Appendix — Boston Stock Exchange v. State Tax Commission

MAY 6 1976

MICHAEL RODAK, JR. CLERK

Supreme Court of the Anited States

Ocroszr Tun, 1975

No. 75-1019

BOSTON STOCK EXCHANGE, CINCINNATI STOCK

EXCHANGE, DETROIT STOCK EXCHANGE, MID-

WEST STOCK EXCHANGE, INCORPORATED, PA-

CIFIC COAST STOCK EXCHANGE, PBW STOCK

EXCHANGE, INC.,

Plaintiff s-Appellants,

v.

STATE TAX COMMISSION, NORMAN GALLMAN,

MILTON KOERNER, and A. BRUCE MANLEY, as

members of the State Tax Commission of the State of

New York,

Defendants-A ppellees.

APPEAL From TRR Stare or New York

Court or Arr nals

Jurisdictional Statement Filed January 19, 1976

Probable Jurisdiction Noted March 22, 1976

APPENDIX

Supreme Court Of The Anited States

Ocroser Term, 1975

No. 75-1019

BOSTON STOCK EXCHANGE, CINCINNATI STOCK

EXCHANGE, DETROIT STOCK EXCHANGE, MID-

WEST STOCK EXCHANGE, INCORPORATED, PA-

CIFIC COAST STOCK EXCHANGE, PBW STOCK

EXCHANGE, INC.,

Plaintiff s-Appellants,

V.

STATE TAX COMMISSION, NORMAN GALLMAN,

MILTON KOERNER, and A. BRUCE MANLEY, as

members of the State Tax Commission of the State of

New York,

Defendants-Appellees.

ArrRAL From TRR State or New York

Court or APPEALS

INDEX

PAGE

Chronological List of Relevant Docket Entries ...... I

Complaint, filed August 31, 197/7222. 2

Notice of Motion, filed October 31, 1972 ............. 12

D ⅛ ꝶͤ;ͤʒẽ ¾˙⁰:.ʃʃ.ʃ. OE 14

JJ PA ey Per er eS er et eee ee 22

Opinion of the Court of Appeals, entered October 21,

% i %%—ö XC 31

1

CHRONOLOGICAL LIST OF

RELEVANT DOCKET ENTRIES

August 31,1972 —Service of Summons and Complaint on

defendants and filing of same in the

Supreme Court of the State of New

York, County of New York.

October 31,1972 —Service of defendants’ Notice of Motion

to Dismiss the Complaint.

December 19, 1973—Order and Memcrandum Opinion en-

tered denying defendants’ Motion to

Dismiss the Complaint and denying

defendants’ motion to require plaintiffs |

to post a surety bond.

January 10,1974 —Defendant’s Notice of Appeal to the

Appellate Division of the Supreme

Court of New York County filed.

July 9, 1974 —Order of the Appellate Division entered

directing that the judgment below be

modified to declare that the provisions

added to the Tax Law by Chapter 827

‘of the Laws of 1968 are valid and con-

stitutional.

August 22,1974 —Judgment entered by the trial court

pursuant to order of the Appellate Divi-

sion declaring that the provisions added

to the Tax Law by Chapter 827 of the

laws of 1968 are valid and constitu-

tional.

August 23,1974 —Plaintiffs’ Notice of Appeal to the State

olf New York Court of Appeals filed.

October 21, 1975 —Opinion and order of the Court of Ap-

peals entered affirming the order of the

Appellate Division.

2

SUPREME COURT OF THE STATE OF NEW YORK

County or New York

Boston Stock Exchange, Cincinnati Stock Exchange, Detroit

Stock Exchange, Midwest Stock Exchange, Incorporated,

Pacific Coast Stock Exchange, PBW Stock Exchange,

Inc.,

Plaintiffs,

v.

State Tax Commission, Norman Gallman, Milton Koerner,

and A. Bruce Manley, as members of the State Tax Com-

mission of the State of New York,

Defendants.

Complaint

Plaintiffs by their attorneys complaining of the above-

named defendants allege:

1. Plaintiffs Boston Stock Exchange, Detroit Stock Ex-

change and Pacific Coast Stock Exchange are unincorpo-

rated associations. Plaintiff Cincinnati Stock Exchange is

an Ohio not-for-profit corporation. Plaintiffs Midwest Stock

Exchange, Incorporated and PBW Stock Exchange, Inc. are

Delaware corporations. Plaintiffs are hereinafter some-

times referred to collectively as “plaintiff Exchanges.”

The members and member organizations of plaintiff Ex-

changes utilize the facilities of the respective plaintiff

Exchanges to effect purchases and sales of securities for

their own respective accounts or for the accounts of cus-

tomers or both. Each of the plaintiff Exchanges maintains

its trading facilities and principal place of business outside

of the State of New York and all sales of securities effected

on each of the plaintiff Exchanges are effected outside of

the State of New York. Each of the plaintiff Exchanges

Complaint

is registered as a national securities exchange under Section

6 of the Securities Exchange Act of 1934 (15 U.S. C. A.

§ 78f). Each of the plaintiff Exchanges brings this action

on its own behalf and on behalf of all of its respective

members and member organizations.

2. The defendant State Tax Commission is the agency

of the State of New York which is charged under the laws

of the State of New York (Tax Law, §§ 171, 176, 271, 279-a,

279-b, et al.) with the determination and collection of the

“Stock Transfer Tax” as hereinafter defined.

3. Defendant Norman Gallman is president of the State

Tax Commission. and the Commissioner of Taxation and

Finance. Defendants Milton Koerner and A. Bruce Manley

are the two commissioners on the State Tax Commission.

Defendants Gallman, Koerner and Manley are sued in their

respective official capacities as hereinabove stated.

4. Since prior to July 1, 1969 there has been in force and

effect a statute of the State of New York which provides in

part as follows:

“1. There is hereby imposed and shall immediately

accrue and be collected a tax, as herein provided, on all

sales, or agreements to sell, or memoranda of sales and

all deliveries or transfers of shares or certificates of

stock .. N. V. Tax Law, § 270; N. V. Laws 1909, 0. 62,

as amended.

This statute and the tax imposed thereby are hereinafter

referred to as the “Stock Transfer Tax.”

5. Prior to July 1, 1969 all transactions 58 to taxa-

tion under the Stock Transfer Tax were taxed at a rate

based solely on the selling price per share of the stock

subject to taxation. Prior to such date, neither the place

in the United States where the sale was made nor the State

4

Complaint

of the United States in which the seller resided had any

bearing on the rate of tax of the Stock Transfer Tax.

