Honorable Ben Atwell

Chairman, Revenue and Tax Committee House of Representatives Austin, Texas OpinionNo. M-443
Re: Constitutionalityof H.B. 25, 6k.t Leg., Dear RepresentativeAtwell: 1st C.S. 1969 You have asked our opinionwhether House Bill No. 25, 61st Legislature,First Called Session, 1969, is constitutional. Our opinion is that this Bill is constitutional. The Bill amends Title 122-A,Taxation-General,Revised Civil Statutes of Texas, 1925 by adding a new Chapter 16, which imposes a tax of $2.50 on each traneaction of sale or transfer of shares, certificates,bonds or securities issued by certain entities and under specified conditions. The Bill provides definitions of terms and for collection and payment of the tax, for allocation of the revenues received and other relevantprovisions, The formal provisions of the Bill are constitutional: (1)The Bill contains only one subjectand its caption is sufficient (Art. III, Sec. 35), (2)The Bill is a revenuemeasure and it originated in the House (Art. III, Sec. 33), and 

## Set 2$3)Theen

acting clause is in proper form (Art. III,

. . We have considered the substanceof the Bill with reference to the following constitutionalprovisions: (1)That portion of ArticleVIII, Section 1, which provides that,

- 2197 -Honorable Ben Atwell, page 2 (M-443)

"Taxation shall be equal and uniform.

. . .' (2)Article I, Section 3 which reads as follows: "All free men, when they form a social compact, have equal rights, and no man, or set of men, is entitled to exclusive separatepublic emoluments, or privileges,but in considerationof public services." (3) Article I, Section 19 which reads as follows: "No citizen of this State shallbe deprived of life, liberty,property,privileges or immunities, or in any manner disfranchised,except by the due course of the law of the land." (4)The due process and equalprotection clauses of Section 1 of the FourteenthAmendment of the United States Constitutionwhich read as follows: "Section 1.

. . .nor shall any State deprive any person of life, liberty, or property,without due process of law; nor deny to any person within its jurisdiction the equalprotection of the law." The provisions of the Bill towhich we have directed our more particular considerationsare those contained in Article 16.02 thereofwhich reads as follows: "Article 16.02. Imposition of Tax; Exceptions. (a)There is imposed a tax of $2.50 on each transactionof sale or transfer of shares, certificates,bonds, or securities, issued by the same company or governmental entitywhen the sale or purchase, or transfer occurswithin sixmonths of the acquisition of the shares, certificates,bonds, or securities. (b)The tax imposedby thisArticle does not apply to: 1 The initial issue of stocksby a corporation; [I 2 The sale of stocks owned by a mutual fund so long as it is not the stocksof themutual fund itselfwhich are sold; or (3)bonds or securities issued by the United States government, a state or local government, a county, or any political subdivision."

-2198-- .

Honorable Ben Atwell, page 3 (M-443)

The classificationof the transactions taxed and of those exempt has been our principle concern in considering your question. we believe the case of Hurt v. Cype;, 130Tex.1~3$~E?~0W.2d 836 (1937) supportsthese c ass ficationsmade by the Pill. Of more particular concern is the provisionwhich imposes a tax of $2.50 on each of the taxable transactions enumerated, in view of the fact that some securities,at times, sell on the openmarket for sums which are very near or at times less than the amount of $2.50 per share,which amount is the amount of the tax for a transfer of one or more shares of a company. The holding inNew York, ex rel. Hatch v. Reardon, 204 U.S. 152, 159-160 (lgv()resolves our question in favor of the constitutionalityof House Bill 25 under consideration. The Court upheld theNew York tax of two cents on eachhundred dollars of face value of stock for every sale, etc thereof. One of the stocks transferredwas worth $30.75 a share of its face value of $100.00while the other share transferredwas worth $172.00. The Court stated that while the inequalityof the tax, so far as actual values are concerned,was manifest, yet equality had to yield to practical considerationsand usage and that theremust be a fixed and indisputablemode of ascertaininga stamp tax. The Court furtherheld and stated as follows:

.Valuationis not the only thing to bi ionsidered. As was pointed out by the Court of Appeals, the familiar stamp tax of two cents on checks, irrespectiveof amount, the poll tax of a fixed sum, irrespective of income or earning capacity, and many others, illustrate the necessity and practice of sometimes substituting count for weight. Co. v. Pennsylvania, 13a U and Manufacturers' Bank v. %'/ U.S. 4bl. e s on (p.159-160) In the subsequent case of Carmichaelv. Southern Coal Co., 301 U.S. 495, 511-512 (1937) the Court again held that the administrative convenience and expense in the collection or measurement of a tax are alone a sufficient justification for the differencebetween the treatment of thosewho would pay a small amount of tax and those who would pay larger amounts. Accord: Clay Productzs,Inc. v. U.S., 52 F.2d 1033 Ct. of Claims, 193) Vaughan v. New York, 5 N.E.2d 53 N.Y. Ct. of App., l&6), 108 A.L.R. 950 and the annotation
-2199-Honorable Ben Atwell, page 4 (M-443)

immediately following;New York v. Latrobe, 279 *and InternationalShoe Co., v. Shartel,U.S. 421 279 U.S.

Under the authorities cited in the immediatelyprecedingparagraph,we believe the relationshipbetween the amount of the tax imposedby House Bill 25 and the value of property transferred,or of the privileged exercised, is within that degree of power inherent in the Le islature. Panhandle Oil Co. v. Knox, 277 U.S. 218, 223 (1928). SUMMARY House Bill 25, 61st Legislature, First Called Session, 1969, is constitutional.~ Its classificationas to transactions which are taxable and those which are exempt, as well as the amount of the tax with reference to the value of properties transferred,are within constitutional limitations.

Prepared by: W. i. Allen Assistant Attorney General APPROVED: OPINION COMMITTEE Kerns Taylor, Chairman George Kelton, Co-Chairman
James Broadhurst Alfred Walker John Banks Jim Swearingen
W. V. Geppert Staff Legal Assistant Hawthorne Phillips ExecutiveAssistant

-2200-