STATE OF FLORIDA
DIVISION OF ADMINISTRATIVE HEARINGS
R. W. and JOYCE S. ARONSON, )
)
Petitioners, )
)
vs. ) CASE NO. 83-3128
)
OFFICE OF THE COMPTROLLER, )
STATE OF FLORIDA, )
)
Respondent. )
)
W. ARONSON, on behalf of ) HELEN T. ARONSON, )
)
Petitioner, )
)
vs. ) CASE NO. 83-3209
)
OFFICE OF THE COMPTROLLER, )
STATE OF FLORIDA, )
)
Respondent. )
)
RECOMMENDED ORDER
By Petitions dated September 15, 1983, Petitioners, pro se, seek refunds of
$16.73 and $3.96 respectively in intangible taxes paid to the State of Florid on shares of a money market mutual fund which invests only in debt obligations issued or guaranteed by the United States, its agencies, or instrumentalities, assignments of interest in such obligations, and commitments to purchase such obligations. The parties stipulated to the facts and waived formal hearing, requesting that a Recommended Order be submitted on the stipulated facts and briefs submitted by the parties. Petitioner relies solely upon American Bank and Trust Company v. Dallas County, 103 S. Ct. 3369, 77 L. Ed 2d 1072 (1983).
FINDINGS OF FACT
The First Variable Rate Fund for Government Income, Inc., (hereinafter referred to as the Fund) is an open-end diversified investment company incorporated under Maryland law. The Fund is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management company.
The Fund has an authorized capital of 2.5 billion shares of common stock with a par value of $.001 per share which may be issued in classes and are freely transferable. Each outstanding share is entitled to one vote on all matters submitted to a vote of stockholders and to a prorata share of dividends declared and of the Fund's net assets in liquidation.
Shares of the Fund are issued and redeemed at their net asset value. It is the Fund's policy to maintain a constant net asset value of $1.00 per
share. The net asset value is determined by subtracting liabilities from value of assets and dividing the remainder by the number of outstanding shares. The Fund's shares are sold to the public without a sales charge.
The Fund is a money market fund. Its investment goals are high current income, preservation of capital and liquidity. In pursuing these goals, the Fund invests solely in debt obligations issued or guaranteed by the United States, its agencies or instrumentalities, assignments of interests in such obligations, and commitments to purchase such obligations ("U.S. Government- backed obligators"). The fund may invest in U.S. Government-backed obligations subject to repurchase agreements with recognized securities dealers and banks. Some of the U.S. Government-backed securities are supported by the full faith and credit of the U.S. Treasury; others are supported by the right of the issuer to borrow from the Treasury; still others are supported only by the credit of the instrumentality.
The Portfolio of Investments of the Fund on December 31, 1982 contains the following types of investments:
U.S. Treasury Bills;
Student Loan Marketing Association;
Certificates of Deposit;
Certificates of Deposit Investment Pools with U.S. Government guarantee on the underlying certificates;
Repurchase agreements collateralized by securities issued by or guaranteed by the U.S. Government;
Variable rate loans guaranteed by agencies of the U.S. Government.
The Portfolio of Investments of the Fund on December 31, 1981 contains the following types of investments:
U.S. Treasury Bills;
Federal Farm Credit Banks;
Repurchase agreements substantially collateralized by securities issued or guaranteed by the U.S. Government;
Certificate of Deposit Investment pools with U.S. Government guarantee on the underlying certificates;
Variable rate loans guaranteed by agencies of the U.S. Government.
Repurchase agreements are transactions in which a person purchases a security and simultaneously commits to resell that security to the seller at a mutually agreed upon time and price. The seller's obligation is secured by the underlying security. The resale price reflects the purchase price plus an agreed upon market rate of interest. While the underlying security may bear a maturity in excess of one year, the term of the repurchase agreement is always less than one year. In the event of the bankruptcy of a seller during the term of a repurchase agreement, a substantial legal question exists as to whether the Fund would be deemed the owners of the underlying security or would be deemed only to have a security interest in and lien upon such security. If the Fund's interest is deemed a security interest in and lien upon such security, the Fund
may realize a loss or may be delayed in receiving the repurchase price due it pursuant to the agreement or in selling the underlying security.