6. In 1968 the New York legislature enacted a statute

(N. v. Laws 1968, c. § 827), Section 4 of which amended the

Stock Transfer Tax by adding Section 270-a thereto. By the

terms of said statute, said Section 270-a became effective

July 1, 1969. Said Section 270-a (“the 1969 Amendments”)

provided in part as follows:

“1. Notwithstanding the provisions of section two

hundred seventy of this chapter on and after July first,

nineteen hundred sixty-nine, the rates of tax set forth

in paragraph (a) of this subdivision and the maximum

amounts of tax set forth in subdivision two of this

section shall apply, in the case of those sales made

within this state subject to tax under section two hun-

dred seventy and described in paragraph (a) of this

subdivision and subdivision two of this section.

(a) On such sales by a nonresident during the peri-

ods set forth in the following table, the rates of tax

shall be the percentages, set forth in such table, of the

rates of tax provided in section two hundred seventy

of this article:

Percentage of Rates of Tax Provided

in Section two hundred seventy of

Period this article

July 1, 1969 to June 30, 1970 95%

July 1, 1970 to June 30,1971 ....... 90%

July 1, 1971 to June 30, 1972 80%

July 1, 1972 to June 30, 1973 65%

July 1, 1973 and thereafter ........ 50%

The tax so calculated shall not be carried out in its com-

putation beyond four decimal points, that is, it shall be

- computed to the nearest one one-hundredth of one cent.

5

Complaint

“2. Where any sale made within the state and sub-

ject to the tax imposed by this chapter relates to shares

or certificates of the same class and issued by the same

‘issuer the amount of tax upon any such single taxable

sale shall not exceed, during the period beginning on

July first, nineteen hundred sixty-nine and ending on

June thirtieth, nineteen hundred seventy, the sum of

two thousand five hundred dollars; during the period

beginning on July first, nineteen hundred seventy and

ending on June thirtieth, nineteen hundred seventy-one,

the sum of one thousand two hundred fifty dollars;

during the period beginning on July first, nineteen hun-

dred seventy-one and ending on June thirtieth, nineteen

hundred seventy-two the sum of seven hundred fifty

dollars; during the period beginning on July first, nine-

teen hundred seventy-two and ending on June thirtieth,

nineteen hundred seventy-three, the sum of five hun-

dred dollars; and on and after July first, nineteen hun-

dred seventy- three, the sum of three hundred fifty

dollars: [Emphasis supplied. ]

7. The stated purpose of the New York legislature in

enacting the 1969 Amendments was to improve the competi-

tive positions of stock exchanges located within New York

State and that segment of the American securities industry

located within New York State vis-a-vis stock exchanges

and participants in the securities industry located outside

of New York, The legislative findings of the New York

legislature which were enacted as part of the 1969 Amend-

ments provide as follows:

“The legislature hereby finds. that: The Securities

industry, and particularly the stock exchanges located

within the state have contributed importantly to the

economy of the state and its recognition as the financial

center of the world. The growth of exchanges in other

regions of the country and the diversion of business to

those exchanges of individuals who are nonresidents of

6

Complaint

the state of New York, requires recognition that the tax

on transfers of stock imposed by article twelve of the

tax law, is an important contributing element to the

diversion of sales to other areas to the detriment of the

economy of the state. Furthermore, in the case of

transactions involving large blocks of stock, recognition

must be given to the ease of completion of such sales

outside the state of New York without the payment of

any tax. In order to encourage the effecting by non-

residents of the state of New York of their sales within

the state of New York and the retention within the

state of New York of sales involving large blocks of

stock, a separate classification of the tax on sales by

nonresidents of the state of New York and a maximum

tax for certain large block sales are desirable.” N. Y.

Laws 1968, c. 827, § 1, eff. July 1, 1968.

8. In general, the principal changes in the determination

of the rate of the Stock Transfer Tax effected by the 1969

Amendments are as follows:

(a) transfers of securities by nonresidents of New

York which are subject to the Stock Transfer Tax are

taxed at a higher rate when the sales thereof are made

outside of the State of New York than when such sales

are effected within the State of New York; and

(b) a maximum limitation on the amount of the

Stock Transfer Tax is available only with respect to the

transfers of securities which are sold within the State

of New York, while there is no maximum limitation on

the amount of the tax with respect to sales made out-

side the State of New York which are subject to the

Stock Transfer Tax; and

(c) the differential between the rate of taxation of

transactions made within the State of New York and

the rate of taxation of like transactions made without

the State of New York has been and will be increased,

under the 1969 Amendments on July 1 of each year

from 1969 to 1973.

ee

7

Complaint

9. Upon information and belief, numerous securities

which are bought and sold in the United States are delivered

in the State of New York or are transferred in non-exempt

transactions by the issuers thereof, by banks and by other

transfer agents located within the State of New York. All

such securities are hereinafter referred to as “Taxed Se-

curities.”

10. Upon information and belief, numerous Taxed Se-

curities are regularly traded on plaintiff Exchanges. The

Taxed Securities traded on plaintiff Exchanges include

securities ssued by many major American corporations

and securities actively traded in the American securities

industry. .

11. Upon information and belief, a large portion of the

Taxed Securities which are traded on plaintiff Exchanges

are also traded on securities exchanges located within the

State of New York or are otherwise bought and sold within

the State of New York. |

12. Upon information and belief, a substantial portion of

the securities transactions effected on plaintiff Exchanges

by their respective members and. the customers of such

members and others is in Taxed Securities. The legislative

purpose and natural effect of the 1969 Amendments has

been and will continue increasingly to be the diversion of

such transactions from plaintiff Exchanges to stock ex-

changes located within the State of New York and the

diversion, in general, of securities business from those

engaged in that business outside the State of New York

to those engaged in the securities business within the State

of New York.

13. Clause 3 of Section 8 of Article 1 of the Constitution

of the United States (the “Commerce Clause”) vests in the

8

Complaint

Congress of the United States the exclusive power to regu-

late commerce among the several states. The sale of Taxed

Securities made outside New York State or made by or

through the facilities of any plaintiff herein is “commerce

among the several states” within the meaning of the Com-

merce Clause. The Commerce Clause prohibits State legis-

lation which interferes with interstate commerce by placing

an undue burden upon or discriminating against interstate

commerce. The 1969 Amendments are unconstitutional in

that they violate the Commerce Clause because: .

(a) they unduly burden interstate commerce by im-

posing a higher rate of tax when sales by nonresidents

of Taxed Securities are made outside the State of New

Vork than when such sales are made within the State

of New Vork;

(b) they discriminate against plaintiff Exchanges,

their members and the customers of such members by

increasing the cost of selling Taxed Securities in, or

using the facilities of, interstate commerce outside the

State of New York;

(c) they protect citizens and businesses within the

State of New York from competition in interstate com-

merce through the imposition of higher rates of tax on

transfers when sales of Taxed Securities are made

outside the State of New York than when such sales

are made within the State of New York;

(d) they create a tax rate differential which bears

no relationship to the taxpayers’ activities or enjoy-

ment of opportunities and protections within the State

and which, in fact, discriminatorily, arbitrarily, and

unreasonably imposes a lesser tax on transactions

which involve greater activity within the State of New

York; and

(e) they utilize the state taxing power to regulate

commerce between the states by seeking to adjust com-

9

Complaint

petitive advantages between local stock exchanges and

others in the New York securities industry on the one

hand, and their counterparts outside of New. York on

the other.

