926 NORTH ARDMORE AVENUE v. COUNTY OF LOS ANGELESAmicus Curiae, County of Tehama and Jennifer Vise, Request for Judicial NoticeCal.October 16, 2015SUPREME COURT COPY IN THESUPREME COURT OF THE STATE OF CALIFORNIA Supreme Court Case No. $222329 Los Angeles County Superior Court SUPREME COURT FILED 926 NORTH ARDMORE AVENUE,LLC, ) ) Plaintiffand Appellant, ) Court of Appeal, SecondDistrict . ) Case No. B248536 vs. ) ) COUNTY OF LOS ANGELES, ) Case No. BC476670 ) Defendant and Respondent. ) ) REVISED MOTION FOR JUDICIAL NOTICE (Evid. Code, § 459; Cal. Rules of Court, rules 8.520(g) and 8.2527° OCT 16 2015 Frank A. McGuire Clerk Deputy ARTHUR J. WYLENE, SBN 222792 COUNTY COUNSEL COUNTY OF TEHAMA 727 OAK ST. RED BLUFF, CALIFORNIA 96080 TELEPHONE:(530) 527-9252 FACSIMILE:(530) 527-9255 EMAIL: awylene@tehamacountyadmin.org Attorneys for Amicus Curiae COUNTY OF TEHAMAand JENNIFER A. VISE, TEHAMA COUNTY CLERK-RECORDER Additional appearances on nextpage DONNAR. ZIEGLER, SBN 142415 COUNTY COUNSEL FARANDC. KAN, SBN 203980 DEPUTY COUNTY COUNSEL COUNTY OF ALAMEDA 1221 Oak Street, Suite 450 Oakland, California 94612 Telephone: (510) 272-6700 Attorneys for Amicus Curiae COUNTY OF ALAMEDA THERESA A. GOLDNER,SBN 107344 COUNTY COUNSEL JERRI S. BRADLEY, SBN 180341 DEPUTY COUNTY COUNSEL COUNTY OF KERN 1115 Truxtun Avenue, Fourth Floor Bakersfield, California 93301 Telephone: (661) 868-3800 Facsimile: (661) 868-3809 Attomeys for Amici Curiae COUNTY OF KERN and KERN COUNTY ASSESSOR-RECORDER JON LIFQUIST CHARLES J. MCKEE, SBN 152458 COUNTY COUNSEL JERROLD A. MALKIN,SBN 116513 DEPUTY COUNTY COUNSEL COUNTY OF MONTEREY 168 West Alisal Street, Third Floor Salinas, California 93901-2653 Telephone: (831) 755-5045 Facsimile: (831) 755-5283 Attomeys for Amici Curiae COUNTY OF MONTEREY and MONTEREY COUNTY ASSESSOR-CLERK-RECORDER STEPHEN L.VAGNINI DANIEL C. CEDERBORG,SBN 124260 COUNTY COUNSEL JANE T. SMITH, SBN 142273 DEPUTY COUNTY COUNSEL COUNTY OF FRESNO 2220 Tulare Street, Sth Floor Fresno, California 93721 Telephone: (559) 600-3479 Facsimile: (559) 600-3480 Attorneys for Amicus Curiae COUNTY OF FRESNO MARSHALL S. RUDOLPH, SBN 150073 COUNTY COUNSEL JOHN-CARL VALLEJO, SBN 251121 DEPUTY COUNTY COUNSEL COUNTY OF MONO 452 Old Mammoth Road, Suite J-3 PO Box 2415 Mammoth Lakes, California 93546 Telephone: (760) 924-1700 Facsimile: (760) 924-1701 Attorneys for Amicus Curiae COUNTY OF MONO GREGORYP. PRIAMOS,SBN 136766 COUNTY COUNSEL KRISTINE BELL-VALDEZ, SBN 253183 DEPUTY COUNTY COUNSEL COUNTY OF RIVERSIDE 3960 OrangeStreet, Suite 500 Riverside, California 92501 Telephone: (951) 955-6300 Facsimile: (951) 955-6363 Email: KBValdez@co.riverside.ca.us Attorneys for Amici Curiae COUNTY OF RIVERSIDE and RIVERSIDE COUNTY ASSESSOR PETER ALDANA BRIAN WIRTZ, SBN 225608 DEPUTY COUNTY COUNSEL OFFICE OF PLACER COUNTY COUNSEL 175 Fulweiler Avenue Auburn,California 95603 Telephone: (530) 889-4044 Facsimile: (530) 889-4069 Attorneys for Amici Curiae COUNTY OF PLACER and PLACER COUNTY CLERK-RECORDER-REGISTRAR JIM MCCAULEY MICHAEL GHIZZONI, COUNTY COUNSEL MARIEA. LaSALA, SBN 144865 DEPUTY COUNTY COUNSEL COUNTY OF SANTA BARBARA 105 E. AnapamuSt., Suite 201 . Santa Barbara, California 93101 (805) 568-2950 / FAX: (805) 568-2982 Attorneys for Amici Curiae COUNTY OF SANTA BARBARA and SANTA BARBARA COUNTY ASSESSOR JOSEPH E. HOLLAND THOMASE. MONTGOMERY, COUNTY COUNSEL WALTER DE LORRELL II, SBN 200068 SENIOR DEPUTY COUNTY COUNSEL COUNTY OF SAN DIEGO 1600 Pacific Highway, Room 355 San Diego, California 92101 Telephone: (619) 531-6259 Facsimile: (619) 531-6005 Attomeys for Amici Curiae COUNTYOF SAN DIEGOand SAN DIEGO COUNTY ASSESSOR/RECORDER/COUNTY CLERK ERNESTJ. DRONENBURG,JR. JOHN C. BEIERS, SBN 202743 COUNTY COUNSEL REBECCA M. ARCHER,SBN 219029 DEPUTY COUNTY COUNSEL Hall of Justice and Records 400 County Center, 6" Floor RedwoodCity, California 94063 Telephone: (650) 363-1965 Facsimile: (650) 363-4034 Attorneys for Amicus Curiae COUNTY OF SAN MATEO MINH C. TRAN, SBN 179932 COUNTY COUNSEL SUSAN ALTMAN,SBN 230227 DEPUTY COUNTY COUNSEL COUNTY OF NAPA 1195 Third Street, Room 301 Napa, California 94559-3001 Telephone:(707) 253-452] Facsimile: (707) 259-8220 Attorneys for Amici Curiae NAPA COUNTY andNAPA COUNTY ASSESSOR-RECORDER-COUNTY CLERK JOHN TUTEUR JOHN P. DOERING, SBN148907 COUNTY COUNSEL DEIRDRE MCGRATH,SBN 138238 DEPUTY COUNTY COUNSEL 1010 10" Street, Room 6400 Modesto, California 95354 Telephone: (209) 525-6376 Facsimile: (209) 525-4473 Attomeys for Amicus Curiae COUNTY OF STANISLAUS BRUCE GOLDSTEIN, SBN 135970 COUNTY COUNSEL LINDA SCHILTGEN,SBN 197615 DEPUTY COUNTY COUNSEL COUNTY OF SONOMA 575 Administration Dr. #105A Santa Rosa, California 95403-2881 Attorneys for Amici Curiae COUNTY OF SONOMA and SONOMA COUNTY CLERK-RECORDER-ASSESSOR WILLIAM F. ROUSSEAU Pursuant to Evidence Code section 459 and California Rules of Court, rules 8.520(g) and 8.252(a), the above-captioned amici curiae hereby request that the Supreme Court take judicial notice of the following documents. Noneofthese materials were presented to thetrial court, and the materials do not relate to proceedings occurring after the order or judgment that is the subject of the appeal. (Cal. Rules of Court, rule 8.252(b)(2)(B), (D).) 1. United States Internal Revenue Service regulatory and interpretive documents relating to the former federal Documentary Stamp Tax), attached hereto as Exhibits “A” through “N” (Evid. Code, § 452, subds. (b)-(c); Cal. Rules of Court, rule 8.252(b)(2)(C)), more particularly set forth as follows: Exhibit “A” - Revenue Ruling 57-580 (1957) Exhibit “B” - Revenue Ruling 59-165 (1959) Exhibit “C” - Revenue Ruling 59-282 (1959) Exhibit “D” - Revenue Ruling 58-511 (1958) Exhibit “E” - Revenue Ruling 59-166 (1959) Exhibit “F” - Internal Revenue Service General Counsel Memo 20898 (Internal Revenue Cumulative Bulletin 1938-2, p. 414) Exhibit “G” - Internal Revenue Service General Counsel Memo 24450 (Internal Revenue Cumulative Bulletin 1944, p. 650) Exhibit “H” - Internal Revenue Service General Counsel Memo 33134 (1965) 1965 WL 13576 Exhibit “I” - Internal Revenue Service General Counsel Memo 37079 (1977) 1977 WL 46532 Exhibit “J” - Internal Revenue Service General Counsel Memo 21702 (Internal Revenue Cumulative Bulletin 1939-2, p. 383) Exhibit “K” - Internal Revenue Service General Counsel Memo 23295 (Internal Revenue Cumulative Bulletin 1942-2, p. 271) Exhibit “L” - Internal Revenue Service, S.T. 865 (Internal Revenue Cumulative Bulletin 1937-2, p. 528) Exhibit “M”- Internal Revenue Service, M.T. 24 (Internal Revenue Cumulative Bulletin 1946-2,p. 182) Exhibit “N” - Internal Revenue Service, S.T. 860 (Internal Revenue Cumulative Bulletin 1937-1, p. 341) The foregoing materials demonstrate the Internal Revenue Service’s interpretation and application of the former Documentary Stamp Tax, which is the predecessor to the Documentary Transfer Tax provisionsat issue in this matter. These documents support the argument advancedin the accompanying amicus curiae brief that the Stamp Tax wasapplied flexibly to include transactional documents that — commonlaw labels aside — sold a “bundle of rights approximating”those ofreal property ownership. (Cal. Rules of Court, rule 8.252(b)(2)(A).) 2. Legislative history materials and advisory reports pertaining to the Excise Tax Reduction Act of 1965, Pub.L. No. 89-44, attached hereto as Exhibits “O” through “Q” (Evid. Code, § 452, subd. (c); see Dowhal v. SmithKline Beecham Consumer Healthcare (2004) 32 Cal.4th 910, 926, fn. 6; Cal. Rules of Court, rule $.252(b)(2)(C)), more particularly set forth as follows: Exhibit “O” - Hearings before Sen. Com. on Finance on H.R. No. 8371, 89th Cong., 1st Sess., p. 39 (1965), testimony of Secretary of the Treasury Henry Fowler Exhibit “P” - Congressional Record, Volume 111, page 13573 (June 17, 1965) Exhibit “Q” - United States Advisory Commission on Intergovernmental Relations, The Intergovernmental Aspects of Documentary Taxes, Report No. A-23 (1964) The foregoing materials demonstrate the intent of Congressrelating to the repeal of the federal Stamp Tax and contemporaneous adoptionoftransfer taxes at the local level. These documents support the argument advanced in the accompanying amicus curiaebrief that contemporary lawmakersclearly understood the longstanding interaction between transfer taxes and state property taxes. (Cal. Rules of Court, rule 8.252(b)(2)(A).) 3. Legislative history materials pertaining to Statutes 2009, chapter 622 (SenateBill $16) and Statutes 2011, chapter 320 (Assembly Bill 563) (Evid. Code, § 452; Kaufman & Broad Communities, Inc., (2005), 133 Cal.App.4th at pp. 32-35; Cal. Rules of Court, rule 8.252(b)(2)(C)), more particularly set forth as follows: Exhibit “R” - Sen. Rev. & Tax. Comm., analysis of Sen. Bill No. 816 (2009-2010 Reg. Sess.) as introduced Exhibit “S” - Assem. Comm.on Rev. & Tax., analysis of Assem.Bill. No. 563 (2011-2012 Reg. Sess.) as introduced The foregoing materials demonstrate the intent of Legislature in adopting amendments to the Revenue and Taxation Code facilitating collection of Documentary Transfer Tax from transactions consisting of changesin controlof legal entities that own real property. These documents support the argument advanced in the accompanying amicus curiaebriefthat the Legislature intends such transactionsto be taxable, thereby clarifying any ambiguity in the applicable statutes on this subject. (Cal. Rules of Court, rule 8.252(b)(2)(A).) Dated: October 14, 2015 Respectfully submitted, ARTHUR J. WYLENE TEHA COWNTY COUNSEL | 2 Attorneys forAmicus Curiae COUNTY OF TEHAMA and TEHAMA COUNTY CLERK-RECORDER JENNIFER A. VISE “ U R EXHIBIT A § 4272] 768 from one point in the United States to another. Under the provisions of section 4272 (a) of the Code, the tax applies only to amounts paid to a person engaged in the business of transporting property for hire, including amounts paid to a freight forwarder, express company, or similar person, but not including amounts paid by a freight for- warder, express company, or similar person for transportation with respect to which a tax has previously been paid. t is held that since the association makes the arrangements with various firms for (1) the consolidation of various commodities into | barge shipmients, and (2) the transportation, unloading, and segre- gation of the barge shipments, and is hable to these various firms for paymentof their charges,it is a “similar person”within the mean- ing of section 4272 (a) of the Code. Accordingly, the amounts paid to the association are subject to the tax on the transportation.of property. However, the payments made by the association to the other carriers are regarded as settlements between carriers andare, therefore, not subject to the tax. When the charges are paid to the other carriers, the association should certify on the appropriate ship- ping papers to the effect that it has collected or will collect the tax from the shippers. CHAPTER 34.—DOCUMENTARY STAMP TAXES SUBCHAPTER A.—ISSUANCE OF CAPITAL STOCK AND CERTIFICATE OF INDEBTEDNESS BY A CORPORATION | PART 1—ISSUANCE OF CAPITAL STOCK AND SIMILAR INTERESTS SECTION 4801—IMPOSITION OF TAX ‘(Also Sections 4821,4831, 4361.) Rev. Rul. 57-580 Applicability of the documentary stamp tax to various transac- tions involved In the merger of a state bank into a national bank which continues under the nattonal bank charter. Advice has been requested concerning the applicability of the doeu- mentary stamp tax with respect to transactions involved in the merger of a state bank into a national bank which continues under the national bank charter. A national bank and a state bank agreed to mergeinto and continue under the charter of the national bank as a national banking associa- tion, as provided by section 8 of the Act of Congress of November17, 1916, as amended, 12 U.S. C. 84a,relating to the consolidation of state banks with national banks. Prior to the merger, the national bank had issued and outstanding 90,000 shares of commonstock having a par value of $40 per share, and the state bank had issued and outstand- ing 15,000 shares of $20 par value stock. After the merger, the capital stock of the association is represented by 98,000 shares of common stock of the par value of $40 each, The 90,000 shares of the national bank remained outstanding, and, under the merger agreement, the shareholders of the state bank were issued 8,000 shares of the associa- ’ tion’s $40 par value commonstock for their state bank shares, 769 [§ 4301. Section 4801 of the Internal Revenue Code of 1954 provides that a tax shallbe imposed on each original issue of shares or certificates ofstock, issued by a corporation, whether on organization or reorgani- zation. Section 4821 of the Code provides that a tax shall be imposed on each sale or transfer of shares orcertificates of stock, or of rights to subscribe for or to receive such shares or certificates, issued by a corporation. Section 4831 of the Code providesthat a tax shall be imposed on each sale or transfer of anycertificates of indebtedness,issued by a corpora- tion. Section 4361 of the Code provides that a tax shall be imposed on each deed, instrument, or writing, whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise con- veyed to, or vested in the purchaser or purchasers,or any other person or persons, by his, her, or their direction when the consideration or value of the property conveyed exceeds $100. Section 113.24(h) of Regulations 71, made applicable to the 1954 Code by Treasury Decision 6091, C. B. 1954-2, a provides that stock issued In connection with a merger by the continuing corporation to the stockholders of the merging corporation is subject to documentary stamp tax. Section 113.33(h) of Regulations 71 provides that a transfer upon a merger from the name of a merging corporation of stock owned by it to the nameof the continuing corporation is subject to documentary stamp tax. Section 113.33(i) of Regulations 71 provides that the transfer of rights to receive stock is subject to documentary stamp tax. Section 113.34(i) of Regulations 71 provides that in a merger of cor- porations the surrender of stock of both merging and continuing cor- porations in exchange for stock of the continuing corporation is not subject to documentary stamptax. Where two or more corporations combine and continue business through a newly created corporation, a “consolidation”is effected. Where two or more corporations combine under the amended charter of one of the corporations, which is a party to the agreement and is to continue, a “merger” is effected. See S. T. 610, C. B, XT-2, 593 (1982). Under the above statement of facts, the union of the state bank and the national bank constitutes a “merger” as distinguished from a “consolidation.” Accordingly, under the circumstances stated,it is held that: (1) Neither the issue tax nor the transfer tax imposed bysections 4301 and 4821 of the Code, respectively, was incurred in the merger with respect to the shares of commonstock of the national bank, which shares are the same shares that were outstanding before the merger and which are held by the samestockholders. (2)(a) However, the issuance by theassociation of the 8,000 of its $40 par value shares to the stockholders of the state bank is subject to the original issue tax. See section 113.24(h) of Regulations 71; also O. D, 83, C. B, Sales Tax Rulings, page 72, which provides that stock issued by the merging corporation (continuing corporation) in ex- change for stock of the merged corporation is subject to tax as an originalissue. § 4301.) 