Section 199.185, F.S.
Rule 12C-2.003(8), F.A.C.
XXX (Company A)
XXX (Company B)
XXX (Trust)
XXX (Trustee)

Dear :

This is in response to your request for a Technical

Assistance Advisement concerning the intangible tax implications
as a result of the transfer of trade receivables into a trust.

Facts Presented by Petitioner

Company A is an out-of-state corporation engaged in
business throughout the United States. Company B is a
"bankruptcy remote" special purpose entity formed for the
purpose of facilitating the securitization of trade accounts
receivable of Company A. Company B currently has no tax situs
with Florida, but it is planning to relocate to Florida.
Accordingly, Company B requests a Technical Assistance
Advisement with respect to the Florida intangible tax issues
relating to its interest in the Company A securitization
program.

Description of Transaction

The Company A securitization program involves a two-step
transfer to a "revolving" master trust. Company A sells
receivables meeting specific eligibility requirements on a daily
basis to Company B. Company B transfers those receivables daily
to the Trust. The assets of the Trust change over time as new
receivables are generated and old receivables are collected,
charged-off as uncollectible or otherwise adjusted. Trust is
governed by an Amended and Restated Pooling and Servicing
Agreement (the "Agreement"), among Company B, as seller, Company
A, as Servicer, and the Trustee.

Trust has issued to investors multiple series of asset
backed certificates (the "Investor Certificates") representing
undivided ownership interests in the Trust. Holders of Investor
Certificates, none affiliated with Company A or Company B, are
entitled to receive specified interest and principal payments
funded out of certain collections on the receivables. Trust has
issued to Company B a certificate ("Seller's Certificate")
representing an undivided fractional interest in the assets of
Trust not allocated to holders of Investor Certificates.

Under the Agreement, Company B and holders of Investor
Certificates and the Seller's Certificate have agreed to treat

the Investor Certificates as debt of Company B secured by the
receivables deemed to be retained by Company B. For Federal,
state, and local income tax and franchise tax purposes,
Investor's Certificates will be treated as debt of Company B
(per opinion from counsel). For non-tax accounting purposes,
the transfer from Company B to the Trust is considered a sale,
with the Investor Certificates and the Seller's Certificates
representing beneficial interests in the Trust.

Trust is considered a common-law trust under New York law.

Questions Posed by Taxpayer

1). If the transfer to the Trust is considered a borrowing
transaction for state and local income and franchise tax
purposes, will the accounts receivable deemed to be
retained by Company B be considered taxable intangibles for
purposes of the Florida intangible tax?

2). If the transfer to the Trust is considered a sale for state
and local tax purposes, does the Seller's Certificate
representing Company B's interest in the Trust constitute a
taxable intangible?

Law and Discussion

Section 199.185(1)(j), F.S., provides an exemption from
intangible tax for units or shares or other undivided interest
therein held in a unit investment trust or business trust when
at least 90 percent of the net asset value of the portfolio
corresponding to such units, shares, or undivided interests is
invested in exempt assets. Section 199.185(1)(l), F.S.,
provides an exemption from intangible tax for all accounts
receivable arising or acquired in the ordinary course of
business which are owned, controlled, or managed by the
taxpayer.

In Black's Law Dictionary, 7th Edition, under the term
"common-law trust" it states "See business trust". A business
trust is defined as "A form of business organization, similar to
a corporation, in which investors receive transferable

certificates of beneficial interest (instead of stock shares). Also termed Massachusetts trust or common law trust".

Because Trust is a common-law trust (i.e., business trust),
it may fall under the parameters of s. 199.185(1)(j), F.S.
Certificate holders receive transferable certificates of
beneficial interest, and the assets held by Trust determine
whether such investments are subject to the Florida intangible
tax. In this case, since Trust's assets consist of accounts
receivable which are exempt from the tax under 199.185(1)(l),
F.S., Company B's undivided interest in the trust assets is
exempt if the trust is registered under the Investment Company
Act of 1940, as amended.

Determination

Question 1

Based on the Department's determination that Trust is a
business trust, where investors receive principal and interest
payments on ownership certificates, a response to Question 1 is
not applicable.

Question 2

The Trust meets all of the qualifications of a business
trust. Thus, the Seller's Certificate representing Company B's
interest in Trust constitutes an exempt intangible, if the trust
is registered under the Investment Company Act of 1940, as
amended, since the assets of Trust consist of accounts
receivables that are themselves exempt.

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. 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 from that

which is expressed in this response.

You are further advised that this response, your request
and related backup 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,

Joy B. Eldred, C.P.A.
Tax Law Specialist
Technical Assistance and Dispute Resolution
Office of the General Counsel

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