Were shares of a business-trust investment fund exempt from Florida intangible tax when its January 1 portfolio held only exempt assets?

Plain-English summary

Florida exempted shares or units of the business-trust fund when every asset in its portfolio on January 1 was exempt from the intangible tax analyzed in the 1999 TAA.

The test focused on the portfolio held on the annual January 1 measurement date. The fund described holdings such as qualifying government obligations and needed the portfolio to consist solely of exempt assets for the fund-interest exemption to apply.

Common questions

What date controlled? January 1 of each tax year.

Could the portfolio include taxable assets? Not under the ruling's stated test; it had to consist solely of exempt assets.

Citations and references

• Fla. Stat. § 199.185(1)(d), (1)(j)
• Fla. Stat. § 199.303(2)
• Fla. Stat. § 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 99C2-003

Original ruling text

SUMMARY

The Shares or units of a fund organized as a business trust
having a portfolio on January 1 each year consisting solely
of assets exempt from tax is exempt from the intangible
tax.

Mar 08, 1999

Re: Technical Assistance Advisement No. 99(C)2-003
XXX (hereinafter "the Fund")
Intangible Tax - Exempt Assets in Fund
ss. 199.185(1)(d), 199.185(1)(j), 199.303(2), F.S.

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 FACTS PRESENTED BY PETITIONER

The Fund is a non-diversified closed-end management investment
company which was organized outside the State of Florida. The
Fund is registered under the Investment Company Act of 1940.

The Fund holds a portfolio that consists of long-term
obligations issued by or on behalf of Florida or its political
subdivisions, agencies or instrumentalities. The Fund may also
hold long-term obligations of the United States, its
subdivisions, agencies, instrumentalities, or territories and
possessions, or of other states. In addition, the Fund may
invest in securities not issued by or on behalf of a state or
territory or by an agency or instrumentality thereof, if the
interest or distributions therefrom are expected to be exempt
from federal income tax. The portfolio may also include nonmunicipal securities exempt from federal tax to the extent the

investments are permitted by the 1940 Act, as well as variable
rate demand obligations ("VRDO's") held by financial
institutions.

Assuming the Fund's portfolio consists solely of assets exempt
from the annual intangible tax on the last business day of the
previous calendar year, you are requesting advice whether the
entire net asset value of a share of the Fund will be exempt
from the annual intangible tax.

Secondly, you are inquiring whether the answer to the preceding
question would change, if on the last day of the previous
calendar year, any portion of the Fund's portfolio consists of
investments subject to the annual tax.

DISCUSSION AND ANALYSIS

The tax status and valuation of the shares of the Fund is
governed by federal and Florida laws. Under 31 U.S.C. 3124(a),
obligations of the United States Government are exempt from
taxation. Under s. 199.185(1)(j), F.S., shares of a unit
investment trust registered under the Investment Company Act of
1940, whose portfolio of assets consists solely of assets exempt
from Florida's annual intangible tax, are themselves exempt from
tax. Rule 12C-2.010(1)(j), F.A.C., provides that shares of the
trust shall be valued based upon the following guidelines to
determine what portion, if any, of the net asset value of its
portfolio is exempt from taxation:

The portion of the net asset value of the trust that is
attributable to direct obligations of the United States
Government is exempt from taxation.

If the entire remaining portion of the net asset value of
the trust, after removing the portion representing United
States Government obligations, represents assets which are
themselves exempt from Florida's intangible tax, then this
portion of the net asset value of the trust's portfolio is
also exempt from tax.

However, if any the remaining portion of the net asset

value of the trust, after removing the portion attributable
to United States Government obligations, represents any
asset which is taxable under Florida law, then the
remaining portion of the net asset value of the trust is
subject to tax.

CONCLUSION

If on the last business day of the previous calendar year the
Fund's portfolio consists solely of securities that are exempt
from the annual intangible tax under federal law, or by s.
199.185, F.S., then shares of the Fund held by Florida residents
will be exempt from tax. However, if on the last business day
of the previous calendar year the Fund's portfolio consist of
any assets that are not exempt from the annual intangible tax
under federal law, or by s. 199.185, F.S., then shares of the
Fund would be subject to tax based on the proportion of the
Fund's portfolio that is not attributable to United States
Government obligations.

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., 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 before disclosure. In an effort to protect the
confidentiality of such information, we request you provide the
undersigned with a redacted copy of your request for Technical
Assistance Advisement, backup material and response by March 29,
1999.

Sincerely,

George Turner
Senior Tax Specialist
Technical Assistance and Dispute Resolution
Office of General Counsel