770 (b) If the new shares of the association were issued direct to thestate bank and then distributed by such bank to its stockholders,transfer tax also is incurred undersection 4821 of the Code upon such distribution. (c) On the other hand, if the new shares of the association were issued directly to the stockholders of the state bank, the transfer taxwould still be due, based, however, on the transfer by the state bank of its right to receive such shares. See American Processing & Sales Co. v. Campbesl, 164 Fed. (2d) 918; U.S. Industrial Chemicals Ino, v. Johnson, 181 Fed. (2d) 413; and Raybestos-Mankattan Inc. v. U.S,296 U. S. 60, Ct. D. 1039, C. B. XIV-2, 400 (1935), (3) The surrended for cancellation and extinguishmentofthestate bank shares by its stockholders is not taxable under the rovisions of section 4321 of the Code. See section 113.84(i) of Regulations 71, (4) If the state bank owned any stocks and/or bonds of other cor- porations which were transferred to the association, a transfer tax ig incurred with respect to such tranfers underthe provisionsof sections 4321 and 4331 of the Code. See sections 113.33(h) and 113.63 of Regulations 71, also G. C. M. 8050, C. B. FX-1, 396 (1930), to the same effect. (5) In the eventtitle to any real estate is conveyed by the state bank to the association, no documentary stamp tax will be incurred on the delivery of the deed or deeds, since the realty in this typeof. transaction is not considered to have been sold within the meaning of section 4361 of the Code. See G. C. M. 24450, C. B. 1944, 650, Stock certificates issued by a fishermen’s cooperative association in payment of a patronage refund. See Rev. Rul 57-520, page 777, SUBCHAPTER B—SALES OR TRANSFERS OF CAPITAL STOCK AND CERTIFICATES OF INDEBTEDNESS OF A CORPORATION PART I—SALES OR TRANSFERS OF CAPITAL STOCK AND SIMILAR INTERESTS SECTION 4321—IMPOSITION OF TAX {Also Section 4331.) Rev. Rul. 57-349 Sales or transfers of corporate securities to or by a State, or a political subdivision thereof, are subject to the documentary stamp tax. If the State or political subdivision thereof is acting in a governmental capacity in the sale or transfer, it is immune from the tax but the nonexempt party to the transaction is liable for the tax. . Advices has been requested whether the documentary stamp tax applies to the sales or transfers of corporate securities to or by a State or a political subdivision thereof, Section 4321 of the Internal Revenue Code of 1954 imposes a tax on each sale or transfer of shares or certificates of stock, or of rights to subscribe for or to receive such shares or certificates, issued by a corporation. Section 4331 of the Code imposes a tax on each sale or transfer of any certificates of indebtedness, issued by a corporation. EXHIBIT B Rev. Rul. 59-165 Page 1 of 2 Rev. Rul. 59-165, 1959-1 C.B. 443, 1959 WL 12533 (IRS RRU) Internal Revenue Service (I.R.S.) Revenue Ruling Published: 1959 26 CFR 43.4361-1: Imposition of tax. Instruments that transfer any interest in the ownership of real property are subject to the documentary stamp tax imposed by section 4361 of the Internal Revenue Code of 1954. Accordingly, with respectto realty located in the State of Minnesota, a sheriff's ‘certificate of sale’ delivered to a foreclosure purchaser and a ‘certificate of redemption’delivered to a judgment debtor (redemptioner) are subject to the tax imposed by section 4361 of the Code. Advice has been requested concerning the applicability of the documentary stamp tax on conveyances of real property, imposed by section 4631 of the Internal Revenue Code of 1954, to a sheriff's ‘certificate of sale’ delivered to a foreclosure purchaser and to a ‘certificate of redemption’ delivered to a judgmentdebtor (redemptioner) with respect to realty located in the State of Minnesota. Section 4361 of the Code, as amended by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, imposes a stamp tax on each deed, instrument, or writing by which any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to or vested in, the purchaser or purchasers, or any other person or persons,by his or their direction, whenthe consideration or value of the interest or property conveyed (exclusive of the value of any lien or encumbrance remaining thereon at the time of sale) exceeds $100. Section 43.4361-1(a)(2) of the Documentary Stamp Tax Regulations provides that a conveyanceof realty subject to an equity of redemption is taxable when made, not when the time for redemption expires. Section 43.4361-1(a)(4)(ii) of the regulations provides that the term ‘sold’ imports transfer of an interest for a valuable consideration, which mayinvolve money or anything of value. In the foreclosure of a real estate mortgagein Minnesota, the realty subject to the mortgageis sold at public auction by a county sheriff, who then issues and delivers to the foreclosure purchaser a sheriff's certificate of sale, subject to redemption within one year. If redemption is made within one year by the judgment debtoror his grantee, a certificate of redemptionis issued. Underthe laws of the State of Minnesota, the purchaserofrealty at a sheriff's foreclosure sale does not acquire full title to the property foreclosed at that time but only a conditional right to obtain title to the premisesat the expiration of the redemption period provided by law. See Morganv. Joslyn, 97 N.W. 449. In Minnesota the sheriff's certificate of sale becomes a deed at the expiration of one year. The assignmentof the interest or right of the foreclosure purchaser during the redemption period is aconveyance of real estate within the meaning of the recording act. If such interest or right is assigned, the title, when it passes by lapse of time and nonredemption, vests in the assignee of such interest. See Berryhill v. Smith, 61 N.W. 144. Section 507.01, Chapter 507, of the Minnesota Statutes provides that the term ‘purchaser’ embraces everyperson to whom any estate or interest in real estate is conveyed for a valuable consideration and every assignee of a mortgage, lease, or other conditional estate. The word ‘conveyance’includesevery instrumentin writing whereby any interest in real estate is created, aliened, mortgaged, or assigned, or by which the title thereto may be affected in law orin equity. In view of the foregoing, in Minnesota a foreclosure purchaser takes such an interest in the real estate as to constitute an estate in such realty. The fact that legal title does not pass from the https://web2.westlaw.com/result/documenttext.asnx?fn= tan&m=%A7fRind0/,.0 Fdafault wld. AleinAde - Rev. Rul. 59-165 Page 2 of 2 mortgagorto the purchaseruntil the expiration of the redemption period results in there being two estates in the sameland at the same time,a fee-simpletitle in the mortgagor and a separate and distinct estate or interest in the foreclosure purchaser. The purchaserat the sale acquires an interest in the real estate which is subject to defeasance. There is no provision of law or regulations whichrestricts the application of section 4361 of the Code to instruments conveying estates in fee simple. Instruments that transfer anyinterest in the ownership of real property are subject to the documentary stamp tax. The fact that in the State of Minnesota a sheriff's certificate of sale does not convey a fee-simple estate is immaterial in determiningits liability for the tax imposed by this section of the Code. Accordingly, with respect to realty located in the State of Minnesota, since in a foreclosure sale an interest in real estate passes to the foreclosure purchaser upon delivery to him of the sheriff's certificate of sale, it is held that the documentary stamp tax imposed by section 4361 of the Codeis applicable to the sheriff's certificate of sale at the time of delivery of such certificate and not when the redemption period expires. It is further held that, since the certificate of redemption conveys, for a valuable consideration, the interest in the real estate acquired by the foreclosure purchaser, the subsequentdelivery of a certificate of redemption to the judgmentdebtor or redemptioneris also subject to the documentary stamptax. Rev. Rul. 59-165, 1959-1 C.B. 443, 1959 WL 12533 (IRS RRU) END OF DOCUMENT : (c) 2015 Thomson Reuters. No Claim to Orig. US Gov. Works https://web2.westlaw.com/result/documenttext.asnx?fn= ton&m="?Findflefanlt wlan aleianie EXHIBIT C Revenue Ruling, Rev. Rul. 59-282 (1959) ™ KeyCite Red Flag - Severe Negative Treatment Obsoleted by Revenue Ruling, IRS RRU, January 1, 1970 Rev. Rul. 59-282 (IRS RRU), 1959-2 C.B. 332, 1959 WL 12344 Internal Revenue Service (1.R.S.) Revenue Ruling Published: 1959 SECTION 4361.—IMPOSITION OF TAX *1 Whereassignors ofcertain interests in oil, gas, and mineral leases reserved to themselvesthe tight to production payments, they retainedan interest in the oil, gas, and minerals in place, the sale of whichis subject to the tax on conveyancesofrealty imposed by section 4361 ofthe Internal Revenue Code of 1954, Advice has been requestedasto the applicability of the documentary stamp tax imposed by section 4361 ofthe Internal Revenue Codeof 1954 to conveyancesfor valuable consideration of production paymentsreserved from a transferofoil gas, and mineral interests. Owners ofcertain interests in oil, gas and mineral leases assigned their interest in such leases to an oil company for a cash consideration, reserving to themselves a ‘Primary Production Payment,’ payable out of 90 percentofall the oil, gas, and hydrocarbons and other minerals that may be produced from the property. They also reserved a ‘Secondary Production Payment,’ whichis payable out of 90 percentofall theoil, gas, etc., produced from the leased properties from andafter the time the Primary Production Paymentisfully liquidated and discharged. Onthe daythe assignmentto the oil company was executed, the assignors sold to otherparties the retained Primary Production Paymentandthe retained Secondary Production Payment Section 4361of the Internal Revenue Code of 1954 imposesa tax on each deed,instrument, or writing, whereby any lands tenements, or otherrealty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, or any other person orpersons, byhis, her, or their direction, when the consideration or value of the interest Or property conveyed, exclusive of the value of any lien or encumbrance remaining thereonatthe timeofsale, exceeds $100. Section 43.4361-1(a) of the Documentary Stamp Tax Regulationsprovides,in part, as follows: (3) For purposesof the tax imposed by section 4361, the determination of what constitutes ‘realty’ is not controlled by the definition or scopeofthat term underState law. State law determinesthe characterofthe rights conveyed by an instrument, but whether such conveyance constitutes a conveyanceof‘realty’ is to be determined under Federal law. See G.C.M.23295, C.B. 1942-2, 271; and Phillips Petroleum Co. v. Jones, 176 Fed.2d) 737, Ct. D. 1733, C.B. 1950-2, 135. It has been held thatthe leasing of oil and gas property, which creates in the lessee an interestin the natural resource content ofthe land, is a conveyanceof realty within the meaningof section 4361 ofthe Code andis subjectto the tax imposedby that section. See M.T. 16, C.B. 1943, 1170; Phillips Petroleum Co. v. Jones, supra. To the extentthatthe assignors reserved to themselvestherightto the production payments, they excluded from the assignmentsoftheiriinterests in the leases and retained for themselvesinterests in the oil, gas and mineralsin place.It is held, therefore, that the sale, by the assignors, or such retained interests in the oil, gas and minerals in place is a conveyanceofrealty sold within the meaning ofsection 4361 of the Code and is subject to the tax imposed underthatsection. WestlawNext © 2015 Thomson Reuters. Noclaim to original U.S. Government Works. Revenue Ruling,Rev. Rul. 59-282 (1959) *2 It should be noted in this connection that the Supreme Court of the United States in Commissioner v. P. G. Lake, Inc., etal., 356 U.S. 260, Ct. D. 1823, C.B. 1958-1, 516, proceeded onthe premise that ‘oil payments are interests in land,’ while holding that the consideration received for oil paymentrights is taxable as ordinary income subjectto depletion. Becausethe Internal Revenue Service has previously ruled that similar conveyancesare not subjectto the stamp tax, and under the authority contained in section 7805(b) of the Code, this ruling will not be applied prior to August 31, 1959, the date ofits publication in the Internal Revenue Bulletin. Rev. Rul. 59-282 (IRS RRU), 1959-2 C.B. 332, 1959 WL 12344 End of Dacument 2015 Thomson Reuters. No claim tooriginat U.S. Government Works. WestlawNext’ © 2015 Thomson Reuters. Noclaim to original U.S. Government Works. 2 EXHIBIT D 847 [§ 4361, Section 4361 of the Code imposes a tax on each deed, instrument, or writing, whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers when the consideration or value of the interest or property conveyed, exclusive of the value of any liens or encumbrance remaining thereon atthe time of sale, exceeds $100, Section 4383 of the Code provides that the documentary stamp tax shall be paid by any person who makes,signs, issues, or sells any of the documents or instruments subject to tax, or for whose use or benefit the same are made, signed, issued, or sold. The United States or any agency or instrumentality thereof shall not be liable for the taxwith respect to an instrument to whichit is a party, and affixing of stamps thereby shall not be deemed paymentfor the tax, which may be col- lected by assessment from any other party liable therefor. Inthe instant case, it is held that,since there is only one conveyance and one deed, that being from the trustee to the Federal Housing Ad- ministration, only one conveyance tax is imposed and that is based on the amount of the consideration supporting such conveyance, namely, $500,000, the amountof the bonds issued by the Federal Hous- ing Administration for the property. Since the Federal Housing Administration is an agency of the United States, it is not liable for the documentary stamp tax with respect to a conveyance of real prop- erty acquired by it in a foreclosure proceeding. However, this does not relieve the other party to the transaction from his liability for such tax in view of the dual liability provisions of section 4383 of the Code, under which the tax is payable by and collectible from the antor or the grantee, unless otherwise specifically exempt. See Rev. Rul 57-373, C. B, 1957-2, T75; and Rev. Rul. 37-79, C. B. 1957-1, 415, Rev. Rul. 58-511 Where a “Declaration of Taking” is filed pursuant to the pro- visions of 40 U. 8S. C. 258(a) for taking of real property in eminent domain proceedings by the United States or any agency or instru- mentality thereof, the documentary Stamp tax imposed by section 4361 of the Internal Revenue Code of 1954 is incurred on the date the‘Declaration of Taking” is filed and is based upon the amount finally awarded. . _ Advice has been requested concerning the applicability of the docu- mentary stamp tax imposed bysection 4861 of the Internal Revenue Code of 1954 with respect to “Declarations of Taking”filed by agencies of the United States Government when real property is taken for public use. Section 4861 of the Code imposes a tax on each deed, instrument, or writing, whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred or otherwise conveyed to, or vested in, the purchaser or purchasers when the consideration or value of the interest ‘or property conveyed, exclusive of the value of any liens or encumbrances remaining thereonat the timeof sale, exceeds $100. Section4383 of the Code provides that the documentary stamp tax shall be paid by any person who makes,signs, issues, or sells any of the documentsor instruments subject to tax, or for whose use or benefit the same are made, signed, issued, or sold. The United States or any § 4361,] 848 agency or instrumentality thereof is notliable for the tax with respect to an instrument to whichit is a party, and affixing of stamps thereb shall not be deemed payment for the tax, which may becollected by assessment from any other partyliable therefor. Wherereal property is acquired by the United Statesor any agency or instrumentality thereof in condemnation proceedings, the instru- ment wherebytitle is vested in the condemnoris subject to the docu- mentary stamp tax imposed by section 4361 of the Code. A “Declara- tion of Taking” which is sometimes filed in a condemnation proceed- ing, is an instrument or writing wherebytitle to realty sold is vested in the condemnorand the documentary stamp tax is payable with re- spect thereto by the condemnee, the non-exempt party to the condem- nation proceeding. See Revenue Ruling 57-72, C. B. 1957-1, 415, Specific questionsrelating to “Declarations of Taking”filed pursuant to the provisions of the Act of February 26, 1931, Public Law 736,7ist Cong., 46 Stat. 1421, 40 U. S. ©. 