14. Section 2 of Article 4 of the Constitution of the

United States (the “privileges and immunities clause”) pro-

vides that, “the citizens of each state shall be entitled to all

privileges and immunities of citizens in the several states.”

The privileges and immunities clause voids state legislation

which interferes with the. right of citizens of one state to do

business in another state on terms substantially equal to

those enjoyed by citizens of the other state. The 1969

Amendments violate the privileges and immunities clause

by creating an economic barrier for nonresident sellers of

Taxed Securities to effect their transactions outside the

State of New York, thereby unreasonably discriminating

. —— m ae

tomers of such members.

15. Section 1 of the Fourteenth Amendment to the Con-

stitution of the United States provides, in part, that No

State shall . . deny to any person within its jurisdiction

the equal protection of the laws.” This clause (“equal pro-

tection clause”) ‘voids state legislation which creates a

statutory classification which is not reasonably related to

the legitimate purposes of such legislation. The 1969 Amend-

ments violate the equal protection clause because their

stated purpose and natural effect is to discriminate in favor

of and bestow undue economic advantage upon stock ex-

changes within the State of New York by diverting busi-

ness from stock exchanges located outside the State of New

5 York, including plaintiff Exchanges.

16. Defendants have collected and continue to collect

taxes imposed by the Stock Transfer Act as amended

10

Complaint

by the 1969 Amendments, and the discriminatory impact of

the 1969 Amendments will increase on July 1 of each year

until 1973 when the lower tax rate and maximum tax reach

their most discriminatory levels.

17. The enforcement of the 1969 Amendments with their

intended and natural effect of diverting securities business

from non-New York stock exchanges, including plaintiff Ex-

changes, to stock exchanges within the State of New York

will inflict increasingly irreparable damage upon plaintiff

Exchanges as the discriminatory impact of the 1969 Amend-

ments increases. Such damage will include:

(a) a decline in the volume of securities transactions

on plaintiff Exchanges in Taxed Securities and the con-

sequent loss of income as a direct result of such decline;

(b) a growing impediment to the ability of plaintiff

Exchanges to attract new members and to retain exist-

ing members.

18. An actual and justiciable controversy exists between

plaintiffs and defendants with respect to the questions pre-

sented herein. The unconstitutional impact of the 1969

Amendments affects every business community in the

United States where members of the public and their

broker-dealers buy and sell Taxed Securities.

19. The protection of the public interest requires the in-

tervention of this Court, the entry of a declaratory judg-

ment in accordance with the provisions of CPLR § 3001

and allowances of the injunctive relief for which plaintiffs

pray herein.

WHEREFORE, plaintiffs pray:

(a) That the certain statute designated Chapter 827, Sec-

tion 4 of New York Laws 1968, enacted by the New York

Legislature, and which purported to become effective July 1,

11

Complaint

1969 be declared, adjudged and decreed to be repugnant to

the Constitution of the United States and void in its en-

tirety ; N

a

(b) That defendants, and each of them, be temporarily

and permanently restrained and enjoined from enforcing

the aforesaid law and from collecting, imposing, levying,

assessing or issuing warrants for the collection of any tax

in accordance with the rate structure of the aforesaid law;

(e) That, pending the final determination of the issues i in

this cause, this Court entered such orders as this Court shall

deem appropriate to protect the rights and interests of all

persons and governmental bodies having any interest in this

cause;

(d) That plaintiffs be granted their costs herein expended

and reasonable attorneys’ fees; and that plaintiffs have such

other, further and different relief as this Court shall deem

proper in the premises.

Dated: New York, N. Y.

en 1972

PAUL, WEISS, RIFKIND,

WHARTON & GARRISON,

345 Park Avenue,

New York, New York 10022,

(212) 935-8000,

Attorneys for Plaintiffs.

Schiff, Hardin, Waite, Dorschel & Britton,

231 South La Salle Street,

Chicago, Illinois 60604,

Tel.: Area Code 312 Ce 6-4500,

Of Counsel.

(Verified August 30, 1972.)

12

SUPREME COURT OF THE STATE OF NEW YORK

County or New York

(Caption Omitted in Printing.)

Notice of Motion

Sir:

PLEASE TAKE NOTICE that on the summons and com-

plaint herein, a motion will be made at Part I, Special Term

of this Court, to be held in and for the County of New York,

at the Courthouse in the City of New York, on the 30th day

of November, 1972, at 9:30 a.m. or as soon thereafter as

“counsel can be heard, for a judgment dismissing the com-

plaint herein pursuant to section 3211 of the Civil Practice

Law and Rules upon the grounds that:

(a) the Court has no jurisdiction of the subject

matter of the cause of action;

(b) the plaintiffs have no legal capacity to sue since

they are not subject to the stock transfer tax imposed

by Article 12 of the Tax Law and are not tegally

aggrieved by such provisions and have no legal right

to question the constitutionality of its provision;

(c) the pleadings fail to state a cause of action

against the defendants ;

and for such other, further and different relief as may be

proper, with costs of this motion.

PLEASE TAKE FURTHER NOTICE that the defend-

ants will also move at the above Term of this Court for an

order to be made and entered compelling plaintiffs to post

annual surety bonds to protect the public revenue of the

State of New York pending final determination of this

action for the reasons set forth in the affidavit of Victor A.

Redling, annexed hereto and made a part hereof if plaintiffs

obtain the injunctive relief herein sought, and for such

13

Notice of Motion

other, further and different relief as may be proper, witb

costs of this motion.

Dated: October 31, 1972.

Yours, etc.,

LOUIS J. LEFKOWITZ,

Attorney General of the State

of New York, |

Attorney for Defendants,

The Capitol,

Albany, New York 12224.

To: .

Paul, Weiss, Rifkind, Wharton

& Garrison, Esqs.,

Attention: Warren Green, Esq.,

Attorneys for Plaintißßs,

345 Park Avenue,

‘New York, New York 10022.

14

Statute Involved

Laws of 1968, chapter 827

(Tax Law, Article 12, § 270-a)

“Section 1. Legislative findings. The legislature

hereby finds that: the securities industry, and par-

ticularly the stock exchanges located within the state

have contributed importantly to the economy of the

state and its recognition as the financial center of

the world. The growth of exchanges in other regions

of the country and the diversion of business to those

exchanges of individuals who are nonresidents of the

state of New York, requires recognition that the tax

on ‘ransfers of stock imposed by article twelve of the

tax 7, is an important contributing element to the

diversion of sales to other areas to the detriment of

the economy of the state. Furthermore, in the case of

transactions involving large blocks of stock, recognition

must be given to the ease of completion of such sales

outside the state of New York without the payment of

any tax. In order to encourage the effecting by non-

residents of the state of New York of their sales within

the state of New York and the retention within the

state of New York of sales involving large blocks of

stock, a separate classification of the tax on sales by

nonresidents of the state of New York and a maximum

tax for certain large block sales are desirable.