The Fund will only engage in repurchase agreements with recognized securities dealers and banks. In addition, the Fund will only engage in repurchase agreements reasonably designed to secure fully during the term of the agreement the seller's obligation to repurchase the underlying security and will monitor the market value of the underlying security during the term of the agreement. If the value of the underlying security declines, the Fund may require the seller to pledge additional securities or cash or secure the seller's obligations pursuant to the agreement. If the seller defaults on its obligation to repurchase and the value of the underlying security declines, the Fund may incur a loss and may incur expenses in selling the underlying security.
Although all the securities purchased by the Fund are Government-backed as to principal or secured by such securities, some of the types of Government securities the Fund buys may be sold at a premium which is not backed by a Government guarantee. The premiums are amortized over the life of the security; however, if a security should default or be prepaid, the fund could realize as a loss the unamortized portion of such premium.
Petitioners, R. W. and Joyce S. Aronson remitted $66.56 by check #235 dated April 10, 1982 in payment of Florida Intangible Tax for 1982. If it is determined that the Fund at issue herein is totally exempt from taxation, the aforesaid Petitioners are entitled to a refund in the amount of $3.96.
Petitioner, Helen T. Aronson remitted $84.30 by check #138 dated February 28, 1983 in payment of Florida Intangible Tax for 1983. If it is determined that the Fund at issue herein is totally exempt from taxation, the aforesaid Petitioner is entitled to a refund in the amount of $16.73.
The Department of Revenue computes intangible tax on shares of corporations on the basis of "just value" which for publicly held corporations, is market value. The Department of Revenue computed the value of the shares of the Fund on the basis of market value.
A review of the Prospectus forwarded with the stipulation of facts discloses that in the Prospectus dated March 1, 1982 only $73,186,000 was invested in United States Government obligations of the total of $1,121,285,000 invested by the Fund; and that in Prospectus dated February 28, 1983,
$199,387,000 was invested in United States Government obligations of the total of $1,125,500,000 invested by the Fund. Thus, approximately 6.5 percent in 1982 and 17.7 percent in 1983 of the value of the funds were invested in funds exempt from the Florida intangible tax. Six and one-half percent (6-1/2 %) of $3.96 is
$0.26 and 17.7 percent of $16.73 is $2.96.
CONCLUSIONS OF LAW
The Division of Administrative Hearings has jurisdiction of the parties to, and the subject matter of, these proceedings.
Section 199.023(1), Florida Statutes, provides:
"Intangible personal property" means all personal property which is not in itself intrinsically valuable, but which derives its
chief value from that which it represents, including, but not limited to, the following:
* * *
(b) All stocks or shares of incorporated,
or unincorporated companies, business trusts, and mutual funds.
Clearly the intangibles here involved fall into the classification of property taxable pursuant to Chapter 199, Florida Statutes. The issue for determination is whether the stock owned by taxpayers in the Fund is exempt from taxation by the State of Florida because the intangible-personal property form of taxation requires consideration of federal obligations in computing the tax. This issue can be further broken down for consideration into two parts. First, what obligations of the United States are contemplated by the exemption? Second, does the method of computing the intangible personal property tax consider federal obligations?
OBLIGATIONS OF THE UNITED STATES GOVERNMENT
The exemption in question arises under Rev. Stat. s. 3701, 31 U.S.C.
s. 742 (now 31 U.S.C. s. 2124), which provides, in pertinent part:
All stocks, bonds, Treasury notes, and other obligations of the United States, shall be exempt from taxation by or under State or municipal or local authority. This exemption extends to every form of taxation that would require that either the obligations or the interest thereon, or both, be considered, directly or indirectly, in the computation of the tax, except nondiscriminatory franchise or other nonproperty taxes in lieu thereof imposed on corporations and except estate taxes or inheritance taxes.
The federal statutory exemption from taxation cited as authority for the refund request by Petitioners was amended effective September 12, 1982; however, this change was for clarity, consistency, or to omit surplus or unnecessary words and did not result in a change that would require different treatment for the 1982 and 1983 tax years here involved.