258 (a), and the answersthereto, are as follows: Question 1. When does the tax attach? Answer: Section 258 (a) of Title 40 of the United States Codepro- vides, in part, that upon thefiling of a “Declaration of Taking” and of the deposit in the court, to the use of the persons entitled thereto, of the estimated compensation stated in such declaration,title to lands in fee simple absolute shall vestin the United States of America, and such lands shall be deemed to be condemned and taken for theuse of the United States, and the right to just compensation for the same shall vest in the persons entitled thereto; and the compensation shall be ascertained and awarded in the proceeding and established by judgmenttherein. Section 258(b) of Title 40 of the United States Code provides that no appeal in any cause under section 258 of that title nor any bond or undertaking given therein shall operate to prevent or delay the vesting of title to such lands in the United States, In the case of UnitedStates v. Sunset Cemetery Co., 132 Fed. (2d) 163, the Court of Appeals for the Seventh Circuit held that, under the above-mentioned sections, condemnition of land for public use is effected and title completely vested in the governmentby the mere filing of the “Declaration of Taking”, and judgment adjudgingtitle in the government is unnecessary. The court said, “Thereafter the court had only jurisdiction to determine what was Just compensation for the tract,...,” In United States v. 243.22 Acres of Land Situate in Village of Farmingdale, Town of Babylon, Suffolk County, State of New Yor et al., 41 Fed. Supp. 469, it was stated that in a condemnation pro- ceeding by the United States title to the property vested in the United States on the date of filing of the “Declaration of Taking”, pursuant to section 258(a) of Title 40 of the United States Code, and depositing with the clerk of the court the estimated just compensation. in view of the foregoing, it is held that the tax attaches on the date the “Declaration of Taking”is filed, since that is the date that title to the property vests in the United States. The filing of an appeal by a taxpayer to a higher court would not affect the govern- ment’s title to such property. Question 2. What is the basis for the tax? 849 [§ 4361. _ Answer: Section 118,82(c) of Regulations 71, made applicable to the 1954 Code by Treasury Decision 6091, C. B. 1954-9, 77, provides that the tax is based upon net value where the amount of the con- sideration is indefinite, or is left open to be fixed by future con- tingencies. Therefore, the amount finally awarded by the court as the value of the property is the basis for the tax. Question 3. Where should the stamps be affixed ? Answer: Section 113.85 of the regulations provides that the stamps must beaffixed to the deed, instrument, or other writing by which realty is conveyed. Accordingly, the stamps must be affixed to the “Declaration of Taking”since that is the instrument by which title is vested in the United States. Rev. Rul. 58-558 Where an individual who owned land needed by: the city for street improvements agreed to sell such realty to the city for a cer- tain price and to remove a building from the land for an additional amount, the agreement constitutes an indivisible contract to transfer the land free of any building thereon and the cousideration upon which the documentary stamp tux is imposed is the totalamount received for the land and for the removal of the building. Advice has been requested as to the basis upon which the docu- mentary stamp tax imposed by section 4361 of the Internal Revenue Code of 1954 should be computed where an individual who owned land needed for city street purposes agreed to sell such realty to the city for a certain price andto remove a building from the land for an additional amount. An individual owned a parcel of land, upon which his residence was located, that was needed by thecity for widening, opening, and extending streets. The owner submitted an offer in writing to the city whereby he agreedtosell the land for $500 and to accept $12,000 for moving the residence located thereon to anotherlocation for his own benefit. The city, by resolution of its common council, agreed to accept’ the owner’s offer. The recorded deed disclosed the firure of 512,500 as the net consideration for the land. Section 4861 of the Code imposes a tax on each deed, instrument, or writing, whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers when the consideration or value of the interest or property conveyed, exclusive of the value of any liens or encumbrances remaining thereon at the timeof sale, exceeds $100. _ In the instant case, the city wanted the land forstreet purposes. It did not want the building, but only the physically unencumbered property and the property owner in effect undertook to sell the land free of the building. The agreement, therefore, constitutes an indi- visible contract to transfer land free of any building thereon. In ex- change for the physically unencumbered fand the city agreed to pay the owner $12,500. On the other hand, the property owner asked for and received $12,500 in return for transferring titleto only his land, Even though the agreement showed an apportionment of the consideration which the city paid to the owner, the total amount was apparently considered a fair value for the land acquired. Accord- EXHIBIT E Revenue Ruling, Rev. Rul. 59-166 (1959) ™ KeyCite Red Flag - Severe Negative Treatment Obsoleted by Revenue Ruling, IRS RRU, January 1, 1972 Rev.Rul. 59-166 (IRS RRU), 1959-1 C.B. 444, 1959 WL 12534 Internal Revenue Service (I.R.S.) Revenue Ruling Published: 1959 *1 The documentary stamp tax imposed by section 4361 of the Internal Revenue Code of 1954 is not applicable where a “Surrender of Lease’ is delivered by a lessee after a number of buildings and improvements were erected by him on property " he leased for a period of 75 years withoutthe privilege of extending suchlease. Advice has been requested whether the documentary stamptax imposed by section 4361 ofthe Internal Revenue Code of 1954 is applicable to the delivery of an instrumentcalled ‘Surrenderof Lease,’ where the lease was for a period of 75 years and was granted for the purpose oferecting, maintaining, and operating a housing project. The lease was surrendered bythelessee after a numberofbuildings and improvements were erected on the leased property. In the instant case, a lease was executed in 1952 by the Secretary of the Air Force and a construction company wherein Government land within an Air Force base wasleasedto the construction companyfora period of 75 years (withoutprivilege of renewal) for the purpose oferecting, maintaining, and operating a housing project. The lease provided thatthe lessee shall pay to the Governmentrental in the amountof $100 peryear;that the buildings and other improvements erected by thelessee, constituting such housing project, shall become, as completed,real estate and part of the leased premises, and property of the UnitedStates, leased to the lessee and subjectto the termsof the lease; that an application for mortgage insurance under Title VIII of the National Housing Act be made; that the lessee shall lease all units of the housing project to military and civilian personnel of the Armed Forces assigned to duty in the area where the property is located; that the lessee shall not transfer or assign the lease withoutthe written approval of the Secretary ofthe Air Force; that the lessee shall exercise due diligencein the protection of the leased premises, including the buildings and other improvements constituting the housing projects; and that the lessee shall payall taxes, assessments, andsimilar charges which,at any time during the term ofthe lease, may be assessed or imposed upon the Governmentor uponthe lessee with respect to the leased premises. Pursuantto the provisions of Public Law 1020, 84th Congress, 70 Stat. 1111, 40 U.S.C. 1954, in 1957 a ‘Surrender of Lease’ and a ‘Purchase Agreement’ were executed on the same date by and betweenthe lessee and the United States Government, acting through the Secretary of the Air Force, wherein the lease was terminated andallofthe lessee's interest in the housing project wastransferred and sold to the United States Government, which assumedthe payments called for by a certain note that was secured by mortgages. Specifically, the question is whether liability for documentary stamptax was incurred whenthe ‘Surrenderof Lease’ and the “Purchase Agreement’ were delivered and, if so, whetherthe tax is computed onthe basis of the equity interest owned by the lessee or whetherit is this amountplus the amountofthe mortgage assumed by the Government. *2 Section 4361 of the Code imposes a tax on each deed, instrument, or writing, whereby any lands, tenements, or other realty sold shall be granted, assigned,transferred, or otherwise conveyedto, or vested in, the purchaser or purchasers when the consideration or value of the interest or property conveyed, exclusive of the value of any lien or encumbrance remaining thereon atthe timeof sale, exceeds $100. Underthe lease executed in 1952, the lessee acquired a leasehold interest in Governmentlands. Upon completionofthe buildings and other improvements erected on such lands which constituted the housing project, they becamereal estate, a part of the WestlawNext’ © 2015 Thomson Reuters. No claim to original U.S. Government Works. Revenue Ruling, Rev. Rul. 59-166 (1959) leased premises, and property of the United States, leasedto the lessee. Therefore, upon executionof the ‘Surrenderof Lease,’ no question arises with regard to a conveyance of buildings and improvements separate and apart from a conveyance of a leasehold interest in land, since such buildings and improvements were an integral part of the leasehold interest surrendered. Therefore, it follows that unless the interest acquired by the lessee under the 1952 lease wassufficient to constitute ‘realty’ within the meaning of thestatute, the surrender, underthe ‘Surrender of Lease,’ of such interest, augmented as it was by the buildings and improvements erected on the leased land, for valuable consideration could notbe said to be a conveyance of ‘realty sold’ and, therefore,taxable. The 1952 lease being a leasefor a fixed period of 75 years and granting norightto extend the term by renewalor otherwisedid not convey aninterest in land of sufficient duration to constitute ‘realty’ within the meaning ofsection 4361of the Code. The lessee's interest in the buildings and improvements erected on the leased landis of no greater duration. Accordingly, it is held that no interest in ‘realty’ was conveyed when the ‘Surrender of Lease’ wasdelivered. Therefore, liability for the documentary tax stamp imposedby section 4361 of the Code wasnotincurred upon the delivery of the ‘Surrender of Lease’ or ‘Purchase Agreement.’ Rev. Rul. 59-166 (IRS RRU), 1959-1 C.B. 444, 1959 WL 12534 Endof Document © 2015 ThomsonReuters, No claim to original U.S. Govemment Works. WestlawNext © 2015 Thomson Reuters. No claim to original U.S. Government Works. P R E S E E E E E EXHIBIT F Regs, 71, Art. 84.] 414 In Stokely v. State (115 So., 563 (1928)) the Supreme Court of Mississippi passed upon the question whether a board of trustees for a State hospital had the power under State law to execute an oil and gas lease on lands owned by the hospital. The board had executed an oil and gas lease in respect of the lands for a considera- tion of $1 and an agreement to develop the land for oil and s, the board retaining a royalty of one-eighth of the oil produced. The court said: * * * Under this instrument the title to seven-elghths of the ofl in the land is vested iri the grantee, while she is given the exclusive right to purchase all gas produced therefrom at a fixed and unchangeable price. Under the provisions of the instrument the rights conferred thereby continue so long as oil or gas, or either of them, is produced on said land, provided érilling was commenced by a fixed date. Under this provision, the termination of the grant is wholly uncertain, and the rights granted may endure forever, From a practical standpoint, the rights of the grantee under an instrument which conveyed the oil and gas under the land-and granted the exclusive Tight to conduct operations to produce and dispose of the same, or under an im strument which leased, demised, and let the land for the same purpose, would be no other, different, or greater than the rights of the grantee in the instru- ment here involved, and we are of the opinion that this instrument is, in legal effect, a lease of the land and a conveyance of an interest therein. * * * The conclusion so reached was approved by the Circuit Court of Appeals for the Fifth Circuit in 0% Products Corporation of Mis- sissippi v. Conner et al. (83 Fed, (2d), 985 (1936)). See also section 3146, Mississippi Code, 1930, as amended in the 1938 supplement. Inview of the foregoing, it is held that the “royalty deed” in question constitutes a conveyance of realty subject to the stamp tax imposed by Schedule A-8 of Title VIII of the Revenue Act of 1926, as added by section 725 of the Revenue Act of 1932, Reoutations 71, Arricru 84: What consti- 1938-52-9654 tutes real property determinable by law | G. C. M. 20898 of State where located. . A grant of perpetual flowage rights to the United States with respect to lands in Louisiana constitutes a conveyance of realty’ subject to stamp tax, An opinion is requested whether the grantof certain flowage rights with respect to land in Louisiana by Eg to the United States in con- nection with the control of floods of the Mississi pi River and its tributaries constitutes a conveyance of realty subject to the stamptax imposed by Schedule A-8 ‘of Title VIL of the Revenue Act of1926, as added by section 725 of the Revenue Act of 1939. The law imposes a stamp tax on any “* * # Deed, instrumenor writng * * * waereby any lands, tenements, or other realtysold shall be granted, assigned, transferred, or otherwise conveyed or vested in, the purchaser or purchasers * * * when the con. sideration or value of the interest or property conveyed, exclusive ofthe value of any lien or encumbrance remaining thereon at the time of sale, exceeds $100 * * *.2* What constitutes “ lands, tenements,or other realty ” is determinable by the law of the State in whichthe property is situated. (Article 84, Regulations 71.) 