             THEATTORNEYGENERAL
                     OP TEXAS
                           AUSTIN     ~~.TEZAS




Honorable   George H. Sheppard
Comptroller    of Public Accounts
Austin,   Texas

Dear Sir:                           Opinion No. O-4026
                                    Re:   Taxability    under Article     15,
                                          House Bill    8, Regular Session,
                                          Forty-seventh    Legislature,     of
                                          the transfer    of the right     to
                                          subscribe    to original    issue stock
                                          or the issue of such stock,         where
                                          all of the stock of the corpora-
                                          tion Is subscribed       In the name of
                                          one promoter.

             Your letter    of September    22,   1941,   submits   for   our opin-
ion   the   following   question:

              “I would appreciate     your official     opinion    on
      the following      question   which has been raised       by the
      National    Association     of Securities    Dealers,    Inc D,
      District    Committee No. 6, pertaining        to Article     15,
      of House Bill      8, this being the Stock Transfer          Tax
      Law :

             “Where the promoter of a corporation      subscribes
      to all stock In his own name, but sells        a portion    of
      It to the general    public  prior to issuance,    and the
      original   stock is, accordingly,    issued to the persons
      who bought it from the promoter,       is a tax payable
      either   on the sale of the unissued     stock or on the
      original   Lssue?”

          In our Opinion No. O-3594 we have held that the stock
transfer  tax levied   by Article      15, House Bill     8, Acts, Regular
Session  Forty-seventh    Legislature,,    does not apply to an original
Issue of stock,    that is, the issuance       by a corporation    of shares
of stock to the persons who subscribed          therefor.     Also see Peopl,e
vs. Duffy McInnerny Company, 106 N.Y.S. 878; affirmed,             Ct. of APP.,
86 N.E. 1129.

         But it does not follow        from this ruling    that the trans-
fer of a certificate     of subscrlption    or certificate     for rights  to
stock of origlnal    issue Is similarly     beyond the scope and purview
Honorable     George    H. Sheppard,       page 2               0-4026

of the stock transfer        tax levied   by said Act.      The issuance     of
stock by the corporation,        either   out of origlnal      or increased
capitalization,      to a subscriber     of and for such stock,       pursuant
to a subscription       contract  or agreement,      is not, under the above
cited    opinion   and decision,    considered    to be a taxable     transfer.
But the transfer      of the original     subscriber    OP subscribers,
whether one or many, of his or their           right to receive      such orig-
inal issue stock,       to another person,     firm or corpora.tion      is mani-
festly    within the incidence      of the following     pertinent,   provisions
of Section      1 of the cited   Act:

               “Section     1.    There is hereby imposed and levied
     a tax as hereinafter             provided     on all sales,      agree-
     ments to sell,          or memoranda of sales,          and all de-
     ;;;i.;ies       or transfers       of shares,     or certificates       of
                 or certificates         for rights     to stock      or certi-
     flcat&        of deposit      representing      an interest      in or
     representing         certificates       made taxable under this
     Section       in any domestic         or foreign    association,       com-
     pany, or corporation,             or certificates       of interest      in
     any business         condu,cted by trustee         or trust.ees    made
     after      the effective        date hereof,     whether made upon
     or shown by the books of the association,                     company,
     corporation,         or trustee,       or bg any assignnient        in blank
     or by any delivery            of any paper or agreement OP mem.o-
     randum or other evidence               of sale of transfer        or order
     for or agreement to buy whether intermediate                       or final,
     and whether investing             t;e holder with the beneficial
     Interest       in or legal-title         to such stock or other cer-
     ti.ficate      taxable     hereunder,      or+ with the possession         or
     use thereof        for any purpose,         or to secure the future
     payment of money or the futur>e transfer                   of ary such,
     stock,      or cert,ificate,        on each hu~ndred dollars         of face
     value OP fraction            thereof,    three (3)cents,         * * *a!.
     (Underlining         o,drs)

