Florida’s intangible personal property tax was an annual tax on the market value of intangible property, such as stocks, bonds, and mutual fund shares, owned by Florida residents and businesses. In 2006, the Florida legislature repealed most parts of the tax effective January 1, 2007 (Ch. 312 (H.B. 209), Laws 2006).
The Florida Constitution Article 7, section 5 prohibits the imposition of a tax upon the income earned by a resident of the state of Florida in excess of the credit to federal income taxes on account of such tax. At the present, no such federal income tax credit exists. Accordingly, the State of Florida is forced to base its intangible tax upon the ownership of principal, not the right to receive income.
Prior to the 2000 Session of the Florida Legislature, there were basically two tests the State of Florida could have applied to determine whether a trust that contained
taxable intangible assets was required to file an intangible tax return: the “Beneficial Interest” test and the “Florida Situs Trust” test.
The 2000 Legislature amended §199.052 to state that the trustee of a trust holding intangible assets in the state of Florida would not be responsible for payment of annual tax on those assets, deleting references to A foreign trust and, thereby, doing away with the Florida Situs Trust test.
Now, regardless of who the Trustees are and where they are located, the Beneficial Interest test requires an intangible tax return to be filed if a Florida resident has a vested interest, even if subject to divestment, which includes at least:
By establishing a trust that (1) will not grant the Creator of the trust any rights in the trust that would cause inclusion under the Beneficial Interest test, (2) will still provide the Creator with an income interest and a satisfactory degree of control over the assets of the trust without having the Creator of the trust being treated as the Beneficial Owner and (3) will not have any immediate or future adverse income, gift or estate tax consequences.
The critical fault with the Florida Intangible Tax statute is that the Florida Constitution prohibits the imposition of an income tax on individuals. Therefore, the tax can be imposed upon a Florida resident only if he or she can be deemed to own the principal of the trust. Under the Florida Statutes, requisite ownership interest is found when the Florida resident has a beneficial interest in the trust as outlined above in the Beneficial Interest test.
The desire to avoid the payment of Florida intangible taxes and the costs associated with the creation and administration of a FlintJ Trust should be weighed against each other. The Florida Department of Revenue will no longer issue rulings on the particular provisions used in FlintJ Trusts but has developed Rules which set forth Asafe
harbor@provisions to determine (without the need for a Ruling) whether the trust or its beneficiaries are subject to the Florida intangible tax. Mr. Kelly was very involved in the molding of the Asafe harbor@ provisions from August of 1997 to April of 1998.
Mr. Kelly is a specialist in the areas of wills, trusts, estates, and taxation. Mr. Kelly is one of only 34 Florida attorneys who have been Board Certified in both the areas of Tax Law and Wills, Trusts and Estates Law. He is also a certified public accountant. He is a graduate of Florida Southern College (B.A.), the Cumberland School of Law (J.D.) and the University of Miami (LL.M. in Estate Planning). He is admitted to practice in Florida and before the U.S. Tax Court.
Mr. Kelly is a frequent lecturer on tax planning and estate planning. Mr. Kelly developed the FlintJ Trust planning technique in 1992 and is one of the Floridas leading
authorities on Intangible Taxes. He is the Past President of the Estate Planning Council of Naples.