Honorable Robert S. Calvert OpinionNo. w-819

Comptroller of Public Accounts Capitol Station Re: Applicability of the Austin 11, Texas Texas stock transfer ;z ;C;. 16, H.B. 11,

56th Leg codified’asTitle ii2A, Taxation-General,R.C. S.) to joint tenancy arrangementsunder employeesa stockpurchase Dear Mr. Calvert: plan.

Your request for our opinionupon the referenced subject reads as follows:
“Article 16.01.; Title 122A, Taxation-General, Revised Civil Statutes of Texas, reads In part a6 follows~
“OThere is hereby imposed and levied’s tax as hereinafterprovfded on all sales; agreementsto sell; or memoranda of sales; and all deliveries or transfers of shares; or certlfieatesof stock; or certificates for rights to stock; or certificatesof deposit representingan interest in or representingcertificatesmade taxableunder this section in any domestic or foreign assoolatfon, companyP or corporation; or certificatesof interest in any business conductedby trustee or trusteesmade after the effectivedate hereof, whether made upon or shown by the books of the association,company, corporationor trustee, or by any assignment in blank or by any delivery of any papers 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 certificatetaxablehereuuder, or with the possession or use thereof for anyHon. Robert S. Calvert Page 2 OpinionNo. w-819

purpose, or to secure the futurepayment of money or the future transfer of any such stock, or certificateon each hundred dollars of face value or fractionthereof, 3.3 cents except in cases where the shares or certificatesare Issued without designatedmonetary value, in which case the tax shall be at the rate of 3.3 cents for each and every share,O---

"A questionhas arisen In connectionwith an Employee Stock Option Purchase Plan in cases where the employee directs that the shares of stock be issued in the name of himself and another as joint tenants.
"In connection copy of letter with this request I am enclosing

to me from Kemp, Smith, Brown, Goggln & White,Attorneys at Law, El Paso, Texas, Also, I am enclosinga Prospectuswhich sets out the terms of the Employee Stock Purchase Plan in question.

"I will appreciateyour opinion as to whether or not the stock transfer tax accrues on the following transactions: "(1) If the employeeus nauthorisations specifiesthat the shares of stock be issued in the name of the employee and anotherperson as joint tenants, does this constitutea transfer requiring the affixing of stock transfer tax stamps to the authorization?

“(2) If the purchaseprice of the stock is paid for with community funds and the stock, by virtue of the employee authorization,is issued to the employee and his or her spouse as joint tenants, should the stamps be affixed to this authorization;if so, on the whole amount of shares of corg on one-half the amount of shares?

“(3) If the sharesunder the authorization are to be issued In the name of the employee and a person not his spouse, should the stamps be affixed to this authorization;if so, on the wholeHon. Robert S. Calvert Page 3 Opinion No. w-819

amount of shares or on one-half the shares?"
The following information is discernible from the prospectus:

1. The Company has reserved 50,000 shares of unissued Common Stock for sale to employees through this plan.
2. Participationin the plan is through authorization by the employee of a statedpayroll deduction, to accumulate throughout the option period. 3. The optionprice is determinableas a percentage of the over-sne-countermarket average; however, should such optionprice on the exercisabledate exceed the closing bidprice, the Companywill purchase for the employee, in lieu of the option exercise, the number of shares which his accumulateddeductionswill buy.
4. An employeeas rights are non-assignable;however, he may direct that the stock be issued in the names of himself and another as joint tenants.
Our opinion is that, where the original stock set aslde Is issuedpursuant to the employee's authorizationand exercise of option, to the employee and another as joint tenants, there has been no "transfer"within the meaning of the Act and no tax thereon is due.

Attorney GeneralIs OpinionNo. O-3594 (1941)held that no tax accrueshereunderupon the Issuance by a corporation of original (previouslyunissued) stock. Opinion No. O-4026 (1941)held that the sale or transfer of certificates for rights to stockby an original subscriberto receive original issue stock, is a taxable incident. Opinion No. O-4029 (1941)extended this holding of taxability to a transfer of a right to subscribe to stock even where such right is not evidenced bra "certificate for rights to stock,"basing this conclusionprimarilyupon the wording and construction of the Federal stock transfer tax act, However, this latter opinion was overruled by OpinionNo, O-5833 (1944),holding that such rights to subscribeare not taxableunder the Texas law, supporting its conclusionwith a careful comparisonof the wording of the Texas, Federal, and New York Acts, and judicial and administrativeconstructionsof the latter.Hon. Robert 5. Calvert Page 4 OpinionNo. m-819

In the present situation,the employee,by authorizing an issue of stock in the name of himself and another as joint tenants,has implicitly transferredto the joint tenant a portion of his exclusiveright under the option plan to subscribe to stock. However, an application of the reasoning of Opinion No. o-5833 would declare such a transfer non-taxableunder the Texas law. Sinee, as pointed out above, it is contemplatedthat sueh subscriptionswill be filled with reserved original Issue stock, no transfer tax will accrue under the State act upon such issue. It should be apparent,however, that, in the event a situationarises as in point 3 above, where the employee receives over-thecounter stock,purchased by the Company, In lieu of the exercise of his option, a transfer tax will accrue.

In view of our answer to your first question, it becomesunnecessary to considerherein your questions two and three.
SUMMARY

Where an employee elects,under a stock purchaseplan, of the type submitted,to have original stock issued in the name of himself and another as joint tenants,no tax accrues under the Texas stock transfer tax law (Ch. 16, H.B, 11, 3rd C.S., 56th Leg., Title 122A, R,C.S.) Very truly yours,
WILL WILSON Attorney General

JRIzbct
APPROVED:
OPINION COMMITTEE: W. V, Ceppert, Chairman
James M. Farris J. Arthur Sandlin John C. Steinberger Zellner J. Turlington

REVIEWED FOR THE ATTORNEY CENERAL: By; Leonard Passmore