Ҥ 3. Subdivision two of section two hundred seventy

of such law, as last amended by section two of chapter

seven hundred seventy-one of the laws of nineteen hun-

dred sixty-six, is hereby amended to read as follows:

15

Statute Involved

“2. Except as otherwise provided by section two

hundred seventy-a of this chapter, the tax imposed by

this section shall be two and one-half cents for each

share, except in cases where the shares or certificates

are sold, in which cases the tax shall be at the rate of

one and one-quarter cents for each share where the

selling price is less than five dollars per share; two and

one-half cents for each share where the selling price is

five dollars or more per share and less than ten dollars

per share; three and three-quarters cents for each

share where the selling price is ten dollars or more per

share and less than twenty dollars per share and five

cents for each share where the selling price is twenty

dollars or more per share.

“$4. rb mended by odding therete

a new section to be section two hundred seventy-a, to

follow section two hundred seventy and to read as

follows:

Ҥ 270-a. Rates for nonresidents ; maximum amounts

of tax; penalties. 1. Notwithstanding the provisions of

section two hundred seventy of this chapter on and

after July first, nineteen hundred sixty-nine, the rates

of tax set forth in paragraph (a) of this subdivision

and the maximum amovats of tax set forth in subdi-

vision two of this secticn shall apply, in the case of

those sales made within this state subject to tax under

section two hundred seventy and described in para-

graph (a) of this subdivisim and subdivision two of

this section.

“(a) On such sales by a nonresident daring the

| periods set forth in the following table, the rates of the

16

Statute Involved

tax shall be the percentages, set forth in such table, of

r

seventy of this article:

Percentage of Rates of

Tax Provided in Section

two hundred seventy

Period of this article

July 1, 1969 to June 30, 1970 ................. 95%

July 1, 1970 to June 30, 197111. 90%

July 1, 1971 to June 30, 1972 ·2:m 80%

July 1, 1972 to June 30, 1972298933. 65%

July 1, 1973 and thereafter .................. 50%

The tax so calculated shall not be carried out in its

computation beyond four decimal points, that is, it shall

be computed to the nearest one one-hundredth of one

cent.

“(b) For the purposes of this section the following

terms shall have the following meanings:

“A ‘nonresident’ shall mean an individual or a group

of individuals jointly owning securities (but including

partnerships only if organized and operating solely for

the purpose of investing in securities) selling or trad-

ing on his or their own account, who is not, or no one

of whom is, a resident.

“A ‘resident’ means an individual who on the day

upon which the tax imposed by section two hundred

seventy of this chapter accrues,

“(1) regardless of where he resides or is domiciled,

(i) is a member of a securities exchange within this

state which is registered with the securities and ex-

17

Statute Involved

change commission of the United States; (ii) is a

dealer in securities required to be registered with the

attorney general of the state of New York; (iii) acts as

a dealer in securities or as a broker or agent in trans-

actions concerned with the sale and purchase of se-

curities; or (iv) is a member of or a person employed

in a managerial capacity by a firm, company, associ-

ation or organization, or an officer or director of a

person employed in a managerial capacity by a corpo-

ration, which is a member organization of a securities

exchange, a dealer in securities, or a dealer, broker or

. neee

paragraph, or

an us state, undes en oath day be

maintained no permanent place of abode in this state,

maintained a permanent place of abode elsewhere and

during the one year period ending on such day spent ia

r

in this state, or

“(3) is not domiciled in this state, but on such day

maintained in this state, a permanent place of abode

unless such abode is due solely to such individual’s

deing in the armed forces of the United States, or

“(4) regardless of where he resides, maintains a per-

manent place of business within this state or is em-

ployed within this state.

de) No transaction shall be deemed to be by a non-

_ resident and subject to tax at the rates prescribed in

this section unless (1) the papers or documents upon or

to which are required to be placed or affixed the stamps

required by subdivision four of section two hundred

seventy of this chapter, to denote the payment of the

—

18

Statute Involved

tax imposed by such section, have also affixed thereto or

placed thereon a declaration in form prescribed by the

tax commission signed by the person making the sale or

transfer, setting forth facts to show that the transaction

is one coming within the provisions of this section; or

(2) in the case of transactions executed or effected

within this state by any member or member organiza-

tion of any securities exchange within this state which

is registered with the securities and exchange commis-

sion of the United States (hereinafter in this section

referred to as ‘member of a securities exchange’) or by

any person, firm, corporation, company or association

required to be registered with the attorney general of

the state of New York as a dealer in securities other

than upon any such exchange (hereinafter in this sec-

tion referred to as ‘registered dealer’), who is per-

mitted or required pursuant to any rules and regu-

lations promulgated by the tax commission pursuant

to the provisions of section two hundred eighty-one-a

of this chapter, to pay the tax imposed by this article

without the use of the stamps prescribed by this article,

the sale is certified, in such form as the tax commission

may prescribe, in the report required to be made to such

exchange, or its affiliated clearing corporation or any

authorized agency by rules and regulations promul-

gatcd by the tax commission pursuant to section two

nundred eighty-one-a of this chapter, as being a trans-

action coming within the provisions of this section. The

certification in such report may be made by such

member of a securities exchange or registered dealer

if he either (i) has obtained from such nonresident a

declaration in form prescribed by the tax commission,

19

Statute Involved

or (ii) has met requirements set forth in rules and

regulations promulgated by the tax commission, estab-

lishing that the is one coming within the provisions

of this section an- (iii) has not on or after the date of

obtaining such declaration or its delivery and filing,

received from such nonresident either a notice of can-

~ eellation, in form prescribed by the tax commission, as

described in subparagraph three of paragraph (b) of

subdivision three of this section, and has no knowledge

or reasonable grounds to believe that the status of such

nonresident as a nonresident has changed.