415 [Regs. 71, Art. 84. Pursuant to the provisions of the Act of May 15, 1928 (45 Stat., 534), as amended by the Act of June 15, 1936 (49 Stat., 1508), the UnitedStates has been acquiring flowage easements on lands located in Louisiana in connection with the project for controlling floods of the Mississippi River and its tributaries. The deed whereby A conveyed certain flowage rights on land lo- cated in Louisiana recites that A does grant, bargain,sell, convey, transfer, assign, set over and deliver to the United States or its ns- signs “the full, complete and perpetual right, power, privilege and easement of entry upon the lands described below, and of unimpeded overflow of said lands and improvements thereon by diversion. of floodwaters of the Mississippi River and its tributaries * * * to have andto hold the said above described rights, easements, privileges and servitudes unto the United States of America, or its assigns for- ever.” The deed further provides that A expressly reserved for him- self, his heirs and assignsall such rights and privileges in and to the lands as may be used and enjoyed without interfering with or abridg- ing the privileges, rights, easements and servitudes conveyed to the United States, and that the conveyance should not confer upon the United States or its assigns any authority to execute engineering works such as the excavation of channels, the building of levees, the clearing of timber or other works upon the lands involved. The con- sideration for the conveyance is in excess of $100. Under the instrument in question, A conveyed to the United States the rights, easements, privileges, and servitudes described therein. An easement, denominated in the civil lawas a servitude,is an inter- est in land created by grant or agreement, express or implied, which confers a right upon the owner thereof to some profit, benefit domin- ion, or lawful use out of or over the estate of another. (Los Angeles Terminal Land Co. v. Muir (Calif., 1902), 68 Pac., 308, 312.) Ease- ments are of two general classes—appurtenant easements and ease- ments in gross. An appurtenant easement is one which is attached not to a person but to another estate, which is called the dominant tenement, while an easement in gross is an easement whichattaches toa person. (2 Tiffany, Real Property (2d ed., 1920), section350.) Both types of easements are interests in real property, and if the term for which the easement is to last is for hfe, for an indefinite period, or forever, the easement constitutes “lands, tenements, or other realty.” . oo In Louisiana, where the civil law, as distinguished fromthe com- mon law, prevails, an easementis called a servitude, and servitudes are of two general classes—real or predial servitudes and personalservi- tudes, The real or predial servitude takes the placeof the common- law appurtenant easement and is so called because it is attached to another estate. The personal servitude takes the place of the com- mon-law easement in gross and is so calledbecause it attachesto a person, not to another estate. It is immaterial whether theservitude clescribed in the deed be considered a real or a personal servitude. In either case it is an interest in real property and a real obligation(as distinguished from a personal obligation of the grantor), andit is to last forever. (See Frost-Johnson Lumber Co, v. Salling’s Heirs (La., 1922), 91.So., 207, 214, 245.) So far as is here material, the only difference: between a real servitude and a personal servitude is that Regs. 71, Art. 84.] 416 the former is in favor of an estate while the latter is in favor of a person. The interest created in the land which is burdened by the servitude is the same in either case. Consequently, articles 731 and 817 of the Louisiana Civil Code (Dart, 1932), dealing with real servitudes, are pertinent: %31. Owners under disability incapable of establishing.—It is not sufficient to be an owner in order to establish a servitude; one must be master of his rights and have the power to alienate; for thecreation of a servitude is an alienation of a part of the property. Thus minors, married women, persons interdicted, can not establish servitudes on thelr estates, except according to the forms prescribed for the alienation of their property. , * . * * * * * * 817, Release required to be tw writing—Capacity to execute.—The express release must -be made in writing, and is confined to what is clearly expressed in the act containing it, because one is not easily presumed to have renounced his right. ‘Besides, the owner who makes the release must be capable of disposing of immovables; this release of a servitude being a real alienation. Jt is evident that a flowage right is an easement or servitude under the laws of Louisiana. The grant of such rights in the instantcaseis unlimited in duration—perpetual rights—and, therefore, constitutes an alienation of a part of the property. For the reasonsstated, it is the opinion of this office that the grant of the flowage rights in question constitutes a conveyance of realty sold subject to the stamp tax imposed by Schedule A~8 of Title VIII of the Revenue Act of 1926, as added by section 725 of the Revenue Act of 1982. - J.P, Wencnen, Chief Counsel, Bureau of Internal Revenue. EXHIBIT G Regs. 71 (1941), § 113.81.] 650 SECTION 3482, AS AMENDED BY SECTION 1 OF THE REVENUE ACT OF 1939, SECTIONS 209 AND 210 OF THE REVENUE ACT OF 1940, AND SECTIONS 505 AND 521(a)(24) OF THE REVENUE ACT OF 1941— CONVEYANCES. ReguLations 71 (1941), Szorion 113.81: “ Sold ” 1944-93-11901 defined. G. C. M. 24450 The transfer of real estate in a statutory merger or consolidation from a constituent corporation to the continuing or new corporation, as the case may be, does not constitute a transfer of “ realty sold” within the meaning of section 3482 of the Internal Revenue Code, - as amended, and is not subject to stamp tax under that section. G. ©. M. 22955 (C. B. 1941-2, 808) revoked. An opinion is requested whetherthe transfer of realty in a statutory merger or consolidation of two or more corporations constitutes a transfer of “realty sold ” subject to stamp tax undersection 3482 of the Internal Revenue Code, as amended by section 1 of the Revenue Act of 1939, sections 209 and 210 of the Revenue Act of 1940, and sections 505 and 621(a) (24) of the Revenue Actof 1941. Section 8482 of the Internal Revenue Code, as amended, imposes a tax on— Conveyances, Deed, instrument, or writing, * * * whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or other- wise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by his, her, or their direction, * * *, - Section 113.81 of Regulations 71 (1941 Ed.) provides: * * * * * * * (a) The term “deed” includes any instrument or writing whereby realty is assigned, transferred, conveyed to, or vested in, the purchaser or, at his di- rection, in any other person. (6) The term “sold” imports transfer of title for a valuable consideration which may involve money or anything of value. In United States v. Seatile-First National Bank (821 U. S., 583, Ct. D. 1605, page 658, this Bulletin), which involved the consolidation of a State bank and a national bank under the charterof the national bank, pursuant to the provisions of section 8 of the National Banking Act (12 U. S. C., section 34(a)), it was held that the documentary stamp tax did not apply to the transfer of real property to the national bank. The basis of the decision was that in view of the provi- sions of section 3 of the Banking Act, the realty was not conveyed to or vested in the consolidated bank by any deed, instrument, or writing, nor was the realty “sold” or vested in a “purchaser or purchasers ” within the ordinary meaning of those terms. It is the opinion of this office that the holding of the Supreme Court, to the effect that the transfer of realty in carrying out the statutory consolidation made in the Seattle-First National Bank case was not a conveyance of realty “sold” to a “ purchaser ” within the ordinary meaning of those terms, is likewise applicableto transfers of realty in statutory mergers or consolidations under State statutes. In view of the foregoing, G. C. M. 22955 (C. B. 1941-2, 308), in which a contrary conclusion was reached, is revoked. J. P. Wencren, Chief Counsel, Bureau of Internal Revenue, EXHIBIT H GENERAL COUNSEL MEMORANDUM, GCM 33134 (1965) GCM 33134 (IRS GCM), 1965 WL 13576 Internal RevenueService(I.R.S.) General Counsel Memorandum Published: November18, 1965 Date: November18, 1965 *1 CC:1:1-1889 Br4:SDK Harold T. Swartz Assistant Commissioner (Technical) Director, Miscellaneous Tax Division Referenceis made to your memorandum dated August27, 1965, transmitting to this office, for concurrenceor comment, the proposedtechnical advice memorandum to the District Director, * * * The issue involved is whether a sheriff's certificate of sale, issued at a foreclosure sale ofreal property located in * * * is subject to the documentary stamp tax undersection 4361 of the Internal Revenue Code of 1954. You also requested advice as to whether G.C.M. 11276, dated November 18, 1932, in re: * * * on which you base your conclusion, can be reconciled with Rev. Rul. 59-165, C.B. 1959-1, 443. The proposed technical advice memorandum holdsthat the documentary stamptax appliesto the sheriff's deed conveying legal title at the expiration of the statutory redemption period, but not to the sheriff's certificate ofsale. Wedonot concurin the conclusion reachedin the proposed technical advice memorandum.It is our view that the proper rule is that set forth in Rev. Rul. 59-165. We are also of the opinion that G.C.M. 11276is in direct conflict with Rev. Rul. 59-165. The latter holds that the documentary stamp tax imposed bysection 4361 ofthe Codeis applicable to sheriff's certificates of sale issued to foreclosure purchasers in * * * even though suchcertificates do not convey legaltitle to the realty. Copies of various documents in the administrative file in this case reveal the following pertinent facts. The transfers of realty involved resulted from two foreclosure sales in the state of * * *. Thefirst property was sold under execution, and a sheriff's certificate of sale was issued to the purchaser, * * * on November 2, 1961. Thereafter, on May4, 1962, a sheriff's deed was issued to * * * and on the same day, * * * conveyed the property to the Federal Housing Administration. The second property was sold on April 5, 1962, on which date a certificate of sale wasissued to * * *. On July 30, 1962, * * * conveyedits interest to the Veterans Administration. On October 24, 1962, a sheriff's deed wasissued to the Veterans Administration. Section 1626of Title 12 of the Arizona Revised Statutes of 1956 provides: substituted to and acquiresall the right,title, interest and claim of the judgmentdebtorthereto. B. Whentheestate is less than a leasehold of two years unexpired time,thesale is absolute.In all other cases, including sales underorderof court in foreclosure suits, the property is subject to redemption. C. Theofficer shall give to the purchasera certificate of sale, setting forth a full description ofthe real property sold, the price bid andpaid for each parcel if sold in lots or parcels and whether subject to redemptionornot. VestlawNext © 2015 Thomson Reuters. No claim to original U.S. Government Warks. GENERAL COUNSEL MEMORANDUM, GCM 33134 (1965) Under* * * foreclosure law until the property is sold, the mortgagorholds both legal and equitabletitle. Whenthesaleis made, equitable title passes to the purchaser, subject to defeasance by redemption within the statutory period. This equitable interest is subject to levy andsale.If there is no redemption,the sheriff's deed completesthelegaltitle of the purchaser. First Nat. Bank of Yumav. Maxey, 34 Ariz. 438, 272 P. 641 (1928); Oliver v. Dougherty, 8 Ariz. 65, 68 P. 553 (1902), *2 Section 4361 of the 1954 Code impose a tax “‘on each deed,instrument or writing by which any lands, tenements, or other realty soid shall be granted,assigned,transferred, or otherwise conveyed * * *,” G.C.M. 11276 held, underthe corresponding provision of prior Arizona law (section 4226 of the Revised Codeof Arizona, 1928) that the documentary stamp tax was notapplicableto a sheriff's certificate of sale. In the G.C.M.such certificate of sale was deemedto representa “mere conditional or qualified conveyance,” and it was stated that “the law” (Schudule A-8 of Title VIII of the Revenue Act of 1926, added by section 725 of the 1932 Act) “contemplates an instrument which vests the property in the purchaser”.It was then stated that “underthe laws of * * * this object is accomplished only bythe transfer to the purchaserof both a legal and equitabletitle.” However, in Rev. Rul. 59-165,it is held, undersimilar provisionsof * * * law,that the documentary stamptax is applicable to a sheriff's certificate of sale, even thoughit does not conveylegaltitle. It was three deemedsufficient that the purchaser acquire ANY interest in the realty. It was so held even thoughtheceritifcate of sale conveyed only a conditional right to obtaintitle to the premises at the expiration of the redemption period. As stated therein, “There is no provision of law or regulations which restricts the application of section 4361 of the Code to instruments conveyingestates in fee simple. Instruments that transfer any interest in the ownership ofreal property are subject to the documentary stamptax. The factthat in the State of * * * a sheriff's certificate of sale does not convey a fee-simple estate is immaterial in determiningits liability for the tax imposed by this section of the Code.” The interest which a foreclosure purchaser takes in * * * is substantially the sameas that received in * * *. In both states the purchaser receives only a conditionalright to obtain legaltitle. We believe that in * * *, as in * * * the certificate of sale passes such an interest in the property as to subject it to the stamptax. Moreover,the result reached in Rev. Rul. 59-165 would seem to be consistent with section 47.4361-1(a)(2) of the Stamp Tax Regulations, which providesthat “a conveyanceofrealty subject to an equity of redemption is taxable when made, not when the time for redemption expires.”G.C.M. 11276 on the other hand would seem to be in direct conflict with this provision of the regulations. In accordancewith