It is stipulated that the Fund invests solely in debt obligations issued or guaranteed by the United States, its agencies or instrumentalities, assignments of interest in such obligations, and commitments to purchase such obligations. The Fund may invest in Government-backed obligations subject to repurchase agreements with recognized securities dealers and banks. Some of the Government-backed securities are supported by the full faith and credit of the
U.S. Treasury; others are supported by the right of the issuer to borrow from the treasury; still others are supported only by the credit of the instrumentality.
The language of s. 3701 makes it clear that the exemption applies to stocks, bonds, and Treasury notes of the United States. Therefore, to the extent that the Fund invests in stocks, bonds and Treasury notes, these obligations are deemed to be obligations of the United States. As to the other investments of the Fund, particularly those which are only guaranteed by the United States, a further examination of s. 3701 and its progeny is necessary.
19. In Smith v. Davis, 323 U.S. 111, 65 S. Ct. 157, 89 L. Ed 107 (1944),
the United States Supreme Court faced a similar question. Under the rule of ejusdem generis, the Court found that it is reasonable to construe the general words "other obligations" as referring only to obligations or securities of the same type as those specifically enumerated. On its face, s. 3701 was limited in application to written interest-bearing obligations issued pursuant to Congressional authorization. In examining seven statutory exemption provisions from which s. 3701 was derived, the Court concluded that all were limited by their terms to interest-bearing securities or obligations authorized by Congress, for the payment of which the credit and faith of the United States was pledged.
Additionally, in Smith v. Davis, supra, the Court recognized that various credit instrumentalities of the Federal Government were constitutionally immune from state and local taxation. However, such immune instrumentalities were characterized by four criteria:
Written documents,
The bearing of interest,
A binding promise by the United States to pay specified sums at specified dates, and
Specific Congressional authorization, which also pledged the faith and credit of the United States in support of the promise to pay.
As outlined in the Prospectus and as stipulated to by the parties, the Fund invests in assets other than Treasury bills. It is concluded that the only investments of the Fund which are obligations of the United States within the applicable federal exemption are Treasury bills and obligations of the Federal Farm Credit Banks. The federal exemption does not protect certificates of deposit, repurchase agreements between private parties, loans owned by private parties, receivables from private parties and similar items. Since a third- party is primarily liable to pay the holder, the obligations embodied in those instruments in which the United States is guarantor do not contain a direct and immediate promise to pay of the same nature as other obligations contemplated by
s. 3701. Cf. Montgomery Ward Life Insurance Company v. State, Department of Local Government Affairs (1980), 89 Ill. App. 3rd 292, 44 Ill. Dec. 607, 411
N.E. 2d 973.
American Bank and Trust Company v. Dallas County, 77 L. Ed 2d 1072,
103 S. Ct. 3369 (1983), involves the assessment of a tax on the value of the shares of a national bank when the value of these shares includes obligations of the United States. In holding the tax invalid, the Court relied upon the 1959 amendment to s. 3701. The Court found that the language of s. 3701 barred taxes on such intangibles regardless of the form of the tax "if federal obligations must be considered, either directly or indirectly, in computing the tax." American Bank at p. 3374. The Court further held that "Congress intended to sweep away formal distinctions and to invalidate all taxes measured directly or indirectly by the value of the federal obligations, except those specified in the amendment." Id. at p. 3377.
In the present case, the parties have stipulated that the intangible tax on shares of corporations in Florida is computed on the basis of "just value" which, for publicly held corporations, is market value. It is also
stipulated that the Department of Revenue computed the value of the shares of the Fund on the basis of market value. Section 199.103, Florida Statutes, requires that the Department assess all intangible personal property at its just valuation as of January 1 of each year. An annual tax on one mill on the dollar of the just valuation of all intangible personal property is levied pursuant to Section 199.032(1), Florida Statutes. As previously discussed, intangible personal property includes all stocks or shares of mutual funds. In promulgating rules which implement and interpret the provisions of Chapter 199, various valuation requirements have been adopted. Rule 12C-2.01(1)(h), Florida Administrative Code, defines "just value" and "market value" in terms of the concept of a price resulting from a transaction between a willing buyer and a willing seller, neither being under any compulsion to act, and both seeking to maximize their gain. This same valuation concept is followed in the Department's rules of valuation for stocks and bonds. See Rule 12C-2.10, Florida Administrative Code.
