Aggressive planning for Florida's annual intangible tax.

• Author: Ducanis, Joseph T., Jr.

The State of Florida imposes an annual tax of 2 mills (i.e., two-tenths of a percent) on the value of all intangible personal property which has a taxable situs in Florida. Most individuals pay this tax each year on a routine basis in the same way they pay their annual federal income tax obligation. For some high net worth individuals, there is significant benefit to be derived from taking advantage of the various statutory exemptions which are available, such as investment in debt obligations issued by the State of Florida or the federal government. However, with some creative planning in the context of the "taxable situs" rules, it is possible to avoid the assessment of the annual intangible tax through a special kind of irrevocable trust which has been developed for many clients of this author's firm. Among the many advantages of the "irrevocable intangible tax trust" (IITT) is the ability of the client to maintain an investment portfolio which meets the client's desires without the need to liquidate and repurchase investments or to hold an undesived amount of exempt assets. In addition to the IITT technique, there is also an opportunity to avoid the Florida intangible tax by the use of certain kinds of limited partnerships, which also requires a careful analysis and application of the taxable situs rules.

Basic Rules Government the Annual Intangible lax

Under F.S. [sections] 199.032, an annual tax of 2 mills is imposed "on each dollar of the just valuation of all intangible personal property which has a taxable situs in this state . . . ." The typical assets covered within the definition "intangible personal property" are stocks, bonds, mutual funds, and other securities which are not otherwise exempted by the Florida Statutes.

In order for intangible personal property to be taxed, it must have a "taxable situs" within the State of Florida. The rules governing taxable situs provide that intangible personal property has a taxable situs in Florida when it is owned, managed, or controlled by any person domiciled in Florida on January 1 of a given tax year.(1) This rule applies regardless of where the evidence of the intangible property is maintained, the business giving rise to the intangible asset is conducted, and the intangible asset is created, approved, or paid. A person will be considered domiciled in the State of Florida if he, she, or it is 1) a natural person who is a legal resident of Florida, 2) any company, corporation, partnership, bank, business, trust, insurance company, or other artificial entity organized or created under the laws of Florida, except a trust, or 3) any person, including a trust, who has established a commercial domicile in Florida.(2) Under these rules, a business entity is deemed to have a commercial domicile in Florida when it maintains its chief or principal office in this state or executive or management functions are performed in Florida.(3)

In addition, intangible personal property is deemed to have a taxable situs in Florida when the property has a "business situs" in Florida, and the property is owned, managed, or controlled by a person transacting business in Florida, even if the owner, manager, or controller has a domicile which is outside of the State of Florida.(4) When intangible assets receive the benefit and protection of Florida laws and they are derived from, arise out of, or are issued in connection with business transacted in Florida with a customer in Florida, they are deemed to have a "business situs" in Florida.(5) Business is considered to be transacted in Florida when any occupation, profession, or commercial activity is regularly conducted with customers in Florida 1) from an office, plant, home, or any other...