the above,the transactions involved are taxable as follows: Thecertificate ofsale covering the first property, issued to * * * on November 2, 1961, is subject to the tax. However, the sheriff's deed-issued on May4, 1962is not subject to the tax. The deed of same date conveying the property to the Federal Housing Administration is taxable, The certificate of sale covering the second property, issued on April 5, 1962, is also subject to the tax, as is the deed dated July 30, 1962, whereby * * * conveyedits interest to the Veterans Administration. The sheriff's deed of October 24, 1962, issued to the Veterans Administration is not subjectto the tax. *3 G.C.M.11276is hereby revoked. The administrativefile is retuned herewith. WestlawNext’ © 2015 Thomson Reuters. No claim to original U.S. Government Works. GENERAL COUNSEL MEMORANDUM, GCM 33134(1 965) Mitchell Rogovin Chief Counsel Internal Revenue Service Enc. Adm.file This documentis notto be relied upon or otherwisecited as precedent by taxpayers. GCM 33134 (IRS GCM), 1965 WL 13576 Endof Document ©2015 Thomson Reuters. No claimto original U.S. Government Works. WestlawNext’ © 2015 Thomson Reuters. No claim to original U.S. Government Works. EXHIBIT| GENERAL COUNSEL MEMORANDUM, GCM 37079 (1977) GCM 37079 (IRS GCM), 1977 WL 46532 Internal Revenue Service(I.R.S.) General Counsel Memorandum April 5, 1977 Section 4361 -- (Repealed) Conveyances Tax (Taxable v, Not Taxable) 4361.00-00 (Repealed) Conveyances Tax (Taxable v. Not Taxable) 4361.01-00 Deeds , 4361.01-05 Oi} Leases,etc. TA 7704260020E CC:1-420-76 Br2:DFConley JOHN L. WITHERS Assistant Commissioner (Technical) Attention: Director, Individual Tax Division The Individual Tax Division (T:I1:WEA) requested our concurrence or comment on proposedtechnical advice memoranda ***, 1-420-76) in a memorandum dated September 21, 1976. ISSUE Whether documentsthat grant the right to receive proceeds from sale of a specified percentage of minerals produced from mining activities are instruments that conveyinterests in ‘realty’ for purposes of the documentary stamp tax imposedbyInt. Rev. Code of 1954, § 4361 [hereinafter cited as Code}. CONCLUSION Documentsthat convey valid production paymentsin practical effect convey an interest in mineralin place. Such documents are subjectto the tax imposed by Code § 4361 on instruments that conveyaninterest in realty. Documents that establish mere debtor-creditor relationships fail to convey the requisite interest in mineral in place. Such documents are notsubject to the tax imposed by Code § 4361. FACTS *** is a wholly-owned subsidiary of *** is engaged in the mining of minerals in place. During the period between December, 1963, and December, 1967, *** conveyed certain ‘mineral payments'to various grantees pursuantto indentures. Each indenture providesthat *** sells, as a mineral payment,the rightto receive proceedsfrom thesale of a specified percentageofall mineral produced by *** from specifically indentified mines until the indenture agreementis satisfied. Each indenture further provides that: This instrument shall not constitute a transfer by *** of any interest in any mineralor in any leasehold interest or other mineralinterest included in the [property in which *** owns an interest] but shall transfer WestlawNext © 2015 Thomson Reuters. No claim to original U.S. Government Works. GENERAL COUNSEL MEMORANDUM, GCM 37079 (1977) to grantee solely a right to receive the payments herein provided for out of the proceeds from thesale of the subject mineral produced therefrom. Under the provisions of the indentures, *** undertakes several obligations on behalf of its grantees Tespecting the mining properties. Thoseobligations include *** promises to pay promptlyall rentals with respectto the mining properties; to maintain in full force andeffect all easements and rights of way necessary to the miningof the mineralin place; to maintain and operate the properties in a good and workman-like manner; to keep in full repair all mines and quarries; to provide grantees with promptwritten notice of every material adverse claim affecting the properties, and to protect and defend such properties against such claims; to pay punctually all taxes on the properties, and to keep the properties free andclearofall liens, charges and encumbrances;to obtain written consent of granteespriorto anysale, assignment,transfer, or abandonmentof any interest in the properties; to permit grantees’ representatives to make any reasonable inspection of the properties and mining operations as such representatives deem proper. *2 Hach indenture specifically exempts *** from personalliability for discharge of the mineral payments. The indentures require granteesto look exclusively to the specified percentage of mineral producedfrom theproperties for such discharge. In addition, two other subsidiaries of *** (*** and ***) engaged in substantially similar transactions with various grantees. Becauseofthis similarity, we have limited our discussion to those issues raised by the *** transactions, ANALYSIS Code§ 4361! imposes a tax on deeds, instruments, or other writings, whereby any lands, tenements, or other realty sold are conveyedto the purchaser, when the consideration for or valueofthe interest or property conveyed exceeds $100. Treas. Reg. § 47.4361-1(a)(2) limits the scope of Code § 4361 to conveyances ofinterests in realty.Code § 4361 does not apply to other conveyances.Treas. Reg. § 47.4361-1(a)(3) providesthat: For purposesof the tax imposed by section 4361, the determination of what constitutes ‘realty’ is not controlled by the definition or scope ofthat term underState law. State law determinesthe character of the tights conveyed by an instrument, but whether such conveyanceconstitutes a conveyanceof‘realty’ is to be determined under Federallaw. Treas. Reg. § 47.4361-1(a)(4) provides that the term ‘realty’ includes those interests in real property that endure for an unspecified period of time such asan estate in fee simple,life estate, or perpetual easement. The term also encompassesthose interests enduringfor a fixed period of years that either by reasonof the length ofthe term orthe grant of a Tight to extend the term by renewalor otherwise, consist of a bundle ofrights approximating thoseofa classofinterests mentioned above. The documentary stamptax has been appliedto a variety of typical extractive industry transactionsthatin substance convey an interest in mineral-bearing real property. 2 Onesuchtransaction upon which the documentary stamp tax has been imposedis the conveyance of what is commonly knownin the industry as carved-outor retained production payments. A production paymentis a right to receive a specified share offuture production from mineral property measured by units of minerals or a stated sum of money.It may be ‘carved out’ of any mineral interest having a duration greater than the interest conveyed, or it maybe‘retained’ by the grantor upon assignmentof the mineralinterest having the greater duration, * In Chevron Oil Companyv. United States, 471 F.2d 1373 (Ct. Cl. 1973), the Court of Claims held the documentary stamp tax applicable to a conveyancethat provided that grantor did: WestlawNext © 2015 Thomson Reuters. No claim to original U.S. Government Works. GENERAL COUNSEL MEMORANDUM, GCM 37079(1977) *... grant, bargain,sell and convey...’ a production paymentto [grantee] that was payable outof a specified percentageofcide oil or other hydrocarbonsto be ‘. .. produced, saved andsold’ from specifically identified properties leased by [grantor]. The production payments were ‘.. . payable only out of production . ..” from the identified properties. Each conveyance provided that [grantee] would receive proceeds from a ‘.. . percentage of crudeoil herein conveyed . . .’ plus an additional amountequal to a specified percentage equivalentto interest on the unpaid balance. {471 F.2d at 1376] *3 Furthermore, grantor was obligated to deliver the oil it produced to the same parties that customarily purchased grantor's production on the usual terms and conditions. Grantor was notto be held personally liable for discharge of the production payments. Grantee was to look exclusively to the percentage of oil produced from the properties for such discharge. The production payments conveyed to grantees were to continue until the gross amount was paid or for a maximum period of 15 years. The court found thatin essence the documents before it conveyed carved-out production payments. The court then accepted the positionsof the Service in Rev. Rul. 59-282, 1959-2 C.B. 332, and Rev. Rul. 66-88, 1966-1 C.B. 258 and held the documentary stamp tax applicable to the conveyancesbeforeit. In Rev. Rul. 59-282 the Service reasonedthat a mineral lease conveysaninterestin the natural resource contentof real property. This interest is subject to the tax imposed by Code § 4361 according to Phillips Petroleum Company v. Jones, 176 F.2d 737 (10th Cir. 1949). Inasmuch as retained production payments in an assignmentofthe balance ofgrantor’s interest in the mineral lease are in essenceretainedinterests intherealty, it follows that the subsequent assignmentof such retained interests in realty is likewise a conveyancesubjectto the tax imposed by Code § 4361. The Service in Rev. Rul. 66-88 amplified the principle of Rev. Rul. 59-282, and applied it to the conveyance of production payments carved outofgrantor's interestin the mineralin place. This result followed because there was essentially no difference in the characterof the two interests conveyed. In the subject case *** apparently argues that the language in the indentures merely assigns to grantees a bare contract right to the proceeds from future sales of minerals. This argument focuses onthe formalities of the conveyance itself, Subject to certain reservations noted later, we generally concur with your position that, based on the practical effect of the submitted indentures, rather than on the particular words of conveyance involved, the *** indentures convey carved-out production payments. Such conveyancesare subject to the documentary stamp tax underthe rationale of Chevron and Rev. Rul, 66-88. In our view, *** indentures have conveyed noless an interest in the mineral in place than did the conveyances involved in Chevron.Asa practical matter, in each case grantees must look exclusively to mineral produced for satisfaction of their respective production payments. The production is to come from specifically identified mineralproperty.Ifsufficient production is not forthcoming from those properties, neither grantoris personally obligated to satisfy the paymentfrom other sources. The risk of nonproduction then is clearly borne by the respective grantees. Security for satisfaction of the respective production paymentsrests solely in the mineral content ofthe land allocated to those payments.In our opinionit is this economic reality that establishes the existence of aninterest in realty sufficient to support application of the documentary stamptax. *4 Although the Chevron conveyancesprovide that grantees shall ‘own’ the mineral allocated to the production payment, and the *** conveyancesspecifically disclaim a similar intention, we believe such distinctionisoflittle significance under the circumstancesherein involved. Wepreviously noted that *** has undertaken considerable obligations and duties on behalf of its grantees with respect to the mineral properties. For example, *** could notsell or transfer any interest in the specified properties without written consentof grantees. It could not, of its own accord, abandon the properties. All properties were to be maintainedin full repair and operated in a workmanlike manner. Grantor wasto keeptitle to the properties free and clearofall liens, charges and encumbrances. These undertakings militate againsta finding that *** has conveyed nothing more than a bare WestlawNext’ © 2015 Thomson Reuters. No claim to original U.S. Government Works. GENERAL COUNSEL MEMORANDUM, GCM 37079 (1977) contract rightto share in future proceeds from mining. Onthe contrary,it is our opinionthattherights intended to be conveyed by the ‘ownership’ clause of the Chevron documents do not encompass a more significantindication of ownership than do the tights conveyedto grantees by the *** indentures. Certainly it was not contemplated byeitherof the Tespective grantors that actual production activity would be undertaken by any party other than those grantors. Nor wasit expected in either case that production payments could be satisfied by a tender of raw minerals to grantees, neither of which were involved in the purchase or sale of raw minerals. Rather, in each case grantors obligated themselvesto sell raw mineralallocatedto production payments to customary purchasers of such raw minerals that Commonly did business with the respective grantors. Clearly, it was the expectation ofall parties that outstanding production payments would besatisfied out of the proceeds from such futuresales. Generally, we are unable to discover any practical difference in the legal relationships created by the conveyances involved in Chevron and those involved in the present case. The majority of the *** indentures in substance conveyedto grantees an ownershipinterestin an allocated percentage ofcertain mineralin place. Under the Chevron rationale, such interest is an interest in realty, the conveyanceof which is subjectto the documentary stamp tax imposed by Code § 4361. However, we believe that certain of the indentures involved fail to convey such an interest in realty sufficient to support application of the documentary stamp tax. We note that the subject indentures conveyed in 1963 through 1965 were previously before this office in another context. * SeeG.C.M. 35090 ***, 1-4403 (Oct. 26, 1972, supplemented Dec. 15, 1972). The issue addressed therein was whether such indentures conveyed valid ‘economic interests' for purposesofthe depletion deduction allowed by Code 8 61 1.Code § 611 provides thatin the case of mines, oil and gas wells, other natural deposits, and timber, there is allowed as a deduction a reasonable allowancefor depletion.Treas. Reg. § 1.611-1(b)(1) provides that such allowanceis available only to the owner of an economicinterest in mineral deposits. The regulation further provides that an economicinterest is possessed in every case in whichthe taxpayer has acquired by investmentany interest in mineral in place and secures, by any form oflegal relationship, incomederived from the extraction of mineral, to which he mustlook for a return ofhis capital. *S In *** we took the position that those indentures providingfor satisfaction of production payments solely from gross income from mining conveyed valid production payments embodying an economicinterest within the meaning of Treas. Reg. § 1.611-1(b)(1). Those providing for payment from non-mining sources of revenue failed to convey such interest because grantees could lookto incomederived from sourcesotherthan extraction of mineral. Rather,theselatter indentures are viewed as creating mere debtor-creditor relationships between the respectiveparties. Your proposed technical advice memorandum,by implication, takes the position that those instruments characterized as loans, and foundnotto conveyan interest in mineral in place sufficient for