“2. Where any sale made within the state and subject

to the tax imposed by this chapter relates to shares or

certificates of the same class and issued by the same

issuer the amount of tax upon any such single taxable

sale shall not exceed, during the period beginning on

July first, nineteen hundred sixty-nine and ending on

June thirtieth, nineteen hundred seventy, the sum of

two thousand five hundred dollais; during the period

beginning on July first, nineteen hundred seventy and

ending on June thirtieth, nineteen hundred seventy-one,

the sum of one thousand two hundred fifty dollars;

during the period beginning on July first, nineteen

hundred seventy-one and ending on June thirtieth,

nineteen hundred seventy-two, the sum of seven hun-

dred fifty dollars; during the period beginning on July

first, nineteen hundred seventy-two and ending on June

thirtieth, nineteen hundred seventy-three, the sum of

five hundred dollars; and on and after July first, nine-

teen hundred seventy-three, the sum of three hundred

fifty dollars; provided, however, that sales made with-

20

Statute Involved

in this state by any member of a securities exchange

or by any registered dealer, who is permitted or re-

quired pursuant to any rules and regulations prom-

ulgated by tue tax commission pursuant to the provisions

of section two bundred eighty-one-a of this chapter

to pay the taxes imposed by this article without the use

of the stamps prescribed by this article, pursuant to

one or more orders placed with the same member of a

securities exchange or the same registered dealer on

one day, by the same person, each relating to shares

or certificates of the same class and issued by the same

issuer, all of which sales are executed on the same day

(regardless of whether it be the day of the placing of

the orders), shall, for the purposes of this subdivision

two, be considered to constitute a single taxable sale.

“3. (a) Any person who shall knowingly make any

false statement in a declaration provided for by

paragraph (c) of subdivision one of this section, shall

be guilty of a misdemeanor and upon conviction thereof

shall be liable to a fine of not less than five hundred nor

more than one thousand dollars, or be imprisoned for

not more than one year, or he subject to both such fine

and imprisonment, in the discretion of the court.

“(b) Any person who—

“(1) having executed, filed with and delivered to a

member of a securities exchange or a registered dealer

a declaration provided for by paragraph (c) of sub-

division one of this section;

“(2) thereafter ceases knowingly to be a nonresident;

—

21

Statute Involved

“(3) fails to execute, file and deliver a notice of can-

cellation of such declaration, with and to such mem-

ber or dealer; and

“(4) after ceasing to be such a nonresident and prior

to the execution, filing and delivery of such notice of

cancellation, with intent to evade or defeat the collection

of any tax imposed by this article, places and allows to

be executed an order with such member or dealer for

the sale of any shares or certificates described in section

two hundred seventy of this chapter; shall be guilty of

a misdemeanor and upon conviction thereof shall be

liable to a fine of not less than five hundred nor more

than one thousand dollars, or be imprisoned for not

‘more than one year, or be subject to both such fine

and imprisonment, in the discretion of the court.”

22 23

Legislative History Legislative History

Governors Message of Necessity Governor's Memorandum on Approval of

(1968 Public Papers of Governor Rockefeller, chapter 827, supra (1968 Public Papers

pp. 651-652) of Governor Rockefeller, pp. 552-554;

“To the Legislature: see also: 1968 Legislative Annual,

p. 482; 1968 McKinney’s Session Laws

“Pursuant to the provisions of Section 14 of Article of New York, Vol. 2, p. 2384)

III of the Constitution and by virtue of the authority

conferred upon me, I do hereby certify to the necessity STATE OF NEW YORK-EXECUTIVE CHAMBER

of an immediate vote on Asse: \bly Bill Number 6394-A,

Senate Print Number 7061, untitled:

“The facts which, in my opinion, necessitate an im-

mediate vote on this bill are as follows:

“The bill would extend and modify the stock transfer

tax including provisions agreed upon by the City of

New York and the New York Stock Exchange and con-

sidered essential to the continued presence of the Ex-

change in the City.

“Because the bill in its final form has not been on

your desk three calendar legislative days, the Leaders

of your Honorable Bodies have requested this message

to permit immediate consideration of the bill prior to

the anticipated final adjournment of this legislative

session.

“GIVEN under my hand and the Privy Seal of

the State at the Capitol in the City of Albany this

twenty-fourth day of May in the year of our Lord

one thousand nine hundred sixty-eight.

[L. S.]

By the Governor:

(Signed) NELSON A. ROCKEFELLER

(Signed) MICHAEL WHITEMAN

First Assistant and Acting Counsel to the

Governor”

es

ALBANY June 16, 1968

“Memorandum filed with Assembly Bill Number 6394-

A, Senate Reprint Number 7061, entitled:

“APPROVED.

“The bill amends the Tax Law to continue the present

rates of the stock transfer tax (which would have other-

wise lapsed) until July 1, 1969 and thereafter to provide

for a reduction in the rates of stock transfer tax im-

posed on non-resident individuals and a ceiling on the

tax imposed on any single transaction.

“The measure is the product of more than two years’

study, discussion and negotiation between representa-

tives of the New York Stock Exchange and the City of

New York and provides a long-needed reform of the

stock transfer tax, consistent with the growing revenue

needs of the City.

“Since the stock transfer tax was enacted in 1905,

there have been far reaching changes in the securities

industry, but the stock transfer tax has not been revised

to keep pace with those changes. The securities industry

has grown from an essentially New York industry to

one of national and international pe. While the

bulk of stock transfers still funnels through New York,

only twelve percent of the Nation’s investors are lo-

cated in the State. At the same time, competition for

the New York markets has been heightened by the rise

of regional stock exchanges located outside the State

24

Legislative History

where more than 90 percent of trading is in securities-

listed on the New York Stock Exchange. The develop-

ment of modern telecommunications and electronic com-

puter systems has, of course, greatly expanded the

capacity of the regional exchanges to challenge the New

York exchanges for business. ,

“The bill recognizes the changing character of the

securities industry and the importance of its continued

presence and strength for the future economic pros-

perity of the State and will provide long-term relief

from some of the competitive pressures from outside

the State.

“As a result of adoption of the revisions of the stock

transfer tax contained in this bill, the New York Stock

Exchange has announced that it intends to remain and

expand in New York and is now studying sites for a new

exchange building in downtown Manhattan. The Ex-

change’s action augurs well for the future growth of

New York as the Nation’s financial center and ac-

knowledges the confidence of the industry in the ability

of city government and the Legislature to recognize the

industry’s problems and to commit themselves to a

long-term course for the benefit of all. at

“The bill is approved.

(Signed) NELSON A. ROCKEFELLER”

25

Legislative History

STATEMENT OF ROBERT W. HAACK, PRESIDENT

OF THE NEW YORK STOCK EXCHANGE ON THE

AMENDMENTS TO THE NEW YORK STOCK

TRANSFER TAX.

(A. 6394 and S........... )

March 4, 1968

Bills amending the New York Stock Transfer Tax Law

have been introduced in both the Assembly and the Senate.

These bills (A. 6394 and ........ ) represent the product

of many months of discussion with City and State officials.

In our opinion, this program of reform of the New York

stock transfer tax is a significant example of government

and business working together to propose solutions to

mutual problems by joint discussion and joint effort.

These bills recognize the financial needs of the City as

well as the competitive problems of the New York securities

markets by providing for a five-year step-by-step reform

program which will result in no loss of tax revenue to New

York City. In fact, it is estimated that the revenues from

the tax would continue to increase.