            This conclu,sion     finds   st;rong su,pport in pereuesive          aJJuI-
thority   from the highly regarded            $Arisdiction    of Rev ‘York, ne::!.ely
the case of Sohmer vs. Hebden et al (Ct,. of &ppO of N,!:.)                   111 Y.:I.
1100, reversing,       through memorandum opinion,         the decj.:s’:rr    ,~f ti-2
intermediat,e    appellate    court of New York,* repirted         eta 1,51 C.:? .Y,
346o The tours of last resort: of New York Ln this case he1.d *;hat
transfers     of cerLific8,te    of subscr?.ption      to an issue of sdditionel
capital   stock   of the Canadiar. Pacific         Rail,way Company were tax-
able under an identical        provision     of the stock transfer         tax law
of New York, as mc:?e fully         appears In the dissent.ing        opinion     of
the lower court,      upon which the decisicr;         of reverssl    FEY based,
We quote from said opinion:

          “WOODWARDp J D I dissent,    Accepting   the                 stste-
     ment of facts as made by ICr, Justice   Kellogg,                  it
Honorable   George    H. Sheppard,      page   3             O-4026

    seems to me that the defendants   are brought square-
    ly within the letter  and spirit  of the statute.
    Section  270 of the Tax Law provides  that:

           "'There     "is hereby imposed and there shall                im-
    mediately     accrue and be collected            a tax, as herein
    provided,     on all sales,       or agreements       to sell,     or
    memoranda of sales of stock,              and upon any and all
    deliveries     or transfers        of shares or certificates           of
    stock in any domestlc           or foreign     association,       com-
    pany or corporation,          made after      the first     day of
    June,    nineteen      hundred   and   five,   whether    made    upon
    OP shown by the books of the association,                   company OP
    corporation,      or by any assignment           in blank,      or by any
    delivery,     or  by    any  paper    or  agreement    or   memorandum
    or other evidence         of sale or transfer,         whether inter-
    mediate or final,         and whether investing          the holder
    with the beneficial          interest     In or legal     title    to
    said stock or merely with the possession                  or use there-
    of for any purpose,          or to secure the future           payment
    of money, or the future           transfer     of any stock,       on each
    hundred dollars         of face value of fraction           thereof,
    two cents,"      etc.'

            "It is difficult       to understand       how language
    could be more comprehensive             for the purpose of reach-
    ing transfers       of stock.       This is a revenue measure,
    designed      to give the state an Income from the privi-
    lege of transferring          stock of corporations         within
    this State.        The Canadian Pacific         Railway Company,, in
    increasing      Its capital      stock by $~O,OOO,OOO was ob-
    liged    to give Its stockholders            the privilege     of pur-
    chasing     this stock,     and this was done by permitting
    each stockholder        to purchase       his portion     of the stock
    at $175 per share,        the payments being deferred.
    There were some limitations             on the holders      of thtise
    new shares.        They were not to have all of the phi-
    vileges     of stockholders       until    the final    payments,
    but in the meantime they were given intermediate
    certificates,       which entitled        them to receive      7 per
    cent,    interest    upon the portion         paid In,, together
    with the right       of making the final          payments and re-
    ceiving     the final    certificates.         These intermediate
    certificates       were stock certificates;          they were
    transferable,       and gave to the holder the rights              of
    a stockholder       upon the performance          of the conditions.
    The fact that they did not Immediately                 Invest the
    holder with all of the privileges                of the old certl-
    flcates      Is of no importance;         each of these certlfi-
    cates was a 'paper or agreement or memorandum or
Honorable    George    H. Sheppard,        page   4             Q-4026

     other evidence    of sale or transfer;'     intermediate
     to the final   certificates,     and it was,designed     to
     secure the 'future      transfer  of any stock'   which
     might have been secured to the holder thereof.

