My New York corporation is being acquired: 85% of the stock is being sold directly to the acquirer under separate stock purchase agreements (with some signing and delivery steps happening in New York and some out of state), and the remaining shares will be cashed out in a follow-on merger through paying agents, one in California and one in New York/New Jersey. Which of these steps trigger New York's Stock Transfer Tax, and does it matter where each individual step in the transaction physically happens?

Plain-English summary

A.J. Armstrong Co., Inc., a New York corporation, was being acquired by Security Pacific Corporation, a Delaware corporation, through a two-step transaction: first, Security Pacific would directly buy approximately 85% of Armstrong's outstanding voting stock from 14 individual stockholders under separate Stock Purchase Agreements, paying with nonnegotiable promissory notes; second, Armstrong would then merge into Comfisco, Inc. (a Security Pacific subsidiary), with remaining stockholders cashed out for cash through one of two paying agents (one in Los Angeles, one in New York City or New Jersey). Armstrong's own stock transfer records were kept in New Jersey by an outside registered transfer agent. Because the deal's various steps (signing, delivery, and payment) happened in different states -- and because a factual dispute existed over exactly where the purchase agreements were signed, since Security Pacific had destroyed some of the signed counterpart contracts -- Armstrong asked how New York's Stock Transfer Tax would apply to each scenario.

The Department applied Tax Law § 270's broad imposition of the tax on "all sales, or agreements to sell, or memoranda of sales and all deliveries or transfers of shares," combined with its regulation (20 NYCRR § 440.2) providing that if ANY ONE of these taxable events happens within New York, the transaction is taxed regardless of where the others occurred. Applying that layered rule to the Stock Purchase Agreements: if delivery of the sold stock to Security Pacific happened in New York, the tax applied outright; if delivery happened outside New York, the tax STILL applied if the agreement to sell was executed in New York (though the Department explicitly declined to resolve the underlying factual dispute over where the counterpart agreements were actually signed, since Advisory Opinions don't resolve facts); and if BOTH delivery and execution happened outside New York, the analysis fell to where the transfer of record ownership was recorded on Armstrong's corporate books. Here, federal law added a wrinkle: Securities Exchange Act § 28(d) bars states from taxing a stock transfer performed through a REGISTERED transfer agent, UNLESS the transfer would otherwise have been taxable if the agent's books were physically located within the taxing state -- but Tax Law § 270(6) separately taxes any transfer recorded on an out-of-state transfer book UNLESS the Tax Commission specifically approved keeping the books outside New York, which Armstrong had not obtained. So (citing Matter of Stuyvesant Insurance Company), if Armstrong's out-of-state transfer agent recorded the transfer without that approval, the tax still applied. For the merger cash-out, the Department ruled that exchanging cancelled Armstrong stock certificates for cash is taxed only if that exchange actually occurs within New York (regardless of which paying agent is used), and separately flagged that any of Armstrong's own portfolio shares still outstanding at the merger's effective date would be taxed at the "no-sale" rate when automatically transferred by operation of law upon the merger filing.

What this means for you

Corporate attorneys structuring multi-state stock acquisitions and mergers involving a New York corporation

Structuring a deal to close entirely outside New York doesn't automatically avoid the Stock Transfer Tax -- the tax attaches the moment ANY ONE of several distinct taxable events (sale, agreement to sell, delivery, or book-transfer) touches New York, so each step needs to be checked independently, not just the overall closing location.

Companies using an out-of-state transfer agent to record stock transfers

Simply keeping your stock transfer books outside New York isn't enough on its own -- Tax Law § 270(6) requires the Tax Commission's specific approval for that arrangement to avoid the tax, on top of the separate federal preemption question under Securities Exchange Act § 28(d).

Accountants and paying agents administering merger cash-outs

The location of the PAYING AGENT used to exchange cancelled shares for merger cash directly determines Stock Transfer Tax exposure on that step -- an out-of-state paying agent can avoid the tax on that particular leg of the transaction, independent of how the earlier stock-purchase-agreement steps were taxed.

Common questions

Q: Is New York's Stock Transfer Tax still collected the same way today?
A: This opinion reflects the law and Department policy as of 1981; current collection practice under Tax Law Article 12 may differ -- confirm current status with the Department or a tax professional before relying on this opinion for a present-day deal.

