During this time of year, many of you are probably thinking about your ad valorem real property taxes and how much the assessed value has increased since last year. However, you should also be thinking about another, albeit less known, Florida ad valorem property tax, the so-called annual intangible personal property tax, and whether you should consider some tax planning to minimize the tax or even avoid it altogether.
Florida law imposes an annual intangible personal property tax on the current fair market value, as of January 1 of each year, of intangible personal property that generally is owned, managed, or controlled by a Florida resident (including individuals and legal entities, such as corporations, limited liability companies, and partnerships). The tax is imposed at a rate of 0.5 mill (the tax rate had been 1 mill but was reduced to 0.5 mill in June 2005), which equates to $1 of tax per $2,000 of value or $1,000 of tax per $2,000,000 of value. For individual taxpayers, the first $250,000 ($500,000 for married couples filing a joint return) of intangible assets are exempt. For corporations, partnerships, limited liability companies, and estates, the first $250,000 of intangible assets are exempt. In addition, if the amount of tax due is $60 or less (before taking into account any discount for early filing), no tax is due. Consequently, taxpayers must pay the Florida intangible personal property tax when the value of their intangible assets exceeds the exempt amount by more than $120,000.
The Florida intangible personal property tax can be paid as early as January 1st and will be considered late if paid after June 30th. Discounts ranging from 1% to 4% can apply if the tax is paid before June 1st. If the tax is paid after June 30th, interest and penalties may be imposed.
For purposes of the Florida intangible personal property tax, “Intangible personal property” is broadly defined as “all property which is not in itself intrinsically valuable, but which derives its chief value from that which it represents.” The most common types of taxable intangible personal property are: (i) shares of common and preferred stock in a corporation; (ii) shares in a mutual fund; (iii) an ownership interest in a limited liability company; (iv) corporate bonds; (v) promissory notes and loans; and (vi) accounts receivable not arising in the normal course of a trade or business. Several types of intangible personal property are exempt from the intangible personal property tax. These exempt intangible assets include: (i) cash; (ii) certificates of deposit; (iii) checking and savings accounts; (iv) intangible property held in qualified retirement plans or certain deferred compensation plans; (v) intangible property held in an IRA; (vi) bonds issued by the U.S. government, the State of Florida, or a political subdivision of the State of Florida; (vii) ownership interests in most types of limited and general partnerships; (viii) notes or other obligations for the payment of money that are secured by real property; (ix) accounts receivable that arise during the normal course of a trade or business; and (x) annuities.
One primary planning technique utilized to avoid the imposition of the Florida intangible personal property tax involves the use of a short-term irrevocable trust (these types of trusts are oftentimes referred to as FLITE or FLINT trusts). If such a trust is properly formed and complies with the requirements detailed below, assets transferred into the trust will not be subject to the Florida intangible personal property tax. In order for the trust to be effective, the following requirements must be met: (i) a valid trust must be executed and acknowledged written trust agreement; (ii) the taxpayer’s intangible personal property must be validly transferred into the trust prior to January 1st of the tax year (iii) the trustee (which must be a person other than the taxpayer) must be granted full fiduciary powers under the written trust agreement; (iv) if the taxpayer is a Florida domiciliary, then the taxpayer must not reserve or grant any right or privilege to himself or herself with respect to any right of control, management or ownership of the trust or any item of trust principal; (v) if the trust beneficiary (which is oftentimes the taxpayer) is a Florida domiciliary, then the trust beneficiary must have no rights other than to receive distributions of trust income or principal at the trustee’s discretion; (vi) the taxpayer cannot retain the right to appoint assets out of the trust corpus, name or remove beneficiaries to the trust except pursuant to a limited testamentary power, or revoke the trust; (vii) the taxpayer and any other Florida domiciliary must not retain the right to remove the trustee, unless this right is limited to specific conditions not within the control of the grantor or other Florida domiciliary; and (viii) if the taxpayer retains a reversionary interest, the reversionary interest must not direct the form or type of assets that must be returned to the taxpayer. By properly establishing one of these trusts and transferring taxable intangible assets to the trust prior to January 1, the taxpayer will not have a taxable beneficial interest in the trust or its assets, and therefore the trust assets will not be subject to the Florida intangible personal property tax.
If you have any questions regarding the Florida intangible personal property tax or how to minimize your exposure to the tax, please contact Mike Wilson at 941-536-2043 or firstname.lastname@example.org or Tom McLaughlin at 941-536-2042 or email@example.com.