TEE A~TOFCNEY GENERAL
OF TEXAS
AUSTIN 11.TEXAS
-
A-lZN=Y G&N-
Honorable George H. Sheppard
Comptrollersof Public Accounts
Austin, Texas
Dear Sir: OpMlon No. O-4339
Re: Is the surrender of shares of
capital stock by the individual
shareholder to the Issuing corpor-
ation, for cancellation and exting-
uishment, subject to the st.ock
transfer tax levied by Article XV,
House Bill 8, Acts, Regular Session,
47th Legislature?
Your letter of January 17, 1942, submits for our opinion
the following question which we quote therefrom:
“Combined Oil Company, a joint stock assocla-
tlon operating under a declaration of trust, recent-
ly gave Carl P. Bruner an Interest In an 011 payment
for 1,000 shares of stock In said association. The
stock certificate was indorsed ‘surrendered for can-
celatlon and retirement’ and the capital stock was
thereby reduced.
“Please tell me whether or not this transaction
is subject to the tax levied by Article $V of House
Bill 8 of the Forty-seventh Legislature.
Section 1 of the above cited Act levies the following
tax:
“There is berebg imposed and levied a tax as
hereinafter provided on all sales, agreemerit:s
to
sell, or memoranda of salea, and all deliveries or
transfers of shares, or ceratlflcatesof stock, or
certificates for rights to stock, or certificates of
~deposlt representing an,Interest In o??r*epl>esentlng
certificates made taxable under this Section in any
domestlc or foreign association, cornpan:?,
o??corpora-
,tion, or certificates of Interest In any bs.siriess
conducted by tmstee or trustees made after tie !+f-
fective date hereof, whether made upon or rho%??by
the books of the association, company, corporet.lon,
Honorable George H. Sheppard, page 2 o-4339
or trustee, or by any assignment In blank or by any
delivery of any paper or agreement or memorandum
or other evidence of sale or transfer or order for
or agreement to buy, whether intermediate or final,
and whether investing the holder with the beneficial
Interest in or legal title to such stock or other
certificate taxable hereunder, or with the posses-
sion or use thereof for ang'purpose, or to secure the
future payment of money or the future transfer of any
such stock, or certificate, on each hundred dollars
of face value of fraction thereof, three (3) cents,
+ * * c*"
Construing the Federal Stock Transfer Tax Act, substan-
tially similar textually, (26 U.S.C.A. 1802) the courts have
held that the Imposing of a stamp tax on all sales, agreements
to sell, memoranda of sales or deliveries or transfers of legal
title to any shares or certificates, Included every transaction
whereby the right to be or become a shareholder of a corporation
or to receive any certificate of any interest In its property was
surrendered by one and vested in another. Niagara Hudson Power
Company vs. Hoey, 34 Fed. Supp. 302, affirmed 117 Fed. (2d) 414,
certiorari denied, 61 Sup. Ct. 95, 313 U.S. 571. Glenn L. Martin
Company vs. United States 21Fed. Supp. 562. Ra bestos-Manhattan
United States 56 Sup' Ct. 63, 296 U.S. 60, 50 L. Ed. 44, 102
Z.R. 111, aff&lng 10 Fed. supp. 130. Westbrook-Thompson
Holding Corporation vs. U.S. 18 Fed. Supp. 289.
Article 35 (f) of Regulation 71 of the U.S. Treasury
Department declares 'the surrender of stock for extinguishment"
to be a transaction not subject to this stock transfer tax law,
which, as we have stated, is substantially identical, regarding
the incidence of the tax, to the Act before us.
Moreover, In the case of Glenn L. Martin Company vs.
United States, supra, the court,.In holding a transaction identi-
cal to the instant one to be non-taxable, made the following per-
tinent comment:
'!Thelegal effect of the transaction shown to
have been intended in its Inception and finally con-
summated in appropriate legal form was the actual
retirement of the stock. The surrender of the stock
did not transfer to the corporation any title or
ownership therein, either beneficial or only legal,
as it was delivered expressly for cancellation, and
was intended to be retired and extinguished, and not
to be kept alive for any purpose. The legal dlstinc-
tlon important here Is that between the surrender and
retirement of issued stock, and the transfer of stock
.. f(
Honorable George Ii.Sheppard, page 3
to a corporation to be held as treasury stock. In
the former case, which Is the one we have here, the
stock was Intended to be and was actually retired,
and had the status thereafter of stock authorized to
be issued but not Issued; and thereafter the corpor-
ation could not have properly reissued the stock so
retired except on the same conditions and under the
same Maryland corporate law provlslons as applied to
originally authorized but unissued stock. In contra-
distinction therefrom stock, transferred or delivered
to a corporation by a stockholder to be held as
treasury stock, is held by the corporation for its
own use, benefit and disposition without the legal
requirements pertaining to the original issue of
authorized but unissued stock; and treasury stock Is
not in fact cancelled or extinguished but Is kept
alive as a treasury asset of the corporation."
Although the administrative rulings and court decisions
above adverted to are not controlling of the situation before us,
this prior constructIon of a stock transfer tax having a slmllar
incidence to that levied by the subsequent Act under consideration,
holds considerable persuasive merit, especially in view of the
fact that we find no decisions or administrative rulings to the
contrary upon a similar tax levy by the state of New York, from
which we understand the Texas Act to be patterned.
Aside from these considerations, however, it appears a
holding that the instant transaction was not taxable would be scrp-
ported by the better reasoning. The text of the Texas Act and
the decisions, supra, indicate, generally and fundamentally, that
the tax is levled upon any one Gf several taxable eventa or trans-
actions looking to a transfer of the title or ownership, legal or
equitable, of shares Gf StGCk Out Of one person, firm.or corpora-
tion into another, so as to vest in the latter all of the rights
and incidents.of stock ownership. Both a transferor and transferee
are contemplated. The surrender of stock for cancellation or
extinguishment, for the purpose of effecting a duly authorized
reduction of capital stock, dGeS not vest in the corporation WY?
of the legal or beneficial rights or in.ci.dentsGf stock Gwner-
ship, such as would be the case if such stock was purchased and
he1.dby the corporation as treasury stock. The return t.othe
corporation for cancellation and extlngui5hment. of issued and
outstanding stock, is complementary to the original issue of 5>.ch
stock Gut of the corporation, which we have held to be non-te.xable
in our Opinion NG. O-3594, directed to YOU.
It is accordingly our opinion that the transaction out-
lined in, your letter Is not subject to the stock t:ransfertax
levied by Article 15, House Bill 8, Acts, Regular Session, 47t!i
Legislature.
Honorable George H. Sheppard, page 4 o-4339
Trusting the foregoing fully answers your Inquiry,
we are
Yours very truly
ATTORNEY GENERAL OF TEXAS
By s,fPat M. Neff, Jr.
Pat MiNeff, Jr.
Assistant
?MN:ej :wc
APPROVED FEB 26, 1942
g$msms;~~;~
A'TTORNEYGEN~AL
Approved Oplnlon Committee By s/BWB Chairman