purposes of depletion, do nonetheless convey an interest in mineralsufficient for purposes of the documentary stamp. Weare unableto find supportfor such a position. As you note, ‘Section 7361 of the Code indicates that it was the intention of Congress to require the affixing of stampsto instruments, which in substance convey orassigninterests in lands, tenements or other realty withoutregard to the particular legal effects and consequences which maybeattached to them by stae law.’In this regard, we believeit is equally clear that Congress did not intend Code § 4361 to apply to instruments foundto convey no interest in realty for Federal income tax purposes. Norhas the Service adopted such an interpretation.SeeTreas. Reg. § 47.4361-1(a)(2). To regardthis transaction as possessing characteristics of debt for purposes of depletion, and characteristics of equity investment for purposesofthe stamp tax appears to us calculated to producea result unwarranted underthe Code o 1 applicable case law, However, we acknowledge thatit is possible to view the transaction as embodying characteristics of both,i.e. a loan, secured by aninterest in mineral in place. Even so, this characterization netslittle advantage, for Code § 4362 provides that the tax imposed by Code § 4361 shall not apply to any instrumentgivento secure a debt. Furthermore, neither Chevron nor Rey. Rul. 66-88 maybe relied upon to support such inconsistent tax treatment of these transactions. In both casesit is apparentthat the YestlavyNext’ © 2015 Thomson Reuters. No claim to original U.S. Government Works. GENERAL COUNSEL MEMORANDUM, GCM 37079 (1977) documents therein involved would not be characterized as debt instruments for depletion purposes. Finally, we have serious doubtas to the advisability of raising this argumentin the contextoflitigation, where the Service would be putto the task of defending sucha contradictory position. In short, webelieve the Service, having once determined that someofthe subject indentures constitute mere debt instruments, should maintain that position even at the expense of lost stamp tax revenues. We Suggest that the proposed technical advice include a discussionofthe inapplicability of the documentary stamptax to those indentures foundto constitute debt obligations rather than conveyancesofan interestin realty, in light of the foregoing analysis. *6 CHARLES L. SAUNDERS,JR. Acting Chief Counsel By: DONALDJ. DREES,JR. Chief, Branch No.1 Interpretative Division Attachments: Admin.files This documentis notto be relied upon or otherwise cited as precedent by taxpayers. Footnotes 1 * 26 U.S.C. § 4361 was repealed by the Excise Tax Reduction Act of 1965, Pub.L. 89-44, (June 21, 1965) as of January 1, 1968. 2 See Peck, Federal Documentary Stamp Tax Aspects of Oil and Gas Transactions, 1963 Tulane Tax Inst., 270 (1963). 3 Id. at 283. 4 Your proposed memorandum refers to indentures conveyed through 1967. Weare unable to determine from the administrative files whether the 1967 indentures differ materially from the 1963 through 1965 indentures. For purposes ofdiscussion we will assume the absence of such difference. GCM 37079 (IRS GCM), 1977 WL 46532 Endof Document © 2015 Thomson Reuters. No claim to original U.S. Government Works. WestlawNext’ © 2015 Thomson Reuters. No claim to original U.S. Government Works. EXHIBIT J 383 [Regs. 71, Art. 84. RecvuLations 71, Arricte 84: What constitutes - 1939-49-10115 real property determinable by law of State G. C. M. 21702 wherelocated, An oil and gas lease, covering lands in Oklahoma, for a specified term and as long thereafter as oil or gas is produced from the leased Jands does not conslitute a couveyance of realty subject to stamp. tax, An opinion is requested whether an oil and gas lease, covering lands in Oklahoma, for a specified term and as long thereafter as oil or gas is produced from the leased lands constitutes a conveyance of realty subject to stamp tax under section 3482 of the Internal Revenue Code, as amended by section 1 of the Revenue Act of 1989. Section 3482, as amended, imposes a stamp tax on any “ Deed, in- strument, or writing * * * whereby any lands, tenements, or other realty soldshall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, * * * when the consideration or value of the interest or property conveyed, exclusive of the value of any lien or encumbrance remaining thereon at the time of sale, exceeds $100 * * *.” What constitutes “lands, tenements, or other realty” is determinable by the law of the State in which the property is situated. (Article 84, Regulations 71.) The Supreme Court of Oklahomain State of Oklahoma v. Ernest Shamblin (90 P. (2d), 1053) held that the interest of a lessee in a nonproducing oil and gas lease is not subject to ad valorem taxation as real property under the laws of Oklahoma since the definition of real property for ad valorem taxation purposes does not include the lessee’s interest in such a lease. The court said in part: It has been consistently held by this court that an oil and gas mining lease is not real property nor a freehold or corporeal interest therein, and that the execution of such a lease does not constitute a conveyance of lands, tenements or other realty, or of a freehold or corporcal interest therein. This is true of Jeases having fixed terms, and it is equally true of leases having fixed terms followed by “and as long thereafter as ofl or gas is found” or by any similar provision; it being the view and holding of this court that the legal character of an oil and gas lease in Oklahoma is as above stated regardless of the term of the lease, whether fixed or indeterminate. It has also been repeatedly and consistently hell that such oil and gas mining leases are chattels real and are therefore personal property. (Kolachny v, Galbreath, 26 Okla., 772, 110 P., 902, 38 L. R.A. N.S. 451; Tupeher vy. Deaner, 46 Okla., 328, 148 P., 853: Kelly v. Harris, 62 Okla., 236, 162 P., 219; White v. McVey, 168 Okla., 19, 31 P. (2d), 850, 94 A. L. R., 656; Papoose Oil Oo. v. Swindler, 95 Okla., 264, 221 P., 506; Stanolind Orude Oil Purchasing Co. v. Busey. 185 Okla., —, 90 P. (2d), 876.) (Being personal property, such ofl and gas mining leases in Oklahoma are not taxable as real property or as conveyances of lands, tenements or other real estate or of a frechold or corporeal interest therein.) In view of the foregoing decision of the Supreme Court of Okla- homa,it is held that an oil and gas lease, covering lands in Oklahoma, for a specified term and as long thereafter as oil or gas is produced from the leasedlands does not constitute a conveyance of realty and is, therefore, not subject to stamp tax under section 3482 of the Internal Revenue Code, as amended. J. P. WENCHEL, Chief Counsel, Bureau of Internal Revenue. EXHIBIT K 271 (Regs. 71 (1941), § 113.83. (This Treasury decision is issued under the authority of section 8791 of the Internal Revenue Code (53 Stat., 467; 26 U.S. C., 1940 ed., 3791).) Guy T. Hexvertne, Commissioner of Internal Revenue. Approved June 27, 1942. Joan L. Suniuvan, Acting Secretary of the Treasury. (Filed with the Division of the Federal Register June 29, 1942, 11.66 a. m.) Recuuations 71 (1941), Section 113.144: Restric- 1949-87-11195 tions on the sale or purchase of stock transfer T. D. 5169 stamps. TITLE 26—INTERNAL REVENUE.—CHAPTBER I, SUBCHAPTER C, PART 113,— DOCUMENTARY STAMP TAXES, Regulations 71 amended.—Sale or purchase of stock transfer stamps. Treasury DeraRTMent, OrrFice or Commissioner oF INTERNAL REveNvgE, Washington, D.C. Lo Collectors of Internal Revenue and Others Concerned: Regulations 71 (1941 Edition) [Part 118, Title 26, Code of Federal Reguations, 1941 Sup.] are amended bystriking out section 113.144 thereof. (This Treasury decision ig issued under the authority of section 3791 of the Internal Revenue Code (53 Stat., 467; 26 U. 8. C., 1940 ed., 3791).) / Gory T. Hetverrne, Commissioner of Internal Revenue. Approved September 10, 1942. Joun L. Suttivan, Acting Secretary of the Treasury. (Filed with the Division of the Federal Register September 11, 1942, 3.26 p. m.) SECTION 3482, AS AMENDED BY SECTION 1 OF THE REVENUE ACT OF 1939, SECTIONS 209 AND 210 OF THE REVENUE ACT OF 1940, AND SECTIONS 505 AND 521(a)24 OF THE REVENUE ACT OF 1941—CON- VEYANCES. Reeutations 71 (1941), Secrion 113.83 : Convey- 1942-35-—11184. ances subject to tax. G. C. M. 28295 Whatconstitutes “lands, tenements, or other realty ” for purposes of determining stamp tax liability under section 8482 of the Internal Revenue Code, a8 amended,relating to the tax on conveyances, ts not controlled by the definition or scope of those terms under State law. State law creates legal interests but the Federal statute determines when and how they shajl be taxed. Accordingly, reference will be made to State law to determine the character of the rights conveyed. Whether conveyances of such rights are taxable, however, is to be determined under Federal law. Published rulings not in accord- ance with the foregoing will no longer be followed. An opinion is requested whether, in view of recent court decisions, the law of the State in which real property is located is controlling in determining what constitutes “lands, tenements, or other realty ” Regs. 71 (1941), § 113.83.] 272 for the purposesof the stamp tax imposed upon conveyances of realty by section 3482 of the Internal Revenue Code, as amended. . Section 3482 of the Internal Revenue Code, as amendedby section 1 of the Revenue Act of1939, sections 209 and 210 of the Revenue Act of 1940, and sections 505 and 521(a)24 of the Revenue Act of 1941, imposes a stamp tax on any “ Deed, instrument, or writing * * * whereby any lands, tenements, or otherrealty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the pur- chaser or purchasers, * “ * when the consideration or value of the interest or property conveyed, exclusive of the value of anylien or encumbrance remaining thereon at the time of sale, exceeds $100 * oO* * . Since the phrase “ lands, tenements, or other realty ” appearing in section 3482, as amended,is not defined, the question arises as to what interests in land come within the phrase for purposes of the stamp tax imposed by that section, The laws of the several States and judicial decisions vary greatly as to the classification of interests in land. This office has heretofore taken the position that the stamp tax under section 8482, as amended, should be imposed only where the law of the State in which the property was situated classified the interest conveyed as “lands, tenements, or other realty.” This position was in accord with article 84(a@) of Regulations 71 (1982). Regulations 71 (1941) contains no provision similar to article 84(a) of Regula- tions 71 (1982), The United States Supreme Court has held that in the absence of express or necessarily implied contrary statutory provision, State law is not controlling for purposes of Federal taxation. (Burnetv. Harmel (1982), 287 U. S., 103; Morgan v. Commissioner (1940), 309 U.S., 78; United States v. Pelzer (1941), 312 U. S., 899.) In Burnet v. Harmel, supra, the Court said: * * * It is the will of Congress which controls, and the expression of its will in legislation, in the absence of language evidencing a different purpose, is to be interpreted so as to give a uniform application to a Natlon-wide scheme of taxation. * * * State Jaw*may control only when the Federal taxing Act, by express language or necessary implication, makes its own operation depend- ent uponState law. (See Crooks v. Harrelson, 282 U. S., 55: Poe v. Senborn, 282 U.S., 101; United States v. Loan & Building Co., 278 U. S., 55; Tyler v. United States, 281 U. 8., 497; see Von Baumbach v. Sargent Lend Co., supra, 519.) * * * The State law creates legal interests but the Federal statute detcr- mines when and howthey shall be taxed. * * * In Morgan v. Commissioner, supra, the Court used the following language: State law creates legal interests and rights. The Federal Revenue Acts desig- nate what interests or rights, so created, shall be taxed. Our duty ts to ascertain the meaning of the words used to specify the thing taxed. If it is found in a given case that an interest or right created by local law was the object intended to be taxed, the Federal law must prevail no matter what name is given to the interest or right by State law. : In Unitcd States v, Pelzer, supra, the Court stated: * * * But as we have often had occasion to point out, the revenue laws are to be construed in the light of their general purpose to establish a Natlon-wide scheme of taxation uniform in its application. Hence their provisions are not to he taken as subject to State control or Umitation unless the language or necessary implication of the section involved makes its application dependent on State law. In Morrow v. Scofield (C.C. A. 5, 1940) (116 Fed. (2d), 17, certiorari denied (1941), 313 U. S., 573), suit was brought for the refund of 273 [Regs. 71 (1941), § 113.83. documentary stamp taxes paid bytheplaintiff upon the execution of instruments by whichcertain oil and gas leaseholds on lands situated in Texas were assigned. Under Texas law the leasehold interests assigned constituted interests in “ lands, tenements or other realty.” dhe court, in affirming judgment for the defendant collector, neverthe- ess said : We can not agree with appellant. The Texas decisions aside, and they are uniform to the effect that mineral leasehold interests are interests in Jands, tene- ments, or other realty, we think the comprehensive language of the Federal statute makes it quite plain that it was the intention of Congress to require the affixing of stamps to instruments of this kind, instruments which in substance con- vey interests in lands, tenements or other realty without regard to the particular legal effects and consequences which may be attached to them by the laws of a particular State. The Treasury regulation, ‘ what constitutes lands, tenements, or other realty is determinable by the laws of the State in which the property is situated” is not a part of the statute but a mere rule of thumb provision for working its applica- tion out. It was not intended to, it may not be given effect where the laws of a State do violence to the purport and intent of the taxing statute. If State laws should abolish entirely the concept of lands, tenements or other realty, or declare that a conveyance of land was not a conveyance, it would not, I suppose, be con- tended that the statute could be nullified in those States, and the Treasury regulation if read as so providing, would be a nullity, All that it amounts to is that where there may be a reasonable difference of opinion as to the legal effect of au instrument, the law of the State where the property is situated, will be looked to as controlling. Both then, becruse it is not a part of the statute and because if treated as though it were, it must be given a reasonable construction, it is quite plain that article 84 of Treasury Regulations 71, does not operate at all to impair or Invalidate the statute,- In Jones et al., Trustees, v. Magruder (D. C. Md., 1941) (42 Fed. Supp., 193), the issue was whether an assignment of a lease for 99 years, renewable forever, on land situated in Maryland was subject to the stamp tax imposed by section 725 of the Revenue .