# Appendix — Boston Stock Exchange v. State Tax Commission

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1977
- **Citation:** 429 U.S. 318

## Text

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.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385003_2172%3A2. Public record. Not legal advice.