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On money

2003 not the year for lower intangibles tax

Personal Finance editor
huntley

HELEN
HUNTLEY

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By HELEN HUNTLEY, Times Staff Writer

© St. Petersburg Times
published January 12, 2003


Investors who are expecting a break on the intangibles tax this year are in for a big disappointment. A reduction in the annual tax on investments takes effect July 1, but the Florida Department of Revenue says it will not reduce anybody's taxes until 2004.

And that assumes that the Legislature doesn't change its mind before then.

The intangibles tax nicks the wealth of many investors with holdings in stocks, bonds and mutual funds outside retirement accounts. Every year they have to pay the state a tax based on the year-end value of their investments, and many of them do not like it one bit.

Right now some investors are feeling particularly sore about the subject. In anticipation of paying the tax, they have been saving the year-end stock, bond and fund prices from the Internet, newspapers (the Times published its version Jan. 2) or from brokerage firm and mutual fund statements. Although the tax isn't actually due until June 30, many people file early to take advantage of discounts of up to 4 percent.

St. Petersburg investor Ernest Gibson thought the tax break would apply to half his bill this year since it takes effect midyear. The tax reduction was supposed to take place last year but was postponed to make up for a shortfall in other state revenue.

"What a fraud!" Gibson complained when he found out the 18-month hold translates into a two-year wait for investors hoping to reap the benefits.

State officials point out that this year's tax deadline is the day before the new rules take effect. And the law says nothing about retroactive application.

The tax break is in the form of an increased exemption. Each person will get to exempt the first $250,000 in taxable assets ($500,000 per couple). The current exemption is $20,000 per person ($40,000 for a couple). No tax has to be paid unless you owe at least $60.

Some things are not scheduled to change. The tax remains at $1 per $1,000 of value, and many investments are still exempt, including bank accounts, annuities, retirement funds, Florida municipal bonds, U.S. government bonds and savings bonds.

* * *

Q. I own Kmart stock, which is no longer listed in the St. Petersburg Times stock market report. I understand it is no longer trading. How do I find its value?

A. Kmart stock was delisted by the New York Stock Exchange and banished to the over-the-counter market known as the "Pink Sheets," where it now trades under the symbol KMRTQ. Pink Sheets quotes are available on the Internet (one source is www.pinksheets.com) or through a broker.

Unless you have access to the Internet or you have a broker you can rely on to help you follow a stock, it probably is a good idea to sell any stock when it is delisted. While there is a chance a delisted stock will recover, the risks are high. This is not the sort of investment you can hold and forget about. Although Kmart stock has value (it finished the year at 20 cents a share), it is probably worth more to you as a capital loss.

* * *

Q. I have had U.S. savings bonds for about 20 years. These bonds had an interest rate much greater than the current rate. I have been hesitant to redeem my bonds because of this. Will this rate continue to accrue in spite of the current interest rate?

A. I'm afraid not. Savings bond interest rates fluctuate. Any guarantees in effect when you bought each of your bonds ended at the end of its original maturity, which was eight to 12 years for bonds issued in the 1980s. The bonds then entered "extended maturity," typically for 10 years, during which a second set of rules applied. Some of your bonds are either near or already in a second extended maturity during which a third set of rules will apply. Is it any wonder that you're confused about this?

The interest rate for new EE bonds is 3.25 percent. You can find out what any particular bond is earning by checking the earnings report on the savings bond Web site (www.savingsbonds.gov).

By the way, if you own older E bonds, do yourself a favor and check their issue dates. E bonds issued before December 1965 earned interest for 40 years. After that date, E and EE bonds stopped earning interset after 30 years. Failing to redeem bonds that have reached final maturity is the same as making an interest-free loan to the government.

-- Helen Huntley writes about investing and markets for the Times. If you have a question about investments or personal finance, send it to On Money. We'll try to answer those we think are of greatest reader interest. All questions must be submitted in writing, but readers' names will not be published. Send questions to Helen Huntley, Times, P.O. Box 1121, St. Petersburg FL 33731.

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