Q: Why didn't the Department resolve exactly where the Stock Purchase Agreements were signed?
A: Because Advisory Opinions apply the law to facts as presented and don't resolve genuine factual disputes -- here, Security Pacific had destroyed some of the signed counterpart contracts, leaving a real question of fact about signing sequence and location that the Department expressly declined to decide.

Q: Does using a federally registered transfer agent always avoid the tax?
A: Not automatically -- Securities Exchange Act § 28(d) only preempts the tax on a transfer through a registered agent if the transfer WOULDN'T otherwise be taxable assuming the agent's books were located in New York; separately, Tax Law § 270(6) can still tax an out-of-state book transfer if New York's Tax Commission never approved keeping the books outside the state.

Q: Can another company merging or being acquired in a similar structure rely on this exact ruling?
A: No. An Advisory Opinion binds the Department only as to the petitioner and facts presented, and the specific factual determinations here (like the unresolved signing-location dispute) were unique to this transaction.

Citations and references

Statutes, regulations, and cases:

• Tax Law § 270 (imposes the Stock Transfer Tax on sales, agreements to sell, and deliveries or transfers of stock certificates)
• Tax Law § 270(6) (exempts transfers recorded on books kept outside New York only with Tax Commission approval)
• 20 NYCRR § 440.2 (any one of several taxable events occurring within New York subjects the transaction to tax, regardless of where the others occurred)
• Securities Exchange Act of 1934 § 28(d) (federal law bars state taxation of a transfer performed through a registered clearing agency or transfer agent, unless the transfer would otherwise be taxable if the agent's facilities were located in the taxing state)
• L. 1942, ch. 482 (extends the Stock Transfer Tax to certificates of interest in dissolved corporations)
• Matter of Stuyvesant Insurance Company, Tax Commission Decision, February 21, 1973 (an unapproved out-of-state transfer book still triggers the tax)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/stock_tran_ao.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/stock_transfer/a81_3m.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-81 (3)
Stock Transfer Tax
October 29, 1981

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. M810622D

On July 18, 1981, a Petition was received from A.J. Armstrong Co., Inc., 850 Third Avenue,
New York, New York 10022.
THE ISSUES
The issues raised are whether the Stock Transfer Tax imposed under Article 12 of the Tax
Law applies to:
1)
the sales of the stock of the Petitioner pursuant to the stock purchase agreements
described below, if:
a)
the delivery to Security Pacific Corporation of the stock of Petitioner sold under the
agreements and the delivery by Security Pacific Corporation of promissory notes in payment for such
stock occur in New York State, or
b)
the delivery to Security Pacific Corporation of the stock of Petitioner sold under the
agreements and the delivery by Security Pacific Corporation of the promissory notes in payment for
such stock occur outside New York State;
2)
The exchanges of the stock of the Petitioner for cash pursuant to the terms of the
merger described below, if:
a)

a paying agent is located outside New York State, or

b)

a paying agent is located in New York State.
THE FACTS

Petitioner states that Security Pacific Corporation (Security Pacific), a Delaware corporation,
and A.J. Armstrong, Co., Inc. (Armstrong), a New York corporation, have entered into agreements
providing for the merger of Armstrong into Comfisco, Inc. (Comfisco), a Delaware corporation and
a subsidiary of Security Pacific, pursuant to Section 907 of the New York Business Corporation Law
and the Delaware General Corporation Law. Armstrong's stock transfer records are maintained in
New Jersey by Registrar and Transfer Co., a transfer agent registered pursuant to Section 17A of the
Securities Exchange Act of 1934.