The value taxed under Florida's Intangible Personal Property Tax is the market value of taxpayers' investments in the mutual fund and this value is measured solely by the market value of the underlying securities. To the extent those securities represent direct obligations of the United States they are exempt from intangible personal property taxes.
Based on the investments listed in the Prospectus, only very small sums are here involved. Furthermore, it cannot be determined from the facts presented just what percentage of the assets represented by the First Variable Rate Fund was invested in Treasury Bills and Federal Farm Credit Banks on December 31, 1981 and December 31, 1982. Assuming these to be no greater than shown in the Prospectus, the maxim de minimis non curat lex (the law does not concern itself about trifles) should be invoked. It is therefore
RECOMMENDED these claims be denied and these petitions dismissed. ENTERED this 28th day of March, 1983, at Tallahassee, Florida.
K. N. AYERS Hearing Officer
Division of Administrative Hearings The Oakland Building
2009 Apalachee Parkway
Tallahassee, Florida 32301
(904) 488-9675
Filed with the Clerk of the Division of Administrative Hearings this 28th day of March, 1984.
COPIES FURNISHED:
Linda Lettera, Esquire Assistant Attorney General Department of Legal Affairs The Capitol, Room LL04 Tallahassee, Florida 32301
R. W. Aronson
3116 Middlebrook Circle
Tallahassee, Florida 32312
Honorable Gerald A. Lewis Comptroller of Florida The Capitol
Tallahassee, Florida 32301
================================================================= AGENCY FINAL ORDER
=================================================================
STATE OF FLORIDA DEPARTMENT OF BANKING AND FINANCE
DIVISION OF ACCOUNTING AND AUDITING
R. W. AND JOYCE S. ARONSON, Administrative Proceeding
Number: 83-228-DOA and
Petitioners, 83-229-DOA
vs. CASE NO. 83-3128
OFFICE OF THE COMPTROLLER, STATE OF FLORIDA,
Respondent.
/
ARONSON, on behalf of HELEN T. ARONSON,
Petitioner,
vs. CASE NO. 83-3209
OFFICE OF THE COMPTROLLER, STATE OF FLORIDA,
Respondent.
/
FINDINGS OF FACT, CONCLUSIONS OF LAW AND FINAL ORDER
This matter is before the Office of the Comptroller, the Department of Banking and Finance, State of Florida (hereinafter referred to as the DEPARTMENT), for entry of a final order in this case in accordance with the provisions of Section 120.57, Florida Statutes.
The requests of R.W. and Joyce E. Aronson and R.W. Aronson, on behalf of Helen T. Aronson (hereinafter referred to as PETITIONERS), for intangible tax
refunds in the amount of $16.73 and $3.96 respectively are hereby denied. As grounds for the issuance of this Final Order, the DEPARTMENT states as follows:
FINDINGS OF FACT
The DEPARTMENT has jurisdiction over PETITIONERS and PETITIONERS' application for tax refund pursuant to Section 215.26, Florida Statutes.
On April 18, 1983, PETITIONERS filed applications requesting a refund of intangible tax in the amounts of $16.73 and $3.96 respectively.
On August 30, 1983, the DEPARTMENT issued its Notices of Intent to Deny the application on the grounds that the First Variable Rate Fund is an incorporated fund. The incorporated funds, like other corporations, issue shares which represent ownership of the corporation. The corporation in turn may own securities which, if held by an individual, would be exempt from the intangible tax imposed by Section 199.032(1), Florida Statutes, but are not exempt when valuing shares of the incorporated fund.
On September 15, 1983, PETITIONERS filed their petitions for a formal hearing of this matter pursuant to the provisions of the Administrative Procedures Act, Chapter 120, Florida Statutes. This Petition set forth the issue as whether shares of the First Variable Rate Fund are exempt from State taxation. The parties then stipulated to the facts and waived formal hearing, requesting that a Recommended Order be submitted on the stipulated facts and briefs submitted by the parties.