\ct of 1932 (now section 3482, I. R. C.). The Cowrt, in holding that the assignment of the 99-year lease wis subject to stamp tax, suid in part as follows: The legal incidents and characteristics of the ground rent lease are well known to all Maryland lawyers and judges, and have been firmly established for a very long period of years. The estate of the lessee has been uniformly regarded as personal property and upon his death intestate constitutes a part of his personal estate and passes, subject to the paymentof debts, to his next of kin and does not descend to his heirs at law. His wife or widow has no inchoate or consummate dowerin the leasehold estate; which may be bequeathed by will executed in form sufficient for the passage of personal property as distinct from real estate. There are numerous Maryland cases expressly so holding. ([Citations.} * * * * * FY * The dominant inquiry in the question now presented is, what did Congress intend to include in the phraseokigy of ‘deed, instrument, or writing * * * whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed, * * *” The Court, after referring to Morgan v. Commissioner, supra, Burret v. Harmel, supra, and United States v. Pelzev, supra, then con- tinued as follows: The crucial question is thus seen to be whether the statutory phraseologyis sufficiently general and definite to be susceptible of a uniform Nation-wide application, or whether the nature of the subject matter is such that there arises a necessary implication that its application must be dependent on the State Jaw. The taxpayers contend the latter furnishes the rule to be applied in this case. They rely principally on the regulations abure quoted. heir argument runs as follows: (1) The words of the statute (lands, tenements or other realty) are technical common law words used to distinguish realty from personalty; (2) Regs. 71 (1241), § 113.83.] 274 these technical words are applied with different results in different States by reason of particular statutory provisions or court decisions, and (3) local law thus applying, it is clearly established by Maryland law that. leases for 99 years renewable forever constitute personal and not real estate and are therefore not within the statutory phrase “lands, tenements or other realty.” If the premise that the words must be taken in their technical common law sense and so applied locally is correct, then the conclusion is plausible and logical and especially attractive to Maryland lawyers and judges who have long been familiar with the local decisions that such leasehold estates are personal and not real property. It is true that technical common law words when used in a statute without definition will generally be construed in that sense unless a contrary intention appears from the context. (2 Sutherland on Statutory Construction, 2d ed. s, 398, p. T57; Moore vy. United States, 160 U. S8., 268, 16 8. Ct., 294, 40 L. Ed, 422; Beazell y. Ohio, 269 U. §., 167, 46 S. Ct, 68, 70 L. Ed., 216.) It is also true that the general import of the statutory phrase is to include conveyances of real property as distinct from personal property. And tested by the technical and sometimes highly artificial rules of the common law of real estate, originating in the system of feudal tenure, the phrase “ lands, tenements or other realty” prob- ably would not when strictly applied, include a purely leasehold estate no matter of how Jong duration, as such an estate would be considered personal property and devolve not on the heir but on the personal representatives of a deceased owner, [Citations.] ? The word “tenements,” a highly technical term of the common law, has some uncertainty of meaning, but the better view would seem to be that it would not include estates for years. (Challis on Real Property, 3d ed., 1911, pp. 43-48: 1 Tiffany on Real Property (1920), 8, 5; Cf. Pollack & Maitland, History of English Law, Vol. 2 (1895), note, p. 117.) The inclusive phrase generally used to designate an owner's whole “ bundle of rights” in land was “lands, tenements and hereditaments.” In Maryland this phrase has been held not to include lease. hold interests for 99 years renewable forever. * * * It is, however, not probable that Congress intended in this modern taxing Act to use the phrase “lands, tenements, or other realty” in the technical nicety of the common law with respect to interests in lands flowing from a system of feudal tenure which did not exist in this country after the American Revolution. I have been unable to find any legislative history of the statute which throws any light upon the sense in which the words were used; but after considerable reflection I have reached the conclusion that the expression is sufficiently genera] but nevertheless definite to have a uniform Nation-wide application. If we put aside the technical niceties of meaning of the word “ tenements,” we neverthe- less have in the words “lands, or other realty,” an expression which is com- monly understood Nation-wide. Indeed one of the dictionary meanings (see Webster’s New International Dictionary) of the word “land” includes “an interest or estate in lands.” It is a reasonable construction of the statutory words.to include therein a conveyance of an interest or estate in land constitut- ing a substantial ownership in whole or in part, as distinguished from a mere license or temporary right of possession such as pertains to an ordinary lease. Probably in no State of the United States other than Maryland would a deed fora leasehold estate for 99 years rencwable forever not be considered a con- veyance of land or realty at this timé, And if the statute is susceptible of general uniform application, we must apply it without deference to the particu- larity of the Maryland view of the nature of the estate, * * * * * * * * * * But while the regulations relied on in this case by the taxpayers should not be lightly regarded, I think they must be constdered and applied in subordination to the proper construction of the statute itself. Regulations 71, article 108 that ' “leases of real estate are not subject to the tax” should fairly be construed as referring to only ordinary leases of real property. And in applying article 84 (a) that “ what constitutes land, tenements or other realty is determinable by the law of the State in which the property is situated,” we must bear in mind that the tax is imposed not on the subject matter of lands, tenements or other realty but on the conveyance thereof by deed or other written instrument, * * *” {Italics supplied.] In view of the foregoing, it is the opinion of this office that in determining liability for stamp tax imposed bysection 3482 of the Interna! Revenue Code, as amended, supra, reference should be made - 275 (Regs. 71 (1941), § 113.83. to State law only to ascertain the characterof the rights conveyed, and that recourse should then be made to Federal interpretation of section 3482 of the Internal Revenue Code, as amended,supra, to determine whether conveyancesof such rights are subject to stamp tax. For the purpose of determining liability for the stamp tax imposed by section 8482 of the Internal Revenue Code, as amended, supra, the phrase “lands, tenements or other realty ” embraces those interests which endure for a period of time, the termination of which is not fixed or ascertained by a specific numberof years, such as an estate in fee simple, life estate, perpetual easement, etc., and those interests enduring for a, fixed period of years but which, either by reason of the length of the term or the grant of a right to extend the term by renewal or otherwise, convey a bundle of rights approximating those of the class of interests first above mentioned. Thus, for example, a lease of real estate for 999 years, or a lease for 99 years renewable forever or for several succeeding terms is taxable. On the other hand, a lease for five years is not taxable even if the right is granted to renew it for several successive terms. Published memoranda and rulings to the extent that they are in- consistent with this opinion either in theory or in the conclusion reached should no longer be followed. (See G. C. M. 11782, C. B. XIJ-1, 489 (1933) ; G. C. M. 18085, C. B. XITI-1, 427 (1984); S. T. 794, C. B, KIII-2, 418 (1934) ; G. C. M, 14348, C. B. XTV-1, 497 (11933); G. 6. M, 16510, C. B. XV-1, 416 (1936) ; G.’C. M. 16934, C. B. XV-2) 364 (1986); G. C. M. 17026, C. B, XV-2, 366 (1936): S. T. 860, C. B. 1987-1, 341; S. T. 866, C. B. 1987-2, 524; S. T. 868, C. B. 1937-2, 597; 8. T. 872, C. B. 1988-1, 546; S. T. 876, C. B. 1938-2, 418; S. T. 881, C. B. 1939-1 (Part 1), 359; G. C. M. 20898, C. B, 1938-2, 414; S. T. 888, C. B. 1939-2, 380; 8. T. 890, C. B. 1939-2, 381; G. C. M. 21709, C, B. 1939-2, 883; G. C. M. 22139, C. B. 1940-2, 838; G. C. M, 22393, C. B. 1940-2, 836; 8. T. 917, C. B. 1941-1, 466; O. D. 72, Sales Tax C. B. January—June, 1921, 86; O. D. 53, Sales Tax C. B. January—June, 1921, 86; O. D. 158, Sales Tax C. B. July-December, 1921, 64; O. D. 181, Sales Tax C. B. July-December, 1921, 64.) The conclusions reached in this memorandum will be applied in de- termining liability for the stamp tax imposed under section 3482 of the Internal Revenne Code, as amended, only with respect to trans- actions occurring on and after the date of publication of this memo- randum in the Internal Revenue Bulletin. J.P. Wencue, Chief Counsel, Bureau of Internal Revenue. Approved. Norman D. Cann, Acting Commissioner of Internal Revenue, Approved. JoHN L. Sunivay, Acting Secretary of the Treasury. Reouuations 71 (1941), Secrrow 113.83: Con- 1942-37-11194 veyances subject to tax. M.T.4 A conveyance of realty to a partnership by a partner as a contri- bution to partnership assets is subject to stamp tax undersection 8482 of the Internal Revenue Code, as amended. : EXHIBIT L 529 {Regs. 71, Art. 92. trust. Subsequently all of the assets of the O Company were ac- quired by the P Company, which companylater elected to pay off the balance of the loan. ‘The outstanding land trustcertificates were thereupon retired and the property was conveyed to the P Company by the N Company (trustee) in accordance with the provisions of the lease. The determination of the issue presented requires consideration of the question whether the deed by the M Companyto the N Company, as trustee, was given to secure a debt or pursuant to a sale of the property. If the legal effect of the transaction was a sale, the subse- quent transfer of the property by the N Companyto the P Company was a sale and not merely a release of the N Company’s interest in the property. A similar situation was considered by the Board of Tax Appeals in City National Bank Building Oo. v. Commissioner (34 B, T. A., 93 (1986) ). . The Board held in that case that the transaction whereby the trustee acquired the property was a sale of real property and not a loan or mortgage. In the course of its decision the Board said: * * * . Thus the transactions in the present case were in law and in fact exactly what they purported to be. The petitioner sold its property, bene- fited from the method which it used, and now can not deny the fact of sale in order to claim tax benefits which would have resulted from the use of a mortgage or some other form of loan. The test is what wag done, not what might have been done. * * * The Board’s decision in the above-named case sustained the Bu- reau’s position that a transaction whereby property is conveyed to a trustee to be held in trust for the owners of land trust certificates, the former owner immediately receiving back a long-term lease with an option to purchase the property, constitutes a sale and not a mort- gage. Accordingly, the transaction whereby the M Company con- veyed the real estate to the N Company,as trustee, constitutes a sale and not a mortgage. It follows that the subsequent transfer of the real estate by the N Company to the P Company pursuant to the provisions of the lease constituted a sale rather than a release of the mortgage, and that the conveyance effecting such transfer is subject to the stamp tax imposed by Schedule A-8 of Title VIII of the Revenue Act of 1926, as added by section 725 of the Revenue Act of 1932, ~ EXHIBIT M Regs. 71 (1941), § 113.84.] 182. Kans., supra; Hamilton Nat. Bank v. United States, 6 Cir., 99 Hed. (2d), 570;Central States Tife Ins. Co.v. Sheehan, supra; United States v. American Trust& Banking Oo., 6 Cir., 125 Fed. (24), 113; Pennsylvania Co. for rnsurances, etc., Y.Rothensies, supra.) The notes here in question meet all the requirements ofinstruments known generally as corporate Securities, and they are taxable under the Act provided they are in registered form within the meaning of section 1801,The defendants do not contend that the notes under consideration are notprima facie in registered form, Any such claim would be without foundation,The notes are all in the same form and each one contains the.provision that— “This note shall not become or be valid for any purpose until registered by the Mississippi Valley Trust Company, and no transfer hereof shall be valid un- less endorsed by the registered holder hereof to a registered transferee, and a new note issued containing the same terms as the within note, and the new noteregistered by the said Mississippi Valley Trust Company.” And each note is endorsed with a “ Registrar’s Certificate ” reading “This is to certify that this note has been duly registered in the nameof theabove holder on the records of the undersigned. “ MIssIssiper VALLEY Trust CoMPANY, “c By “Trust Officer.” The contention is that the purpose of registration in this instance is unusual; that the notes are registered to protect the creditor banks and trust companies against violation of the subordination clause required by the contracts to be included in the notes. The clause referred to provides that the notes and all claims of the holders thereof “against the Royal Loan Company either as an endorser or guarantor is hereby subordinated to the claim of any Bank or Trust Company that may have extended or may hereafter extend credit to the Royal Loan Company * * #4," Conceding, as defendants must, that the notes are in registered form, their contention, based upon the purpose of the registration, fails because the statute makes no exception for any reason. Corporate securities “ with interest coupons or in registered form” are taxable according to the plain terms of the law, and the court is without powerto read into the statute a provision which does not exist. The judgment is affirmed. SECTION 3482, AS AMENDED BY SECTION 1 OF THE REVENUEACT OF 1939, SECTIONS 209 AND 210 OF THE REVENUE ACT OF 1940, AND SECTIONS 505 AND 521(a)(24) OF THE REVENUE ACT OF 1941— CONVEYANCES, Reeuations 71 (1941), Section 113.84: Con- 1946-20-12414 veyances not subject to tax. M.T.24 Taxability for stamp tax purposes of a transaction wherebyreal- estate was transferred in trust, a long-term lease immediately granted thereon, and a subsequent reconyeyance of the property made in accordance withthe provisions of the lease 8. T. 865 (C. B. 1937-2, 528) revoked. Advice is requested whether the conveyanceof real estate by the M Company to the N Bank,as trustee, and the subsequent reconveyance of the real estate to the M Company, the lessee, under the followin circumstances are subject to the stamp tax