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AUUTIN ILTEXAR

WILL WILSON September 1~4,1959

Honorable Robert S. Calvert OpinionNo. WW-700 Comptroller of PublicAccounts Capitol Station Re: Applicability~ of Texas Austin, Texas StockTransfer Tax imposed bye

Article 70&7m, V.C.S., to certain Dear Mr. Calvert: stock transactions.

You have requested our opinion regarding the applicabilityof the Texas StockTransfer Tax to the following transaction:

"CustomerA, residing in Dallas, Texas, places
an order with a member of the New York Stock Exchange, for 100 sharesTexas Utilities Company, Capital Stock (aTexas corporation). The order is duly executed on the New York Stock Exchange in New York. Payment is made by CustomerA to the NYSE member in Dallas and the stock is registered in the name of CustomerA who is a resident of Texas and it is delivered~ to him. Is Texas Tax due or is it not?
"Would the ruling be the same if the NYSE member
was domiciled in Texas? Would the ruling he the
same if the NYSE member was a branch office (in Texas) of an out-of-state firm?"
Article 7047m imposes a tax upon all sales, agreements to s,ell

and all deliveries or transfers involving a change of title, either legal or equitable, to chares, certificates of stock, certificates for rights to stock or certificates of deposit representingcertificates or interests therein in any domestic or foreign association, company, corporation or trustee-conductedbusiness. The act, of course,has no extra-territorialeffect. Attorney, General's Opinion No. O-3713points out that the tax accrues if (1) the contract of sale is made in Texas or (2) if it is executed in Texas or (3) if delivery of the enumerated shares or certificatesismade within the State.

Whether or not the tax accruesunder the fact situation described depends on the position occupiedby,the New York Stock Exchangemember. Under the ordinaryNew YorkHonorableRobert S. Calvert,Page 2 Opinion No. WW-700

StockExchange rule, sales of stock are required to be made
on the floor of the Exchange; execution of the sale and delivery of the shares is likewise required to be made in New York by and between representativesof the seller's broker and the purchaser's broker. In such cases, it is apparent that the N.Y.S.E.member acts as broker or agent for the purchaser; consequently,none of the incidents described in the above referred to opinion occur in the State of Texas and the tax does not accrue.

In certain instancesN.Y.S.E.members are permitted to make sales of a listed stock off the floor of the Exchange. In such situationsthe member may not be acting
as a broker, but as a dealer for its own account. Consequently,you are advised that if the N.Y.S.E.member in the instant fact situationpurchased the stock for its own account and re-sold it to CustomerA, the transaction is taxable, since the sale and delivery occurred in Texas. In this connection,it makes no differencewhether the N.Y. S.E. is domiciled in Texas or is a branch office of an outof-state firm.

You have also asked us whether or not we agree with the conclusionsdrawn in a brief submittedwith your request. From the foregoingdiscussion it is apparent that we agree with that portion of the brief dealingwith New York StockExchange transactions, The brief also sets forth the following transaction:
II

. . .Forexample,A, a resident of Beaumont, Texas, might personallypresent to your Texas Transfer Agent for record transfer a certificate issued to B with a recordpost office address of Beaumont, Texas, duly endorsedby B with his signatureguaranteedby a Beaumont bank. The probability would appear to be that
a gift or sale occurredbetweenA and B, without the intervention of a broker, in Beaumont, Texas which would requirepayment of a tax. If in fact no sale, agreement to sell or memorandum of sale betweenthe parties was made in Texas but A and B had met in California, for example,where theyhad agreedupon the trade and delivery of endorsed certificatehad been made, then no tax would accrue although the transfereebrought the endorsed certificate back to Texas withhim andpresented it to a Texas transfer agent to transfer the stock intohis own name. Conversely,your New York transfer agentmight receive by mail from theHonorable Robert S. Calvert, Page 3 (OpinionNo. WW-700)

State of Washington, for example, a certificate issued to X with recordedmailing address of Washington statewith request to make transfer to Y with a recordedWashington state address in which case all the probabilitieswould appear to be that the transfer resulted from a gift or sale consumated in Washington state free from the tax. The true factmight have been that X and Y met in Texas where they agreedupon a purchase and sale of the shares and delivery of the certificatewas made, resulting in a taxable transaction."

These conclusionsare basedupon and involve application of the principles set forth above, and are also correctly drawn.

A completediscussion of the principles set forth herein is found in Attorney General'sOpinion No. o-3713. Based on this opinion,OpinionNo. O-3594 discusses the taxability of severaldifferent types of transactions. These opinions are submittedherewith foryour consideration. It shouldbe noted that these opinionshave been qualified by, AttorneyGeneral'sOpinion No. ww-58 a copy of which is also attachedhereto.

SUMMARY
The taxability of a transaction between a resident of Dallas and a New York StockExchangemember in Dallas, whereby the Dallas residentpurchases stock in a Texas corporation,depends on the position occupiedby the N.Y.S.E. member. If the member acts as broker or agent for the purchaser, then under New York Stock Exchange rules, the agreement to sell, the sale, and delivery of th,e shares is made by and between representatives of the sellerand the purchaser in the state of NewYork; consequently, -- -- no tax accrues. However, if the N.Y.S.E. memberpurchases the stock for its own account, and then sells it to the Dallas resident, the transaction is taxable, since the sale and delivery to theHonorable Robert S. Calvert,Page 4 (OpinionNo. WW-700)

resident are made within the State of Texas.
Very trulyyours,

WILL WILSON Attorney General

BY VL J.@c N. Price Assistant

JNP:bct

APPROVED:

OPINION COMMITTEE: Geo. P. Blackburn, Chairman
William E. Allen C. Dean Davis Jay D. Howell B. H. Timmins, Jr.

REVIEWED FOR THE ATTORNEY GENERAL
By: W. V. Geppert