Trusting favorable consideration of this program of tax

reform by the legislature and Governor Rockefeller, the

Board of Governors of the New York Stock Exchange has

decided that the Exchange will stay in New York City.

As a matter of fact, the Facilities Committee of the Ex-

change’s Board of Governors has been working diligently

since the Committee was created in September with real

estate and architectural consultants in developing the Ex-

change’s long-range building requirements and in analyzing

possible sites for a new Exchange building in lower Man-

huttan.

26

Legislative History

Background of Program of Tam Reform

As a part of New York City’s tax program, the stock

transfer tax was amended by the Legislature in 1966 to

impose a temporary two-year surcharge of 25%. At that

time, legislative leaders indicated that the stock transfer

tax should be studied during the two-year period.

As a result, the stock transfer tax has been the subject of

extensive study by the City, State and the securities in-

dustry. These studies indicate that the New York securities

markets have experienced increasing competitive problems

in recent years from regional stock exchanges located in San

Francisco, Los Angeles, Chicago, Detroit, Philadelphia and

Boston. Some 88% of share trading on these exchanges ii is in

New York Stock Exchange listed securities. 8

From 1965 through 1967, the volume of trading on the

regional exchanges increased by 73.2%. Regional “cross”

volume (a transaction on a regional exchange in which the

broker finds both the buyer and seller) has increased by

202% in 1965-67. This indicates the loss of business by the

New York markets to the regionals. As their volume con-

tinues to grow, a snowball effect develops. They become

more competitive and are able to take more and more busi-

ness away from New York. A loss of business to New York

securities markets also means a loss of stock transfer tax

revenue to New York City. |

Economic realities make it impossible for New York City

and State to repeal the stock transfer tax which will produce

an estimated $229 million in the current. City fiscal year.

However, the existing law can be amended in such a way as

to ease the competitive disadvantage of the tax on New York

securities markets and still preserve the revenue from the

tax.

27

Legislatwe History

Competitive problems are particularly acute in two areas

—non-resident investors and large block transactions.

Non-Resident Individuals

Customers of the New York securities markets who live

and work outside the State pay some 80% of the transfer

tax. Some non-residents can and do avoid paying the tax by

transacting their securities business outside New York on

the regional stock exchanges. The brokerage commission

charged by these exchanges is the same as in New York.

However, none of the cities or states where the regional ex-

changes are located imposes a stock transfer tax.

Large Transactions

There is also an incentive to avoid the stock transfer tax

on large orders. Transactions of 10,000 or more shares on

the regional exchanges have increased by 202% in 1965-67.

Proposal for Tax Reform

As a result of these studies, the proposal for tax reform

has two basic objectives:

1) Retain the revenue from the tax.

2) Minimize the competitive problems for New York

securities markets created by the existing law and

provide a sound base for future increased tax revenues.

Over a five-year period, the proposed tax reform would:

1) Provide for a 50% reduction from the existing tax

rates for non-resident individuals.

2) Set a tax ceiling of $350 per transaction. On a

stock selling for $20 or more the maximum shares taxed

would be 7000.

Legislative History

No special tax relief is provided for Exchange members

or securities broker-dealers.

In essence, the purpose of the bill is to reduce the in-

centives to avoid the tax by doing business outside the

New York markets. ,

To prevent any revenue loss to New York City, the bill

provides for a step-by-step reduction over a five-year

period. The following table shows the precentage increase

in volume in each fiscal year during the implementation of

the tax reform proposals needed to yield the preceding

year’s revenue. The right hand column shows the estimated

stock transfer tax revenue in each year based upon the

average annual growth rate in NYSE volume of 12% a

year since fiscal 1952-53.

Volume Growth Needed to Yield Estimated Taz

N Year’s Revenue Revenue

(millions)

1967-68 — 8299

1968-68 2.2% 251

1969-70 2.7 273

1970-71 4.5 293

1971-72 6.9 : 307

1972-73 ) 6.2 324

Contributions of the Securities Industry to N 7 ork

A healthy securities industry is vital to the economic well-

being of New York. A loss of business to the Exchange com-

munity means a loss of tax reve. ie to New York City and

State. Equally important is the oss of jobs and other

economic benefits. ) :

The following table shows the Exchange Community’s

contributions to the New York City economy:

29

Legislative History

Exchange Communitys Importance

to the

New York City Economy

Based on 1966 Data

Exchange

Community

Egrchange Entire N. r. O. As Percent

Community of NV. T. O.

Jobs 50,000 3.6 million 14%

Payrolls $748 million 624.4 billion 3.1%

Office Space Oceupied 6-6.5 mil.sq.ft. 175 mil.sq.ft. 3.6%

Rentals-Office Space $45 million $864 million 5.2%

Real Estate—Taxes® 68.5 million $1,519 million?“ 0.6%

Business Taxes $17.1 million 6530.0 million 3.2%

In addition, the securities industry contributed an esti-

mated $356.5 million in taxes to the City and State in 1967.

This makes it one of the largest taxpayers in the State.

* Does not include that portion of rentals attributable to real

estate tax costs of lessor.

** City Fiscal Year 1966-67.

30

Legislative History

Conclusion

The New York securities industry, particularly the stock

exchanges located within the State, have contributed im-

portantly to the economy of the New York City and State

and to making New York the financial capital of the world.

The securities industry faces a period of tremendous ex-

pansion and growth with some 24 million individual share-

owners and some 100 million people holding shares in-

directly through pension funds and the like. The New York

Stock Exchange would like to see the long period of un-

certainty that has existed because of the stock transfer

tax ended so that we and the entire financial community may

move forward for the benefit not only of the securities in-

dustry but of the entire State of New York.

31

Opinion and Decision of the State of New York

Court of Appeals

BOSTON STOCK EXCHANGE, et al.

Appellants

v.

STATE TAX COMMISSION, et al.

Respondents

October 21, 1975

Roger Pascal, Chicago, III., of the Illinois Bar, admitted

pro hae vice, Milton H. Cohen and Allan Horwich, Chicago,

III., for appellants.

Louis J. Lefkowitz, Atty. Gen. (Robert W. Bush and

Ruth Kessler Toch, Albany, of counsel), for respondents.

Adrian P. Burke, Corp. Counsel, New York City (Samuel

J. Warms and Robert J. Metzler, Il, New York City, of

counsel), for the City of New York, amicus curiae.

WACHTLER, Judge.

Since the turn of the century this State has levied a stock

transfer tax (Tax Law, § 270). Recently the law was

amended to reduce the tax on sales by nonresidents and to

fix a maximum tax on all bulk sales within the State (Tax

Law, §270-a). The appellants, all of whom are stock

exchanges located outside New York, seek a judgment

declaring section 270-a unconstitutional on the grounds that

it denies them equal protection of the laws, and discrim-

inates against interstate commerce in violation of the

commerce clause (U.S. Const. art. I, 68).

eee

—— ee —— 53 Iv $2),

has been abandoned on this appeal.