1. The Stock Purchase Agreements
   Immediately prior to the merger, Security Pacific will directly acquire approximately 85%
   of the outstanding voting common stock of Armstrong at $77.20 per share from 14 stockholders
   pursuant to separate Stock Purchase Agreements with each stockholder (the "Agreements" or the

JAMES H. TULLY., COMMISSIONER
TP-8 (4/80)

LOUIS M. JACOBSON, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-81 (3)
Stock Transfer Tax
October 29, 1981

"Agreement"). These stockholders are (i) individuals who are residents of California, Connecticut,
Florida and New York, (ii) a Delaware corporation which has a registered office in New York, (iii)
a testamentary trust established under the will of a New York resident, and (iv) an inter vivos trust
established by a grantor who is a resident of New York. At the closing under the Agreements, the
stockholders will deliver the stock certificates to Security Pacific and will receive from Security
Pacific nonnegotiable, nontransferable interest bearing promissory notes which will mature on
January 11, 1982. Payments of principal and interest on the notes will be made at the place
designated by each stockholder; there is no specified place for payment. Although the Agreements
prescribe that the closing will occur in New York City, the parties may agree that the closing will
occur outside New York State. The stock acquired by Security Pacific under the Agreements will
be cancelled in the merger. The Agreements are governed by Delaware law.
The Agreements provide for counterpart execution. In fact, however, two copies of each
Agreement were prepared and fully signed by both parties. Initially, separate counterparts were
signed by each stockholder and Security Pacific, in the following locations. Each individual
stockholder signed two copies of his or her Agreement in New York, California, Connecticut or
Florida. An officer of the corporate stockholder executed two copies of its Agreement in New York.
The trustees of the testamentary and inter vivos trusts also executed two copies of their Agreements
in New York. Security Pacific executed one copy of each Agreement in California. Thereafter, the
two copies executed by each stockholder were sent to and signed by Security Pacific in California
and the counterpart signed solely by Security Pacific was destroyed.

2. The Merger
   After the closing of the Agreements, Armstrong will merge into Comfisco pursuant to
   Section 907 of the New York Business Corporation Law and the Delaware Corporation Law (the
   "Merger"). The surviving corporation will be a Delaware corporation called A. J. Armstrong Co.,
   Inc., which will be wholly owned by Security Pacific.
   The Merger will be a pure cash merger. Stockholders of Armstrong who have not directly
   sold their stock to Security Pacific pursuant to the Agreements will be entitled to exchange their
   stock for cash. As of the effective date of the Merger, all stock of Armstrong, including the stock
   purchased by Security Pacific pursuant to the Agreements, will be cancelled by operation of law and
   holders of the stock not yet exchanged for cash or sold to Security Pacific will be entitled to receive
   cash only. It is believed that stockholders who will receive cash for their stock pursuant to the
   Merger will include individuals who are not residents of New York, corporations incorporated
   outside of New York which may or may not do business in New York, as well as other entities which
   may or may not have any connection with New York.
   Under the terms of the Merger, stockholders will be paid upon surrendering their stock
   certificates to one of two paying agents. One paying agent will be located in Los Angeles, California.
   The other paying agent will be located either in New York City or New Jersey.

-3­
TSB-A-81 (3)
Stock Transfer Tax
October 29, 1981
THE OPINION
Based on the foregoing, the following tax consequences will arise under Article 12 of the Tax
Law. Each transaction will be discussed in turn.
1.

The Stock Purchase Agreements

Section 270 of the Tax Law imposes a tax upon, "all sales, or agreements to sell, or
memoranda of sales and all deliveries or transfers of shares or certificates of stock . . . in any
domestic or foreign association, company or corporation . . . "
Section 440.2 of the Stock Transfer Tax Regulations (20 NYCRR 440.2) provides, in part,
that:
". . . if any one of these taxable events occurs within the State with reference to any
transaction, it is subject to tax regardless of where the others occurred. Thus, a transfer of
record ownership on the books of the corporation within the State is subject to tax even
though the sale and delivery of the certificates were made outside the State. The same is true
of a sale or agreement to sell, or a delivery of certificates made within the State, although all
other events relating to the same transaction occurred without the State."
Accordingly:
a)
If the delivery to Security Pacific of the stock of Petitioner sold under the
Agreements occurs in New York State, the delivery of such stock of the Petitioner will be subject
to the Stock Transfer Tax.
b)
If the delivery to Security Pacific of the stock of Petitioner sold under the
Agreements occurs outside New York State, the Stock Transfer Tax will still be imposed in any
instance where an agreement to sell was executed in New York State. In this regard, it is noted that
a serious question of fact exists concerning the sequence of execution of the Agreements, due to the
destruction by Security Pacific of the signed counterpart contracts. Therefore, since it is not the
function of Advisory Opinions to resolve factual questions, no opinion regarding the sequence of
the execution of the counterpart contracts, and therefore of the place of execution of the agreements
to sell, is here expressed.
If the delivery to Security Pacific of the stock of Petitioner sold under the Agreements and
the execution of such Agreements both occur outside of New York State, then the imposition of the
Stock Transfer Tax will depend solely on the location of the transfer of record ownership on the
books of the corporation.
Section 28(d) of the Securities Exchange Act of 1934 provides, in part, that:
"(d) No State or political subdivision thereof shall impose any tax on any change in
beneficial or record ownership of securities effected through the facilities of a registered
clearing agency or registered transfer agent or any nominee thereof or custodian therefor or

