   c_      -




                               AUUTIN   ILTEXAR

WILL      WILSON

                                   September 1~4,1959

        Honorable Robert S. Calvert        Opinion No. WW-700
        Comptroller of Public Accounts
        Capitol Station                    Re:    Applicability~of Texas
        Austin, Texas                             Stock Transfer Tax im-
                                                  posed byeArticle 70&7m,
                                                  V.C.S., to certain
        Dear Mr. Calvert:                         stock transactions.
                 You have requested our opinion regarding the
        applicability of the Texas Stock Transfer Tax to the follow-
        ing transaction:
               "Customer A, residing in Dallas, Texas, places
               an order with a member of the New York Stock
               Exchange, for 100 shares Texas Utilities Company,
               Capital Stock (a Texas corporation). The order
               is duly executed on the New York Stock Exchange
               in New York. Payment is made by Customer A to
               the NYSE member in Dallas and the stock is reg-
               istered in the name of Customer A who is a resi-
               dent of Texas and it is delivered~to him. Is
               Texas Tax due or is it not?
               "Would the ruling be the same if the NYSE member
               was domiciled in Texas? Would the ruling he the
               same if the NYSE member was a branch office (in
               Texas) of an out-of-state firm?"
                 Article 7047m imposes a tax upon all sales, agree-
        ments to s,elland all deliveries or transfers involving a
        change of title, either legal or equitable, to chares, cer-
        tificates of stock, certificates for rights to stock or
        certificates of deposit representing certificates or inter-
        ests therein in any domestic or foreign association, company,
        corporation or trustee-conducted business. The act, of
        course, has no extra-territorial effect. Attorney,General's
        Opinion No. O-3713 points out that the tax accrues if (1)
        the contract of sale is made in Texas or (2) if it is
        executed in Texas or (3) if delivery of the enumerated
        shares or certificates is made within the State.
                 Whether or not the tax accrues under the fact situ-
        ation described depends on the position occupied by,the New
        York Stock Exchange member. Under the ordinary New York
Honorable Robert S. Calvert, Page 2    Opinion No. WW-700


Stock Exchange rule, sales of stock are required to be made
on the floor of the Exchange; execution of the sale and
delivery of the shares is likewise required to be made in
New York by and between representatives of the seller's
broker and the purchaser's broker. In such cases, it is
apparent that the N.Y.S.E. member acts as broker or agent
for the purchaser; consequently, none of the incidents
described in the above referred to opinion occur in the
State of Texas and the tax does not accrue.
         In certain instances N.Y.S.E. members are permit-
ted to make sales of a listed stock off the floor of the
Exchange. In such situations the member may not be acting
as a broker, but as a dealer for its own account. Conse-
quently, you are advised that if the N.Y.S.E. member in the
instant fact situation purchased the stock for its own
account and re-sold it to Customer A, the transaction is
taxable, since the sale and delivery occurred in Texas. In
this connection, it makes no difference whether the N.Y.
S.E. is domiciled in Texas or is a branch office of an out-
of-state firm.
         You have also asked us whether or not we agree
with the conclusions drawn in a brief submitted with your
request. From the foregoing discussion it is apparent
that we agree with that portion of the brief dealing with
New York Stock Exchange transactions, The brief also sets
forth the following transaction:
     II. . .For example, A, a resident of Beaumont,
     Texas, might personally present to your Texas
     Transfer Agent for record transfer a certifi-
     cate issued to B with a record post office
     address of Beaumont, Texas, duly endorsed by
     B with his signature guaranteed by a Beaumont
     bank. The probability would appear to be that
     a gift or sale occurred between A and B, with-
     out the intervention of a broker, in Beaumont,
     Texas which would require payment of a tax.
     If in fact no sale, agreement to sell or memo-
     randum of sale between the parties was made in
     Texas but A and B had met in California, for
     example, where they had agreed upon the trade
     and delivery of endorsed certificate had been
     made, then no tax would accrue although the
     transferee brought the endorsed certificate
     back to Texas with him and presented it to a
     Texas transfer agent to transfer the stock
     into his own name. Conversely, your New York
     transfer agent might receive by mail from the
Honorable Robert S. Calvert, Page 3     (Opinion No. WW-700)


     State of Washington, for example, a certi-
     ficate issued to X with recorded mailing
     address of Washington state with request to
     make transfer to Y with a recorded Washing-
     ton state address in which case all the
     probabilities would appear to be that the
     transfer resulted from a gift or sale con-
     sumated in Washington state free from the
     tax. The true fact might have been that X
     and Y met in Texas where they agreed upon
     a purchase and sale of the shares and
     delivery of the certificate was made, re-
     sulting in a taxable transaction."
These conclusions are based upon and involve application of
the principles set forth above, and are also correctly drawn.
         A complete discussion of the principles set forth
herein is found in Attorney General's Opinion No. o-3713.
Based on this opinion, Opinion No. O-3594 discusses the
taxability of several different types of transactions.
These opinions are submitted herewith for your consideration.
It should be noted that these opinions have been qualified
by,Attorney General's Opinion No. ww-58 a copy of which is
also attached hereto.



                        SUMMARY
                  The taxability of a transaction
        between a resident of Dallas and a New
        York Stock Exchange member in Dallas,
        whereby the Dallas resident purchases
        stock in a Texas corporation, depends on
        the position occupied by the N.Y.S.E.
        member. If the member acts as broker or
        agent for the purchaser, then under New
        York Stock Exchange rules, the agreement
        to sell, the sale, and delivery of th,e
        shares is made by and between represen-
        tatives of the seller and the purchaser
        in the state --
        --           of New York; consequently,
        no tax accrues. However, if the N.Y.S.E.
        member purchases the stock for its own
        account, and then sells it to the Dallas
        resident, the transaction is taxable,
        since the sale and delivery to the
Honorable Robert S. Calvert, Page 4        (Opinion No. WW-700)


          resident are made within the State of
          Texas.
                                 Very truly yours,

                                 WILL WILSON
                                 Attorney General



                                 BY             VL
                                      J.@c N. Price
                                      Assistant
JNP:bct
APPROVED:
OPINION COMMITTEE:
Geo. P. Blackburn, Chairman
William E. Allen
C. Dean Davis
Jay D. Howell
B. H. Timmins, Jr.
REVIEWED FOR THE ATTORNEY GENERAL
By:   W. V. Geppert