32

At Special Term the defendant tax commission unsuc-

cessfully argued that the State courts lacked subject matter

jurisdiction, that the appellants lacked standing and that

the complaint failed to state a cause of action. The

Appellate Division modified, agreeing that the courts had

subject matter jurisdiction and that the appellants had

the requisite standing to raise the issues but found that

the statute did not violate the Constitution as alleged.

Accordingly they dismissed the complaint on the merits (45

A.D.2d 365, 357 N. V. S. 2d 116). The order of the Appellate

Division should be affirmed.

Section 270 of the Tax Law imposes a tax “on all sales, or

agreements to sell, or memoranda of sales and all deliveries

or transfers of shares or certificates of stock”. The tax

depends on the value of the stock, the maximum tax béing

5 cents per share. When the sale is made within the State,

the tax may be levied on any of these events, but no more

than one of them (20 NYCRR 440.2). When the sale and all

the accompanying negotiations occur outside the State—as

on one of the appellants’ exchanges—no tax is due unless

the stock is transferred in New York by a local transfer

agent or upon the corporate books (see, e. g., Matter of

Monarch Life Ins. Co. v. State Tax Comm., 32 N.Y.2d 850,

346 N.Y.S.2d 272, 299 N.E.2d 684).

The constitutionality of this statute, originally enacted in

1905, has been sustained on several occasions against claims

that it violated due process, equal protection (Hatch v.

Reardon, 204 U.S. 152, 27 S.Ct. 188, 51 L.Ed. 415) and the

commerce clause (O’Kane v. State of New York, 283 N.Y.

439, 28 N.E.2d 905; ef. Hatch v. Reardon, supra). It is

now well settled that the commerce clause does not prohibit

the States from levying a tax on the transfer of property

within the State (International Harvester Co. v. Depart-

ment of Treasury, 322 U.S. 340, 348, 64 S.Ct. 1019, 88 L.Ed.

Ovinion and Decisi

1313; cf. Freeman v. Hewit, 329 U.S. 249, 258, 67 S.Ct. 274,

91 L.Ed. 265). Thus far the parties are agreed—the basic

tax is constitutionally valid.

In 1966 complaints reached the Legislature that the trans-

fer tax was driving business from the State. Specifically

the New York exchanges complained that although brokers

in other States charged the same commissions, transactions

on the New York exchanges were placed at a disadvantage

because none of the States in which the competing ex-

changes were located imposed a tax on stock sales or trans-

fers. After extensive investigation the Legislature found

that “the tax on transfers is an important con-

tributing element to the diversion of sales to other areas

to the detriment of the economy of the state. Furthermore,

in the case of transactions involving large blocks of stock,

recognition must be given to the ease of completion of such

sales outside the state of New York without the payment

of any tax. In order to encourage the effecting by nonresi-

dents of the state of New York of their sales within the

state of New York and the retention within the state of

New York of sales involving large blocks, a separate classi-

fication of the tax on sales by nonresidents of the state of

New York and a maximum tax for certain large block sales

are desirable” (L.1968, ch. 827). Accordingly the Legislature

amended the tax law, adding section 270-a, which reduces

the tax by 50% when a nonresident sells stock within

the State. And when any shareholder, resident or non-

resident, sells a large block of stock within the State, the

tax due is limited to a maximum of $350.?

2 These are the rates which are presently applicable. When section

270-a originally went into effect on July 1, 1969, it provided for

higher rates—95% for nonresidents, and a maximum tax of $2,500.

This was gradually reduced to the current rates which became

effective July 1, 1973.

34

Opinion and Decision

If section 270-a is invalidated, the prior tax scheme would

again become effective (L.1968, ch. 827, § 11) and the ap-

pellants would be restored to their position of economic

superiority.

First we consider the appellants’ argument that the

statute violates the equal protection clause “because it

establishes an arbitrary classification dependent upon the

place of sale.” The equal protection clause is often invoked

in support of a claim that a State taxing scheme is

arbitrary. This is a familiar argument and the general

principles are well settled.

It has been repeatedly held that “in taxation, even more

than in other fields, legislatures possess the greatest free-

dom in clessification” (Madden v. Kentucky, 309 U.S. 83,

88, 60 S.Ct. 406, 408, 84 L. Ed. 590) and that the equal

protection “clause imposes no iron rule of equality, pro-

hibiting the flexibility and variety that are appropriate to

reasonable schemes of state taxation” (Allied Stores of

Ohio v. Bowers, 358 U.S. 522, 526, 527, 79 S.Ct. 437, 440, 3

L.Ed.2d 480). To succeed on the equal protection argument,

the appellants must not only overcome the presumption of

constitutionality which attaches to every statute (Madden

v. Kentucky, 309 U.S. 83, 60 S.Ct. 406, 84 L.Ed. 590, supra)

but must also establish that there is no “conceivable state

of facts which would support” the classification (Carmichael

v. Southern Coal Co., 301 U.S. 495 509, 57 S.Ct. 868, 872,

81 L.Ed. 1245; Lawrence v. State Tax Comm., 286 U.S.

276, 52 S.Ct. 556, 76 L.Ed. 1102; Lehnhausen v. Lake Shore

Auto Parts Co., 410 U.S. 356, 93 S.Ct. 1001, 35 L.Ed.2d 351).

The burden is on the one challenging the statute “to negative

every conceivable basis which might support it” (Madden v.

Kentucky, supra, 309 U.S. at p. 88, 60 S.Ct. at p. 408).

35

Opinion and Decision

Initially we note, as did the Appellate Division, that the

place of sale is not always the determining factor under the

statute in question. If a small sale is involved the full tax

must be paid unless the seller is a nonresident. Thus the

statute also distinguishes between residents and non-

residents in favor of the latter. The avowed purpose, as the

legislative history indicates, was to encourage nonresidents

to sell on the New York exchanges. Similar legislation has

been consistently upheld “and [it] appears to be entirely

settled that a statute which encourages the location within

the State of needed and useful industries by exempting

them, though not also others, from its taxes is not arbitrary

and does not violate the Equal Protection Clause of the

Fourteenth Amendment” (Allied Stores of Ohio v. Bowers,

358 U.S. 522, 528, 79 S.Ct. 437, 441, 3 L. Ed.2d 480).

The Appellate Division also found that the distinction

between in-State and out-of-State sales could be justified

on the ground that [t] ransactions made in New York are

less susceptible to tax evasion than those made outside”

(45 A.D.2d p. 369, 357 N.Y.S.2d p. 120). They found that

Madden v. Kentucky (supra) supported this conclusion and

we agree. In that case the State imposed an ad valorem tax

of 10 cents per $100 on deposits in local banks, but taxed

deposits in out-of-State banks at 50 cents per $100. Al-

thongh the amount of tax was based on an out-of-State event,

the court found that the classification was not arbitrary

within the meaning of the equal protection clause since

“The treatment accorded the two kinds of deposits may

have resulted from the differences in the difficulties and

expenses of tax collection” (Madden, 309 U.S. 83, 90, 60

S.Ct. 406, 409, 84 L.Ed. 590, supra).