             "These intermediate        certificates        are not uncom-
     mon; they are very generally             used in reorganizations
     and consolidations,          pending the final         arrangements,
     and it was clearly          the purpose of the statute              to pro-
     vide for these the same as though they were final
     certificates.        These intermediate          certificates,         while
     temporarily       denying some of the privileges               of stock-
     holders,      nest ripen into full         privileges      upon the
     performance       of the conditions,        and If these were per-
     mitted to be transferred           without     the payment of the
     tax, a wide field         for fraud upon the revenues would
     be opened up.        The general      investor      pays little        at-
     tention     to his     privileges     as'a stockholder;           he is
     interested      in the income, and he would be entitled
     to this upon his Intermediate              certificate       as complete-
     ly as though he had the formal and final                    certificates,
     and It ought not to be held that the transfer                       of
     these valuable       rights     can be made free of taxation,
     while certificates          of stock,    of less prosperous            corp-
     orations,      are  taxed    for  the   same   privilege.'

             A comparison     of the section    of the stock transfer          tax
law upon which the above case turned-with              the similar      provision
or section      of the Act under consideration         here, demonstrates         the
aptness     of said decision,      though persuasive      only,    to the instant
situation.        It has been stated that a "phrase,          provision     or stat-
uate adopted from the laws of another state OP county will
ordinarily     be given the same construction          In Texas that It had
received     in the jurisdiction       from which It was borrowed.           If it
had been given a fixed and definite            meaning by the courts         of
that jurisdiction,         it would be given the same meaning in Texas,
This rule rests upon the presumption            that the Legislature         was
aware of the judicial         Interpretation    given in the jurisdiction
from which the statute         was taken, and that in adopting           such stat-
ute it Intended also to accept            such construction.         39 Tex. Jur,
264-265    0 It Is a matter of general         acceptation      that the stock
transfer     tax measure involved        here was patterned      largely    after
the stock transfer         tax law of the state of New York, Involved               In
the foregoing       decision,
            Other cases interpreting      similar   provisions   of the
Federal    Stock Transfer    Tax Law (26Internal       Revenue Code 1802)
and holding     the transfer   of a right.to    receive    stock to be tax-
able,   are Founders General Corp. v. Hoeg, 300U.S. 268, 57 S. CtO
457,81L, Rd. 639; Ladner v. Pennroad Corporation 97 F. (2d)
Honorable    George    H. Sheppard,       page   5                 O-4026



10, Cert. den. 59 3. Ct. 78,305U.S. 618, 83 L. Ed. 394;                              Corp-
oration  of America v. McLaughlin loo F. (2d) 72.

            Under the foregoing      considerations,       we accordingly      hold
that the stock transfer        tax levied    by the above-cited        section    of
the stock transfer       tax law accrues     against    the promoter in the
Instant    factual   situation   upon the sale or transfer          to the public
generally     of his right,    however evidenced,       to receive,     when is-
sued, all or any part of the original            capital     stock of the corp-
oration.      The fact that all of the original           Issue stock of the
corporation     was subscribed    by one promoter rather than by several
promoters     or subscribers,    does not militate       against    this conclu-
sion because the tax in question          is levied     upon the transfer       of
the right     to such original    stock,   when issued,       and has no con-
cern with the relations        of the original      subscribers     to the corp-
oration    or to the number of such subscribers.

             Of course,   the issuance   by the corporation     of stock to
the person,, firm or corporation        who purchased   t,he subscription
rights   from the original      promoter OP subscriber     would not be a
taxable    transfer   under the Act, because     same would represent     an
original     issue of stock which, it has been pointed        out above,   is
not taxable.
            Trusting    the   foregoing     fully        answers    gou~ inquires,      we
are
                                           Yours         very   truly

                                      ATTORNEYGENERALOF TEXAS

                                           By:      s/    Pat M. Neff,      Jr.
                                                          Pat M. Neff,      Jr.
                                                          Assistant

PMN:ej:wc


APPROVEDNOV 7, 1941
s/Grover Sellers
FIRST ASSISTANT
ATTORNEYGENERAL

Approved    Opinion    Committee    By s/BWB Chairman
