TEE A~TOFCNEY GENERAL 

OF TEXAS 

AUSTIN 11. TEXAS 

- 

A-lZN=Y G&NHonorable George H. Sheppard 

Comptrollers of 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 corporation, for cancellation and extinguishment, 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 assoclatlon operating under a declaration of trust, recently 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 cancelatlon 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. 

tax: 

Section 1 of the above cited Act levies the following 

“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 ceratlflcates of 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 !+ffective 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 possession 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, substantially 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 identical to the instant one to be non-taxable, made the following pertinent comment: 

'!The legal effect of the transaction shown to 

have been intended in its Inception and finally consummated 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 dlstinctlon 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 corporation 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 contradistinction 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 scrpported 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 transactions looking to a transfer of the title or ownership, legal or 

equitable, of shares Gf StGCk Out Of one person, firm. or corporation 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.dents Gf stock Gwnership, such as would be the case if such stock was purchased and 

he1.d by the corporation as treasury stock. The return t.o the 

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 outlined in, your letter Is not subject to the stock t:ransfer tax 

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,f Pat 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