36

Opinion and Decision

Here, of course, the Legislature noted that tax evasion

was one of the factors which prompted the enactment of

section 270-a. But even if their motives had be n more

subtly stated, or completely unstated, the fact remains that

this is a conceivable basis for the distinction. The Legisla-

ture, of course, is not required to “record a complete cata-

logue of the considerations which move its members to

enact laws” (Carmichael, 301 U.S. 495, 510, 57 S.Ct. 868,

872, 81 L.Ed. 1245, supra; see, also, Lehnhausen, £10 US.

356, 93 S.Ct. 1001, 35 L.Ed.2d 351, supra).

Finally the appellants argue that the distinction betwen

sales made within the State and sales completed elsewhere

discriminates against interstate commerce. The commerce

clause, of course, imposes additional limitations on the

States’ taxing powers and “restrictions inimical to the

commerce clause should not be approved simply because

they facilitate in some measure enforcement of a valid tax”

(Toomer v. Witsell, 334 U.S. 385, 406, 68 S.Ct. 1156, 1167,

92 L.Ed. 1460). The question in other words is no longer

whether the distinction can be justified by “any conceivable

state of facts whicn could support it” (Carmichael, supra,

301 U.S. at p. 509, 57 S.Ct. at p. 872). “The guiding principle

which limits the power of the States to tax is that the

several States of the Union niay not discriminate against

interstate commerce in favor of intrastate commerce.”

(O’Kame v. State of New York, 283 N.Y. 439, 446, 28 N.E.2d

905, 908, supra; see, also, Robbins v. Shelby County Tawing

Dist., 120 U.S. 489, 7 S.Ct. 592, 30 L. Ed. 694; Welton’ v.

Missouri, 91 U.S. 275, 23 L.Ed. 347; Memphis Steam

Laundry v. Stone, 342 U.S. 389, 72 S.Ct. 424, 96 L.Ed. 436;

Nippert v. Richmond, 327 U.S. 416, 66 S. Ct. 586, 90 L.Ed.

760; Best d Co. v. Maawell, 311 U.S. 454, 61 S.Ct. 334, 85

37

Opinion and Decision

L.Ed. 275; Halliburton Oil Well Co. v. Reily, 373 U.S. 64,

83 S.Ct. 1201, 10 L. Ed. 2d 202.)

Here, as indicated, the Legislature found that the tax

as originally enacted had the reverse effect in that it

conferred an economic advantage on exchanges located

outside the State. The appellants do not dispute this. To

neutralize this advantage, the Legislature enacted section

270-a and it seems clear that they had the power to do so.

A use tax is a familiar example of this type of compensa-

tory legislation and it is well settled that it does not offend

the commerce clause (see, e. g., Miller Bros. Co. v. Mary-

lamd, 347 U.S. 340, 343, 74 S.Ct. 535, 98 L.Ed. 744; ef.

Alaska v. Arctic Maid, 366 U.S. 199, 81 S.Ct. 929, 6 L.Ed.2d

227). Thus the stated legislative goal is a valid one.

Although helpful, this is not necessarily controlling for

the determinative question in each case is “whether the

statute under attack * will in its practical operation

work discrimination against interstate commerce” (Best

& Co. v. Maawell, 311 U.S. 454, 456, 61 S.Ct. 334, 335, 85

L.Ed. 275, supra).

The statute should have no practical effect whatsoever

on sales by shareholders, both residents and nonresidents,

involving stocks which do not have to be transferred in

New York. If they sell on a New York exchange, of course

they can claim the benefit of section 270-a. But if they

sell on one of the appellants’ exchanges, they would pay no

tax at all. Here the stock transfer law still works to the

appellants’ economic advantage.

The sale of New York securities poses a different prob-

lem. Then the transfer tax must be paid and the amount

due depends on whether the sale is made in New York or

elsewhere. In the case of New York residents it is more

38

Opinion and Decision

than likely (cf. Nippert v. Richmond, 327 U.S. 416, 66 S. Ct.

586, 90 L.Ed. 760) that the sale would be made on a New

York exchange in any event, so that section 270-a should

have little or no “practical” effect on such transactions.

The appelants’ major argument then is that section 270-a

discriminates against interstate commerce by encouraging

nonresidents to sell New York securities on New York ex-

changes. This assumes that such sales would be intrastate

so that the practical effect of the statute would be to “dis-

criminate against interstate commerce in favor of intra-

state commerce” (O’Kane, 283 N.Y. 439, 446, 28 N.E.2d

905, 908, supra). 5

The sale of intangibles is, of course, commerce within

the meaning of the commerce clause (Freeman v. Hewit,

329 U.S. 249, 67 S.Ct. 274, 91 L.Ed. 265). And we can

assume that sales of New York stocks by a nonresident on

an out-of-State exchange would nevertheless involve inter-

state commerce because the securities must ultimately be

transferred in New York (but see Hatch v. Reardon, 204

U.S. 152, 27 S.Ct. 188, 51 L.Ed. 415, supra). But we cannot

assume, as the appellants do, that if the nonresident

chooses to make the sale in New York—in order to claim

the exemption provided by the statute—the transaction

would lose its interstate character. ,

Typical of this latter type of transaction is one in which

a resident of one of the areas in which the appellants

operate gives his New York broker, or a New York cor-

respondent of a local broker, an order to sell. When, in

such a case, the New York broker executes the order, the

customer will normally send his stock certificate to the

New York broker to fulfill his agreement to sell. Such a

sale is not an intrastate transaction. On the contrary in

39

Opinion and Decision

Freeman v. Hewit, 329 U.S. 249, 259, 67 S.Ct. 274, 280, 91

L. Ed. 265, supra the Supreme Court considered an iden-

tical transaction and concluded “Of course this is an inter-

state sale”. In other words the trouble with the appellants’

argument is that a sale by a nonresident on a New York

exchange—the type of transaction the law allegedly en-

courages—is still interstate commerce. Nor are we per-

suaded by appellants’ argument that the decision in

Halliburton Oil Well Co. v. Reily, 373 U.S. 64, 83 S.Ct. 1201,

10 L.Ed.2d 202, supra compels a different result since in

that case this precise point was neither argued nor decided.

The order of the Appellate Division should be affirmed.

BREITEL, C. J., and JASEN, GABRIELLI, JONES,

FUCHSBERG and COOKE, JJ., concur.

Order affirmed, with costs.