CHAPTER 64 TAXATION OF STOCK TRANSFERS Before the enactment of the statute imposing a tax on the transfer of stock, the constitutionality of such a tax was submitted to the supreme judicial court. All of the justices agreed that a tax on the transfer of stock of corporations was a valid excise; but with respect to taxing the transfer of shares in voluntary associations there was considerable difference of opinion. Three of the justices were of opinion that an excise could not be imposed on the exercise of a natural right and that the transfer of shares in voluntary associations was a natural right. Three of the justices were of opinion that the exercise of a natural right could be taxed; and the seventh was of opinion that a natural right could not be taxed, but that the transfer of shares in a voluntary association was not a natural right. The majority thus held that a tax on the transfer of shares in voluntary associations could be taxed;1 and in 1914 the stock transfer act was enacted, and with some minor amendments it has remained in force since that time. By the statute a tax is levied upon all sales and agreements to sell, and upon all deliveries or transfers of shares or certificates of stock of all corporations, whether domestic or foreign, and of all voluntary associations existing under a written instrument or declaration of trust where the beneficial interests are divided into transferable certificates or shares, at the rate of two cents on each $100 of the face value or fraction thereof. When the certificate has no face or par value, the tax is levied at the rate of two cents for each share. When the certificate has a face value of a certain amount, and also bears a statement that a lesser amount has been paid in, the tax is based on the face value, not on the amount paid in. The law applies to the stock of foreign and of domestic corporations, and of voluntary associations, and to residents and 'Opinion of the Justices, 196 Mass. 603 (1908). G. L. c. 64] non-residents, liability to taxation being grounded on the fact that the sale, or some essential step therein, has taken place within this state. While the law has no extraterritorial operation, nevertheless, where it appears that the transfer of the stock on the corporate books within this state is essential to render the sale effectual, the transaction is subject to a tax, although in all other respects made without the state." This statute does not apply to the original issue of stock; but all sales or transfers made subsequent thereto are taxable. It is not necessary to render it taxable that the transaction involves a sale. By the statute a tax is imposed upon all transfers of shares or certificates of stock, whether or not the transaction entitles the holder in any manner to the benefit of such stock, or whether the transfer is made to secure the future payment of money, or future transfer of stock, or possession is given for any other purpose, except those purposes expressly provided for in the statute. The mere surrender of a certificate of stock for reissue in smaller denominations is not taxable; but if the stock is reissued in part to a third party the transaction is taxable to the extent of the transfer to the third party. The surrender of the certificates of stock of a deceased person for issuance in the name of his executor or administrator is not taxable; but all transfers made by the latter to trustees, legatees, distributees and others are taxable. A transfer made by an executor to an administrator with the will annexed of the same estate, or by a trustee to a succeeding trustee under the same trust is not taxable; but a transfer to and from voting trustees is taxable, as is also the transfer of voting trust certificates. An agreement evidencing the deposit of stock certificates as collateral security for money loaned thereon, which stock certificates are not actually sold, is not taxable, nor is the deposit of the securities taxable. A transfer from a customer to a broker, or from a broker to a customer, when made solely for the purpose of making a pur For the constitutional questions arising out of the levy of a stamp tax under such circumstances see Hatch v. Reardon, 204 U. S. 152 (1907). [G. L. c. 64 chase or sale, is not taxable, provided the broker files with the transfer agent a certificate setting forth the facts. The statute applies to shares in co-operative banks when such shares are actually sold. It does not apply when such shares are cancelled or withdrawn, nor to the original issue of such shares. It is the duty of the seller or transferor to pay the required tax by procuring, affixing and cancelling stamps indicating the amount of the tax. When the evidence of transfer is shown only by the books of the company, the stamps should be placed upon such books; where the change of ownership is by transfer of a certificate the stamp should be placed upon the certificate; in case of an agreement to sell, or where the sale is effected by the delivery of the certificate assigned in blank, there should be made and delivered by the seller to the buyer a bill or memorandum of such sale, to which the stamps should be affixed. This bill or memorandum should be affixed to the certificate when presented for transfer. Every such bill or memorandum of sale, or agreement to sell or sales ticket must show: (a) The date of the transaction. (b) The name of the seller. (c) The stock to which it relates, the number of shares and the amount of the sale; and all such bills of sale or memoranda should be preserved for at least two years from their respective dates. In every case where a stamp is used to denote the payment of the tax, the person using or affixing the stamp must cancel it by writing or stamping thereon the initials of his name, and the date upon which the stamp is attached. He should also cut or perforate the stamp in a substantial manner, so that it cannot be used again. Every corporation or association, the transfer of whose shares is subject to the tax, is required to keep or cause to be kept at some accessible place within the commonwealth a stock certificate book or transfer ledger or register, in which should be recorded, in separate columns, the date of making every transfer of stock, the name of the stock and the number of shares thereof, the name of the party surrendering the certificates, the name of the party to whom certificates are issued in exchange therefor, G. L. c. 64] and evidence of the payment of the tax, which evidence may be furnished either: (a) By attaching to the stock certificate surrendered for transfer the stamps required for such transfer, or (b) If the stamps are not attached to the certificate, but are attached to the bill or memorandum of sale effecting or evidencing the transfer of such certificate, by attaching to the certificate the said bill or memorandum of sale with stamps attached. The corporation or association is required to retain and keep all surrendered or cancelled shares or certificates of stock and all bills or memoranda relating to the sale or transfer of stock for at least two years after the date of the delivery thereof, and to keep for at least two years after the date of the last entry thereon, its stock certificate book or transfer ledger. Every broker is required to keep a true book of account, in which there should be recorded: (a) The date of making every sale, agreement to sell, delivery or transfer of shares or certificates of stock. (b) The name of the stock and the number of the shares. (c) The face value thereof. (d) The name of the seller and the name of the buyer. (e) The face value of the stamps affixed to the bill or memorandum or certificate. These books should be preserved for at least two years, and are subject to examination by the commissioner or his representatives at any time between 10 o'clock in the forenoon and 3 o'clock in the afternoon, except on Saturdays, Sundays and legal holidays. Collection of the tax may be enforced by an action brought in the name of the commonwealth, or by an information in equity by the attorney general. It is also provided that no transfer of stock made after the statute went into effect on which a tax should have been but was not paid shall be made the basis of any legal proceeding in any court in the commonwealth. Severe penalties are also provided for the consummation of a sale or transfer without payment of the tax, for the transfer of stock by a transfer agent if the tax has not been paid, for the illegal re-use of stamps, for failing to keep the books required by the statute, or for refusing to allow the commissioner to examine the books. |