How did Florida's intangible-tax exemption apply to a securities firm's margin-account receivables for 1999, 2000, and 2001?

Plain-English summary

Margin-account receivables became fully exempt from Florida intangible tax for tax years beginning on or after January 1, 2001. The statute phased in that result: accounts receivable generated in the ordinary course of business were one-third exempt for 1999 and two-thirds exempt for 2000.

The securities firm had paid tax and interest on its full margin-receivable balance for 1999 and 2000. The Department said it could apply for a refund of excess tax if it had failed to take the statutory reductions, assuming its other intangible assets were correctly valued and reported.

What this means for you

The effective tax year mattered. The later rule amendment did not erase the earlier statutory phase-in; the statute controlled while the administrative rule lagged behind it.

Common questions

Q: Were margin receivables fully exempt in 2001? Yes.

Q: What were the 1999 and 2000 exemptions? One-third and two-thirds, respectively.

Q: Could the firm recover overpaid tax? It could apply for a refund, subject to correct valuation and reporting of its other intangible assets.

Citations and references

• Fla. Stat. § 199.185(1)(l) — accounts-receivable exemption
• Fla. Stat. § 199.103 — valuation and reporting requirement cited
• Fla. Admin. Code r. 12C-2.002(1)(r) — margin-account receivables
• Fla. Stat. § 213.22 — Technical Assistance Advisements

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 02C2-004

Original ruling text

SUMMARY

QUESTION: Are margin account receivables exempt from the
intangible tax imposed under Chapter 199, F.S.?

ANSWER - Based on Facts Below: Based on Facts Below. Yes.
For tax years beginning on or after January 1, 2001, margin
account receivables are exempt from the intangible tax.

Mar 06, 2002

Re: Technical Assistance Advisement No. 02C2-004
Intangible Tax - Margin Account Receivables
Section 199.185(1)(l), F.S.
Rule 12C-2.002(1)(r), F.A.C.
XXX ("Company")

Dear :

This is in response to your request for a Technical
Assistance Advisement, stated in your letter dated December 11,
2001, regarding the taxation of margin account receivables.

FACTS AS PRESENTED BY THE PETITIONER

The Company, a full service securities firm for individual
and institutional investors, is headquartered outside Florida,
but it conducts business within the state.

As part of the Company's business, it holds margin accounts
for its customers governed by rules of the Federal Reserve
Board, the SEC, and NASD. From these accounts, a customer may
purchase securities financed by the Company, resulting in a
debit balance to the customer's account and a receivable credit
to the Company's margin receivables. The margin loans are
collateralized by the customer's securities.

The Company recently remitted tax and interest based upon

the total amount of margin receivables to the Department, which
included tax years 1999-2000. The Company remitted the full
amount of tax and interest pending the Department's Letter of
Technical Assistance and Technical Assistance Advisement
determination.

REQUESTED RULING

You request a ruling that margin account receivables are
exempt from the tax imposed under Chapter 199, F.S.

LAW AND DISCUSSION

Section 199.185(1), F.S., was amended for tax year 1999 to
allow a 1/3 exemption for accounts receivable generated from the
normal course of a trade or business. The same section of the
law was again amended for tax year 2000 to allow a 2/3 exemption
for accounts receivable generated from the normal course of a
trade or business. For tax year 2001, accounts receivable
generated in the normal course of a trade or business became 100
percent exempt. The amendment to Rule 12C-2.002(1)(r), F.A.C.,
clearly states in part that "for tax years beginning on or after
January 1, 2001, margin account receivables are exempt from
tax".

DEPARTMENT RESPONSE

Please be advised that Rule 12C-2.002(1)(r), F.A.C., was
amended effective October 4, 2001, to conform to the statute.
The rule states in part that "for tax years beginning on or
after January 1, 2001, margin account receivables are exempt
from tax". Prior to the effective date of this particular rule
revision, the statute that speaks to the graduated reduction in
tax on accounts receivable, including margin account
receivables, prevails over the rule, as all statutes do when a
rule is not up to date in the Florida Administrative Code.
Therefore, if the Company overpaid tax for the years 1999 and
2000 due to not taking the reduction in its tax on margin
accounts receivable as allowed by statute, it is entitled to
apply for a refund of any excess taxes paid. This presumes that
all other intangible assets were correctly valued and reported,

as required by s. 199.103, F.S.

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

JBE/mh