Important Changes to Florida’s Intangibles Tax
October 2000
Florida imposes an annual tax on intangible personal property owned by its residents, as well as on such property held in certain trusts of which Florida residents are beneficiaries, all as of January 1 of each year.
A significant amendment to the Florida intangibles tax law became effective on July 1, 2000, with important implications for trustees and beneficiaries of trusts who reside in Florida. The major changes are:
- Effective for tax years beginning after December 31, 2000 (i.e. on or after January 1, 2001), the trustee of a trust no longer has any responsibility for returning the trust's intangible personal property and is not required to pay any annual tax on it. The various analyses of trusts with more than one trustee, whether Florida or non-Florida, which were pertinent under prior law, have been eliminated. There is now a specific exemption in the law that states that intangible personal property that is owned, managed, or controlled by a trustee of a trust is exempt from the annual tax, but the exemption does not exempt from the annual tax a Florida resident who has a taxable "beneficial interest" in a trust.
- Effective for tax years beginning after December 31, 2000, a Florida resident is defined to have a taxable "beneficial interest" in a trust if the resident has a vested interest, even if subject to divestment, which includes at least a current right to income and either (i) a power to revoke the trust, or (ii) a general power of appointment as defined in Section 2041(b)(1) of the Internal Revenue Code. The distinction between "foreign" and non-foreign trusts has been eliminated.
- Effective for tax years beginning after December 31, 2000, each Florida resident with a taxable beneficial interest in a trust is responsible for returning the resident's equitable share of the trust's intangible personal property and paying the annual tax on it. However, the trustee of a trust may return and pay the tax on the equitable shares of all Florida residents having beneficial interests in the trust, in which case the residents need not return such property or pay such tax. Please note that nothing in this statutory amendment changes the tax valuation date from January 1 of each year, so the existence of a taxable beneficial interest in a trust as of January 1 of each year remains the critical factor affecting taxability for a Florida beneficiary of a trust.
- Effective for tax years beginning after December 31, 2000, the tax rate applicable on the fair market value of the taxable property declines from 1.5 mills to 1 mill (i.e. taxable property value x 0.001).
Although the very unpopular Florida intangibles tax appears to be well on its way toward outright repeal, it still exists as a burden for Florida residents. However, there are still available very effective planning techniques to reduce or eliminate its burden on substantial portfolios of investments. Because use of such techniques must be effectuated prior to the January 1 valuation date under the intangibles tax law, if you have any questions about these issues, please contact your regular McDermott Will & Emery attorney promptly.
