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                                         June 28, 1954
      I ; ;   .,              ..,            :
       Hon. Ro&rt S: Calverf
    .’ Co.mptroller of Public Accounts
       Cdpilol’statidn
       Austin, Texas
                                      Opinion No, S-13 1

                                          Re:       Applicability of the stock transfer tax,
                                                    Article 7047m. V.C.S., to the surrender
                                                 ,. of preferred stock for the issuance of
                                                    Coinmon stock to the same person in
                                                    a.ccordance with conversion privileges,
                      ..‘..
                                                    the exc!lange affecting neither the cap-
     ,Dear Mr. Calveit:                             ital nor surplus of the corporation.

                     Ybur request fdr an opinion from this office is, in sub-
     stance, as follows:

                           Does the stock.transfer tax, Article 7047m,
                   V.C.S., accrue oh the surrender of preferred stock
                   for an issuance of Common stock in accordance with
                   the conversion privilege of the corporate charter?
                   The same person who surrendered the preferred
                   stock received the c’ommon stock and neither the
                   capital nor the surplus of the corporation is increased,
                   There Are tw? prior Attorney General’s Opinions, Nos.
                   O-3792 and O-4339, which touch on this question.

                     Section 1 of Article 7047m, Vernon’s Civil Statutes, eril-
     bod&s the tax and specifies the transactions on whiCh tlie li&iity accrue&.
     This section is too lengthy to set out. The legal issue is whether the lan-
     guage taxing “transfer% of shares n is applicable to this type of transaction.

                       This office is of’the opinion that the tax d&Z n&t accrue
      under the fact ‘situation set out in your letter of inquiry.

                     We have been unable to locate a Texas decisioa directly in
     point; however, we have had available the federal cases and rulings by the
     internal Revenue Service.   We quote a ruling from a Bureau letter dated
     July 25, 1941, to which the Internal Revenue Service still adheres, as
     follows:

                           “Where stockholders owning convertible preferred
                   stock exercise the conversion privilege, there is no stock
Hon. Robert S. Calvert, page 2 (S-131)



         transfer tax on the preferred stock turned in and no
         tax liability on the issue of the common stock, if the
         capital of the corporation is not thereby increased.”
         (See 413 CCH, Para. 6466.)

                This office is of the opinion that had the common   stock been
issued to some person other than the one :who surrendered the preferred
stock that a tax liability under Article 7047m. V.C.S. would accrue.

                    This opinion overrules   prior Attorney General’s     Opinion No.
O-3792, insofar as that opinion is in conflict herewith.


                                    SUMMARY

                No tax liability accrnes under the stock transfer
       tax, Article 7047m. V.C.S., when preferred stock is sur-
       iendered for ‘the issuance of common stock to the same
       person b accordance with conversion priViLegea when
        such an exchange does not affect the capital or surplus
       of the corporation. Attorney General’s Opinion No.
       O-3792
         ,      is, overruled insofar as it is in conflict herewith.

APPROVED:                                         Yours very truly,

W. V. Geppert                                JOHN BEN SHEPPERD
Taxation Division                              Attorney General

W. H. Holloway
Reviewer
                                             By        ~&i,.&&&
J. A. Amis,   Jr.                                      William W. Guild
Reviewer                                                      Assistant

John Ben Shepperd
Attorney General

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