-4­
TSB-A-81 (3)
Stock Transfer Tax
October 29, 1981
upon the delivery or transfer of securities to or through or receipt from such agency or agent
or any nominee thereof or custodian therefor, unless such change in beneficial or record
ownership or such transfer or delivery or receipt would otherwise be taxable by such State
or political subdivision if the facilities of such registered clearing agency, registered transfer
agent, or any nominee thereof or custodian therefor were not physically located in the taxing
State or political subdivision . . . . "
Accordingly, if delivery to Security Pacific of the stock of Petitioner sold under the
Agreements and the execution of such Agreements both occur outside of New York and the transfer
of record ownership on the books of the corporation is performed by the registered transfer agent
within New York State, no Stock Transfer Tax will be imposed.
However, subdivision 6 of section 270 of the Tax Law provides that:
"The tax imposed by this section shall not apply to shares or certificates of stock, or
certificates of rights to stock, or certificates of deposit representing certificates of the
character taxed by this article, in any domestic association, company or corporation, even
though a record of the transfer is made in the stock book kept in compliances with section
ten of the stock corporation law, if the transfer is made upon the books of such association,
company or corporation regularly kept at a transfer office or by a transfer agent outside the
state, provided the keeping of such books outside the state is necessary or convenient for the
transaction of the ordinary business affairs of such association, company or corporation and
is approved by the tax commission, and neither the sale, nor the agreement to sell, nor the
memorandum of sale, nor the delivery is made in this state and no act necessary to effect the
transfer (other than the making of a record in the stock book kept in compliance with section
ten of the stock corporation law) is done in this state."
Subdivision 6 of section 270 of the Tax Law imposes a tax upon all transfers made upon a
New York corporation's transfer books kept outside of the State without the permission of the Tax
Commission. (Matter of Stuyvesant Insurance Company, Tax Commission Decision, February 21,
1973). Armstrong has not received approval by the Tax Commission for the keeping of its stock
books outside the State. Accordingly, if the transfer of record ownership on the books of the
corporation is performed by the transfer agent outside the State, the transfer of such shares will be
subject to the New York Stock Transfer Tax. (Matter of Stuvvesant Insurance Company, supra).

2. The Merger
   Among the transfers subject to the Stock Transfer Tax under section 270 of the Tax Law are
   transfers of certificates of interest in property or accumulations (certificates of interest in dissolved
   corporations). (L. 1942, ch. 482). Accordingly, the exchange for cash of the cancelled Armstrong
   certificates after the merger will be subject to the Stock Transfer Tax if such exchange occurs within
   New York. If the exchange for cash of the cancelled Armstrong certificates occurs outside of New

-5­
TSB-A-81 (3)
Stock Transfer Tax
October 29, 1981
York State, such exchange will not be subject to the Stock Transfer Tax since no taxable incident
will occur within New York.
In addition, it should be noted that any portfolio shares of stock held by Armstrong at the
effective date of the merger will be subject to the Stock Transfer Tax at the no-sale rate. These
shares, if any, will be transferred by operation of law to Comfisco upon the filing of a Certificate of
Merger with the New York Secretary of State.(Tax Law §270(1); 1930 Op. Atty. Gen. 166; Op. of
Counsel dated July 26, 1968).

DATED: September 21, 1981

s/LOUIS ETLINGER
Deputy Director
Technical Services Bureau