On March 28, 1984, Hearing Officer K. N. Ayers issued his Recommended Order as required by Section 120.57(8), Florida Statutes, and copies were furnished to all parties. The Recommended Order of March 28, 1984, is incorporated herein by reference and made a part hereof as though fully set forth at length.
On April 17, 1984, RESPONDENT filed Exceptions to the Recommended Order. Exception #1 seeks to modify the wording in Finding of Fact #12. As recommended by the Hearing Officer, Finding of Fact #12 erroneously included a conclusion of law. When he stated that a percentage of the value of the funds "were invested in funds exempted from the Florida intangible tax." For this reason, RESPONDENT'S Exception #1 is hereby granted and Finding of Fact #12 now reads as follows:
12. A review of the Prospectus forwarded with the stipulation of facts discloses that in the Prospectus dated March 1, 1982 only $73,186,000 was invested in the United States Government obligations of the total of $1,121,285,000 invested by the Fund; and that in Prospectus dated February 28, 1983, $199,387,000 was invested in United States Government obligations of the total of $1,125,500,000 invested by the Fund. Thus, approximately
6.5% in 1982 and 17.7% in 1983 of the value of the funds were invested in obligations which may be protected by 31 U.S.C. Section 2124. Six and one-half percent(6-1/2%) of
$3.96 is $0.26 and 17.7 of $16.73 is $2.96.
As provided by Section 120.57(9), Florida Statutes, the Findings of Fact as set forth in the Recommended Order with the above Exception granted are herewith adopted in full as the Findings of Fact of this Agency.
CONCLUSIONS OF LAW
RESPONDENT'S Exception #2 is hereby granted, therefore on page 10 of the Recommended Order, the following language should be added to the paragraph carried over from page 9 and the two full paragraphs on page 10 deleted:
By its method of computing the market value, as opposed to book value, of the Fund, Florida does not directly or indirectly consider the federal obligations protected by 31 U.S.C.
Section 2124 and thus no refund is due. It is therefore
RECOMMENDED these claims be denied and these petitions dismissed.
As provided by Section 120.57(9), Florida Statutes, the Conclusions of Law set forth by Hearing Officer K. N. Ayers in his Recommended Order with the modifications as set forth in the above paragraph are adopted as the Conclusions of Law of this Agency.
FINAL ORDER
Based upon the foregoing Findings of Fact and Conclusions of Law, it is therefore:
ORDERED that the applications filed by PETITIONERS requesting tax refunds in the amounts of $16.73 and $3.96 respectively are HEREBY DENIED.
DONE AND ORDERED in Tallahassee, Leon County, Florida, this 20th day of June, 1984.
GERALD LEWIS, Comptroller of Florida
I HEREBY CERTIFY that a true and correct copy of the foregoing FINAL ORDER has been filed in the official records of the Office of the Comptroller, this 26th day of June, 1984.
CYNTHIA J. JORDON
Agency Clerk
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that a copy of the foregoing FINDINGS OF FACT, CONCLUSIONS OF LAW AND FINAL ORDER has been furnished by U.S. Mail to R.W. Aronson, Esq., 3116 Middlebrook Circle, Tallahassee, Florida 32312; K. N. Ayers, Hearing
Officer, Division of Administrative Hearings, The Oakland Building, 2009 Apalachee Parkway, Tallahassee, Florida 32301; David Linn, Assistant General Counsel, Department of Revenue, Carlton Building, Room 204, Tallahassee, Florida 32301 and Linda Lettera, Assistant General Counsel, Department of Legal Affairs, Room LL04, The Capitol, Tallahassee, Florida 32301 this 26th day of June, 1984.
WILLIAM G. CAPKO
Assistant General Counsel Office of the Comptroller The Capitol, Suite 1300 Tallahassee, FL 32301
(904) 488-9896
| Issue Date | Proceedings |
|---|---|
| Oct. 12, 1990 | Final Order filed. |
| Mar. 28, 1984 | Recommended Order sent out. CASE CLOSED. |
| Issue Date | Document | Summary |
|---|---|---|
| Jun. 25, 1984 | Agency Final Order | |
| Mar. 28, 1984 | Recommended Order | Claims should be denied and the petition should be dismissed. |
