In recent years some states have placed a tax upon the transfer of corporate shares of stock. In reality this is not a tax upon corporations, but upon the exchange or sale of shares of stock which has but an indirect effect upon the corporations themselves. Several proposals for such a law were made in New York before it was enacted in 1905. By this Act a tax of two cents on every one hundred dollars face value was placed upon the sale or exchange of shares and certificates of stock of all foreign and domestic corporations.

Much opposition to the law developed and its constitutionality was attacked from every possible angle. Both the Court of Appeals of New York and the Supreme Court of the United States refused to admit the contentions that such an Act was class legislation and interfered with interstate commerce. The decision was that the tax was not upon property, but upon the transfer of property. Since it was uniform in operation on all transfers, and upon all persons making them, it contravened neither the state nor Federal constitutions.

1 For modifications brought about by the war, see Chapter XIX. Financing An Emergency, p. 468.

Some administrative difficulties developed, such as locating the transfers and preventing evasion through the use of washed stamps. These difficulties have been practically eliminated, and the tax is a resourceful, yet little felt, source of revenue. It would be more just, per-haps, if the tax were based upon the market value rather than the par value of the stock. There is no very good reason for taxing a one hundred dollar share selling for twenty-five dollars, as much as one selling for three hundred dollars. Such a basis, however, would greatly increase the administrative difficulties.

During the Great War the Federal government imposed a similar tax upon all sales or transfers of stocks. This tax was also a tax of two cents on each one hundred dollars or fraction thereof. If the shares have no face value, the tax is two cents on each share, unless the market value is more than one hundred dollars, in which case the tax is two cents on each one hundred dollars or fraction thereof.

Additional Reading

Seligman, Essays in Taxation, chaps, vi, vii, viii.

Report of Commissioner of Corporations on Systems of Taxing Corporations.

Proceedings of the National Tax Association, 1911, pp. 139-231; 1912, pp. 177-211: 1914, pp. 132-150; 1919, pp. 35-68, 230-260.