Untitled Texas Attorney General Opinion

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