of this argument is the fact that at all times, until full payment therefor had been made, the stock was under the control of the Company, and after full payment the Company had the option of delivering the market value of the stock to the employees instead of the stock certificates. The contention is that the stock credited to the employees in the Treasurer's private stock ledger was never anything else than treasury stock.
The position of the plaintiff in this respect, it must be admitted, seems to the court to be little short of visionary. Its every action prior to the claim for refund contradicts it. First, the plan was called by the Company itself a stock purchase plan for its employees. Second, the Company, without demand upon it, paid the tax, thus showing the interpretation which it placed upon the agreement. And again, the Treasurer voted the stock set aside under the Agreement at stockholder's meeting; and yet again, dividends were declared and paid upon the stock held under the agreement and credited to the participating employees. Dividends cannot be declared upon treasury stock, and if plaintiff were to carry out its argument to its logical conclusion it might say to a participating employee, after long service and many dividends, that he was entitled to nothing under the agreement because no payments have been legally made for the stock contemplated by his agreement. The second paragraph provides, in part: "The Company will receive payment for the Employee's interest in said shares as herein provided at the price of * * *. Payment of said price * * * shall be made to the Company by applying or crediting against the same all cash dividends hereafter declared and payable by the Company upon said shares during the term of employment of the Employee by the Company until said price shall have been fully paid, after which all cash dividends declared upon said shares shall be paid to and retained by the Employee, subject, however, to the terms of this agreement."
If the shares credited to employees upon the private stock ledger kept by the Treasurer were treasury stock, no dividend could be declared upon them and, consequently, no price could be credited to the employee. The Company would not assume any such position with its employees; and the court can conceive of no sound reason why, the basic facts being the same, a position untenable against employees should be tenable against the Collector of Internal Revenue.
Insofar as the issuance tax is a question, judgment will be entered against plaintiff.
The transfer tax phase of the instant case is not quite so plain as the matter of the issuance tax. The stock in question was credited to the employees on the private stock ledger kept by the Treasurer, but the stock was actually issued directly to the Treasurer to be held in trust by him for the employees under the conditions of the stock purchase agreement. In itself it means nothing in respect to the tax liability of plaintiff if the Company, instead of transferring the certificates to the employees and, under the agreement, then causing the employees to transfer them to the Treasurer, actually transferred them directly to the Treasurer. See Founders General Corp. v. Hoey, 300 U.S. 268, 274, 57 S. Ct. 457, 81 L. Ed. 639; Raybestos-Manhattan Co. v. United States, 296 U.S. 60, 56 S. Ct. 63, 80 L. Ed. 44, 102 A.L.R. 111. Each employee who was a participant in the stock purchase plan, by the seventh paragraph of the agreement assigned his interest in the shares set aside or placed in his name to the Company and constituted the Treasurer his attorney in fact for the purpose of making all necessary transfers. The interest in the stock so assigned was contingent, it is true, but nevertheless an interest of the employee. Schedule A-3 of the Revenue Act of 1926, as amended, taxes the right to receive, as well as the right to transfer, all interests in stock. And no transfer is free from taxation because made to one who, as the treasurer herein, has no beneficial interest in the stock received. Founders General Corp. v. Hoey, supra.
That there was a transfer of the certificates seems plain. Plaintiff contends, however, that even if a transfer be found as a fact it is still relieved from the payment of a transfer tax.It so claims by reason of its interpretation of the provisions of Schedule A-3 of the Act of 1926, reading in part as follows: "Provided, That it is not intended by this title to impose a tax upon an agreement evidencing a deposit of certificates as collateral security for money loaned thereon, which certificates are not actually sold * * *."
This contention is not well founded. It will be noted that the exemption of the statute is limited to certificates which "are not actually sold." The certificates in suit were the subject of a sale, not a loan. The plaintiff, in its complaint, asserted that it had "created a stock purchase plan for its employees." The fact that delivery was deferred until full payment does not change the transaction from a sale to a loan.
Judgment will be entered for the defendant.
© 1992-2004 VersusLaw Inc.