TEE    A~TOFCNEY   GENERAL
                                OF TEXAS
                                 AUSTIN   11.TEXAS
  -
A-lZN=Y          G&N-



          Honorable George H. Sheppard
          Comptrollersof 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 corpor-
                                         ation, for cancellation and exting-
                                         uishment, 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 assocla-
              tlon operating under a declaration of trust, recent-
              ly 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 can-
              celatlon 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.
                      Section 1 of the above cited Act levies the following
          tax:
                   “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 ceratlflcatesof 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 !+f-
              fective 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 posses-
            sion 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, substan-
        tially 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 identi-
        cal to the instant one to be non-taxable, made the following per-
        tinent comment:
                '!Thelegal effect of the transaction shown to
           have been intended in its Inception and finally con-
           summated 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 dlstinc-
           tlon 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 corpor-
    ation 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 contra-
    distinction 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 scrp-
ported 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 trans-
actions looking to a transfer of the title or ownership, legal or
equitable, of shares Gf StGCk Out Of one person, firm.or corpora-
tion 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.dentsGf stock Gwner-
ship, such as would be the  case if such stock was purchased and
he1.dby 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 Opinion NG. O-3594, directed to YOU.
          It is accordingly our opinion that the transaction out-
lined in, your letter Is not subject to the stock t:ransfertax
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,fPat 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