## TEE A~TOFCNEY GENERAL OF TEXAS AUSTIN 

## 11.

TEXAS

- **A-lZN=Y** 

## G&NHonorable George H. Sheppard Comptrollers

of PublicAccounts Austin, Texas
Dear Sir: OpMlon No. O-4339 Re: Is the surrender of shares of capital stockby the individual shareholderto the Issuing corporation, for cancellationand extinguishment, subject to the st.ock transfer tax leviedby Article XV, House Bill 

### 8,Acts, Regular Session, 47th Legislature?

Your letter of January 17, 1942, submits for our opinion the following questionwhich we quote therefrom:

“CombinedOil Company, a joint stock assoclatlon operatingunder 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 ‘surrenderedfor cancelatlon and retirement’ and the capital stockwas thereby reduced. “Pleasetell me whether or not this transaction is subject to the tax leviedby Article $V of House Bill 

### 8 of the Forty-seventh Legislature.

tax: Section 1 of the above citedAct levies the following

“There is berebg imposed and levied a tax as hereinafterprovided 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 ~deposltrepresentingan,Interest In o?? r*epl>esentlng certificatesmade taxableunder this Section in any domestlc or foreign association,cornpan:?, o??corpora- ,tion,or certificates of Interest In any bs.siriess conductedby tmstee or trusteesmade 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 Inblank 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 intermediateor final, and whether investingthe holderwith the beneficial Interest in or legal title to such stock or other certificate taxable hereunder, orwith the possession oruse thereof for ang'purpose, or to secure the future payment of money or the future transfer of any such stock, or certificate, on each hundreddollars of face value of fraction thereof, three (3) cents, + * * c*" Construing the Federal Stock TransferTax Act, substantially similar textually, (26U.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 shareholderof a corporation or to receive any certificate of any interest In its propertywas surrenderedby 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 Companyvs. United States 21Fed. Supp. 562. Ra bestos-Manhattan United States 56 Sup' Ct. 63, 296U.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 transactionnot subject to this stock transfer tax law, which, as we have stated, is substantiallyidentical, regarding the incidence of the tax, to the Act beforeus.

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 followingpertinent comment:

'!The legal effect of the transaction shown to have been intended in its Inceptionand 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, eitherbeneficial 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 importanthere Is that between the surrenderand 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 onewe have here, the stockwas Intended to be and was actually retired, and had the status thereafter of stock authorized to be issuedbut not Issued; and thereafterthe corporation could not have properly reissued the stock so retired except on the same conditions andunder the sameMaryland corporate law provlslons as applied to originallyauthorized but unissued stock. In contradistinction therefrom stock, transferred or delivered to a corporationby a stockholderto be held as treasury stock, is held by the corporation for its ownuse, benefit and dispositionwithout the legal requirementspertaining to the original issue of authorizedbut unissued stock; and treasury stock Is not in fact cancelled or extinguishedbut Is kept alive as a treasury asset of the corporation." Although the administrativerulings and court decisions above adverted to are not controlling of the situationbeforeus, this prior constructIon of a stock transfer tax having a slmllar incidence to that levied by the subsequentAct under consideration, holds considerablepersuasivemerit, especially in view of the fact thatwe find no decisions or administrativerulings to the contraryupon a similar tax levyby 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 transactionwas not taxablewould be scrpported by the better reasoning. The text of the Texas Act and the decisions, supra, indicate,generally and fundamentally,that the tax is levledupon 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 transferorand transferee are contemplated. The surrender of stock for cancellation or extinguishment,for the purpose of effectinga duly authorized reduction of capital stock, dGeS not vest in the corporationWY? of the legal or beneficial rights or in.ci.dents Gf stock Gwnership, such as would be the case if such stockwas purchased and he1.d by 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 OpinionNG. 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 leviedby Article 

### 15,House Bill 

### 8,Acts, Regular Session, 47t!i Legislature.Honorable George H. Sheppard, page 4 o-4339

Trusting the foregoing fully answersyour Inquiry, we are
Yours very truly
ATTORNEYGENERAL 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 CommitteeBy s/BWB Chairman