imposed by section 3482 of the Internal Revenue Code, as amended. Certain real estate was conveyed by the M Companyto the N Bank, as trustee. The trustee made a declaration of trust which provided thatit held legaltitle to the property for the benefit of such persons as may become parties thereto by the acceptance and holding of land 183 [Regs. 71 (1941), § 113.84. trust certificates of equitable ownership issued thereunder. The declaration further provided that the \ Bank (trustee) had leased the premises to the M Company (lessee) for 99 years renewable forever. Thelessee was obligated to pay rent of a specific amount peryear, and agreed to pay all taxes and other expenses, including the compensa- tion of the trustee underthe declaration. The lessee further agreed to create a depreciation fund by making paymentsof a specific amount per year to the trustee. The declaration further provided that the equitable ownership and beneficial interest in the trust estate be. divided into 800 indivisible equal units evidenced by landtrust cer- tificates issued by the trustee, each of which is equal to 1/800 of the equitable interest in the property. The trustee agreed to distribute the rentals received from the. lessee to the certificate holders. The lessee had an option to repurchase the property at any time. The trustee had the right to terminatethe lease should thelessee default in any of the provisions of the lease. The consideration received for the conveyance was far less than the market value of the property. The rental was equal to an interest payment on a debt of like size to that received for the conveyance and had no relationship to thereal rental value of the property. Subsequently the land trust certificates were retired and the real estate was reconveyed to the M Company by the N Bank (trustee). Section 3482 of the Internal Revenue Code, as amended, imposes a tax on— Conveyances. Deed, instrument, or writing, * * * whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or other- wise conveyed to, or vested in, the purchaser or purchasers, or any other person or persons, by his, her, or their direction, * * *, This section shall not apply to any instrument or writing given to secure a debt. Section 118.81, Regulations 71 (1941 ed.), provides: * * * * * * * (b) The term “sold” imports transfer of title for a valuable consideration which may involve money or anything of value. Section 113.84 of Regulations 71 sets forth the following as examples where the tax does not apply: * Ok * * * * * (a) The conveyance of realty to secure a debt; also the reconveyance of such realty upon payment of the debt. t ” *- * * * x In Helwering v. The F. & R, Lazarus & Co. (308 U.S., 252, Ct. D. 1430, C. B, 1939-2, 208) , which involved a transaction similar in essen- tial respects to the transaction involvedin the instantcase, the Supreme Court of the United States affirmed the decision of the United States Circuit Court of Appeals for the Sixth Circuit (101 Fed. (2d), 728), whichaffirmed the decision of the Board of Tax Appeals (82B. T. A, 633), holding that, in such a case, the transfer of ownership with a lease back was in reality a mortgage loan secured by the property in- volved. “Tt ‘ held that the transaction whereby the M Companyunder the circumstances hereinbefore stated deededthe real estate to the N Bank, as trustee, constituted a conveyanceto secure a debt rather than a sale Regs. 9, Art. 81.] 184 andis not subject to the stamp tax imposed bysection 3482 of the In- ternal Revenue Code. It follows that the subsequent reconveyanceof the realty by the N Bank to the M Companypursuantto the provisions of the lease constituted a release of the mortgage and likewise is not subject to the stamp tax. In view of the foregoing, S. T. 865 (C. B, 1937-2, 528), in which a contrary conclusion was reached, is revoked. TAXES ON OLEOMARGARINE, ADULTERATED BUTTER, ETC, SECTION 3340.—SHIPMENTS TO THE UNITED STATES, Reeuiations 9, Arricrz 81: Philippine 1946-18-12391 receipts. T. D. 5531 TITLE 26—INTERNAL REVENUE.—-CHAPTER I, SUBCHAPTER C, PART 310.— TAXES ON OLEOMARGARINE, ADULTERATED BUTTER, AND PROCESS OR RENOVATBD BUTTER. Importation of oleomargarine from the Philippine Islands—Regu- lations 9 amended. Treasury DEPARTMENT, Orrice or CoMMISSIONER OF INTERNAL REVENUE, Washington 25, D. 0. Lo Collectors of Internal Revenue and Others Concerned: In order to conform Regulations 9 (1986 edition) [Part 310, Title 26, Code of Federal Regulations] to section 507(b) of the Philippine Trade Act of 1946 (Public Law 371, Seventy-ninth Congress), ap- proved April 30, 1946 [C. B. 1946-1, 334], such regulations, but only as prescribed and made applicable to the Internal Revenue Code by Treasury Decision 4886, approved February 11, 1939 [C. B. 1939-1 (Part i, 396] [Note, Title 26; Code of Federal Regulations, Cum. Sup., page 8133], are amendedas follows: Paracrary 1. There is inserted immediately preceding article 81 the following: SEC. 3340. SHIPMENTS TO THE UNITED STATES. (INTERNAL REVENUE CODE.) (a) Tax ImPosEp In UNITED STATES.— (1) Amounr.—There shall be levied, collected, and paid, in the United States, upon articles, goods, wares, or merchandise coming into the United States from the Philippine Islands a tax equal to the internal-revenue tax imposed in the United States upon the ‘like articles, goods, wares, or merchandise of domestic manufacture. . (2) PayMent,—Such tax shall be paid by internal revenue stamp or stamps, to be provided by the Commissioner, and to be affixed in such manner and under such regulations as he, with the approval of the Secretary, shall prescribe, (b) Exemprion From Tax [Posed IN THE PHILIPPINE IsLaNns.—Such articles, goods, wares, or merchandise shipped from said islands to the United States shall be exempt from the paymentof any tax imposed by the internal revenue lawsof the Philippine Islands, EXHIBIT N 341 [Regs. 71, Art. 84. 13309 of the Compiled Laws of Michigan, 1929. The courts ofMichigan have held that the substance of the vendor's rights under aland contract is to receive the money due under the contract and thathe holds title as security for the money. In City of Marquette v.Michigan Iron & Land Oo. (132 Mich., 130, 92 N. W., 934), the de- fendant had contracted to sell land. Balances due the defendant under the contract were held taxable as “credits.” The court said n part: * * * From the time these contracts are made, the vendor holds the legal title only as trustee for the vendee, * * * The vendor has, in effect, ex-changed his property for the unconditional obligations of the vendee, the per- formance of which is secured by the retention of the legal title * * * The court likened the situation to that created by a mortgage, See also Detroit & Security Trust Co. y. Kramer (247 Mich., 468, 296 N. W., 284) and In re McBride’s Estate (258 Mich., 305, 235 N. W., 166). It is clear that the contract in question did not vest title to the realty in the vendeesince legaltitle was retained by the vendor, Con- sequently, the contract is not a conveyance of realty sold within the meaning of the law and regulations, andis not, therefore, subject tostamp tax. However, notwithstanding that the vendee has a substan- tial interest in the realty and that the vendor retains legal title merely as security for the payment of the purchase price, if the vendor actually transfers legal title the transaction would be subject to stamp tax as a conveyance of realty. A quitclaim deed by the vendee relinquishing his interest in the realty to the vendor is not subject to stamp tax since no conveyance of legal title is involved. Reavrations 71, Arricrz 84: What constitutes XVI-20-8708 real property determinable by law of State S. T. 860 where located. A conveyance of water rights in California is subject to stamp tax as a conveyance of realty. Advice is requested whether a conveyance of water rights in Cali- fornia (hereinafter described) is subject to the stamp tax on convey- ances imposed by Schedule A-8 of Title VIII of the Revenue Act of 1926, as added by section 725 of the Revenue Act of 1939, The law imposes a stamp taxon any “* * * Deed, instrument, or writing * * ™“ whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers * * * when the con- sideration or value of the interest or property conveyed, exclusive of the value of any lien or encumbrance remaining thereon at the time of sale, exceeds $100 * * *.” What constitutes “ lands, ten- ements, or other realty ”is determinable by the law of the State in which the property is situated. (Article $4, Regulations 71.) The instrument here in question, designated a “ grant deed,” re- cites that A, B, and C in consideration of the payment of dollars grant to D “all of the right, title and interest of the grantors in and to all water, and water rights” in a designated locality in the State of California, together with certain equipment, and facilities connected therewith, and rights of way with respect to certain lands. Regs. 71, Art. 84.] 342 Section 661, Title 43, United States Code (sections 2339, 2340, R. 8.), provides: * * * Whenever, by priority of possession, rights to the use of water for mining, agricultural, manufacturing, or other purposes, have vested andaccrued, and the same are recognized and acknowledged by the local customs, laws, and the decisions of courts, the possessors and owners of such vested rights shall be maintained and protected in the same; and the right of way for the construction of ditches and canals for the purposes herein specified ig acknowledged and confirmed; but whenever any person, in the construction of any ditch. or canal, injures or damages the possession of any settler on the public domain, the party committing such injury or damage shall be Hable to the party injured for such injury or damage. All patents granted, or preemption or homesteads allowed, shall be subject to any vested and accrued water rights, ‘or right to ditches and reservoirs used in connection with such water rights, as may have been acquired under or recognized by this section. * * * It is well established that in California a water right is realty, The Supreme Court. of California in Stanislaus Water Co. v. Bach- man (152 Cal., 716, 98 Pac., 858) stated in part: * * * The right to water must be treated in this State as it has alwaysbeen treated, as a right running with the land and as a corporeal privilege be-stowed upon the occupier or appropriator of the soil; and as such, has none ofthe characteristics of mere personalty. (Hill v. Newman, 5 Cal., 446, 63 Am.Dec., 140.) The right to have water flow from a river into a ditch is realproperty; and so also is the water while flowing in the ditch. (Lower K. R.W. D. 00. v. K. R. & F.C. Co., 60 Cal., 410.) A wrongful diversion of waterflowing in a ditch is an injury to real property, (Last Chance, ete., Oo. v.Emigrant D. Co., 129 Cal., 278, 61 Pac., 960.) The right to take water from ariver and conduct it to a tract of land is realty. (South Tule, etc., Oo. vy. King,144 Cal, 454, 77 Pac., 1082.) The right to have water flow through a pipe froma reservoir to and upon a tract of land is an appurtenance to the land.(Standart v. Round Valley Co., TT Cal., 403, 19 Pac., 689.) An undivided in-terest in a ditch and in the water flowing therein is real property. (Hayes v.Pine, 91 Cal., 398, 27 Pac, 772.) A ditch for carrying water is real estate.(Smith v. O'Hara, 48 Cal., 376; Bradley vy. Harkness, 26 Cal., 77.) And, where ,oneperson has water flowing in a ditch and another has the right to have apart of such water flow from the ditch to his land for its irrigation, the rightof the latter is a servitude upon the ditch, and is real property. (Dorris vy.Sullivan, 90 Cal., 286, 27 Pac, 216.) * In view of the foregoing,it is held that the water rights conveyedby the “grant deed” in question constitute realty, and that suchdeed is‘ subject to the stamp tax imposed by Schedule A-8 of TitleVIII of the Revenue Act of 1926, as added by section 725 of theRevenue Act of 1932. . Reounations 71, Arricun 84: What constitutes - XVI-26-8788real property determinable by law of State S. T. 862where located. - .(Also Article 106.) Contracts entered into between A, the vendor, and B, the vendee,for the sale of realty in the State of Nebraska, and quitdlaimdeeds whereby the vendee released to the vendor the interests‘acquired under such contracty are not conveyances of realty soldand are not subject to Stamp tax, Advice is requested whether contracts for the sale of realty in theState of Nebraska entered into between A, the vendor, and B,thevendee, and quitclaim deeds wheréby B released to A the interestsacquired under such contracts, are subject to stamp tax under Sched. EXHIBIT O a “ N e Q u e 48-936 89th Congress \ 1st Session ASSISTANT SECRETARY OF THE TREASURY COMMITTEE PRINT EXCISE TAXES STATEMENTS | OF SECRETARY OF THE TREASURY HENRY H. Fow.er AND STANLEY S, SURREY BEFORE THE COMMITTEE ON FINANCE UNITED STATES SENATE ON H.R. 8871 AN ACT TO REDUCE EXCISE TAXES AND FOR OTHER PURPOSES JUNE 8 AND 9, 1965 6/ PURLIC LAWS7-"7_ approved.=Z Printed for the use of the ‘Committee on once U.S. GOVERNMENT PRINTING OFFICE WASHINGTON : 10965 halt pes 2 Qe ay & a . 4 a Meck wie>ei [lies so Ctrs0 citeHea raAe Lee wutd Cee reste,AQZ44 EXCISE TAXES 39 Senator Drrxsen. Andthe chances areit will be pressed on the com-mittee and on the floor. Secretary Fowter. Yes,sir. Senator Dusen. Now one general question: What is the likeli-hood of when these excises go off that the States will put on increasedexcises because they are always scouring around for money ?Secretary Fowzer. I think that the prospectis quite likely that theStates will select some of these excises and reimpose them at the State‘level. For example, the Advisory Commission on IntergovernmentalRelations, in which Federal and State and loca] tax authorities meetto discuss mutual problems has informed us that they expect some ofthe States to impose a tax on deedsto replace the one that we wouldrepeal becauso it ties into State and local real estate transactions,‘here undoubtedly will be other areas. that we can’t really predictbut it certainly is true that State and local tax authorities are, youmight say, on the prowl for new sources of revenue and T would expectsomeof that to occur. - I don’t believe it will be as major anexercise as one might fear be-cause the general tendency seems to be to deal with the across-the-board type of taxes insofarasthis particular type of tax is concernedand, except for a few specialized areas like the documentary stamptax on deeds, I think the samereasonsthat cause the Congress to react‘very adversely to selective excises would cause State legislaturesto feelthe same way. a Senator Dirxsen. Oneother question: Suppose this bill landed onthe President’s desk for signature, prior to the Ist of July, whyshouldn’t it become effective the day hesignsit? Secretary Fowrer. We do not wish to take the position in opposi-tion to an amendmentto thateffect if the committee should be desirousof doing so. We had felt that the postponement of sales of excisetaxed items, by and large, except for the ones specifically covered,arenot going to be very serious. They are going to be postponementsrather than cancellations or losses of business, but it is a marginalquestion, Senator Dirksen and I think would be for the judgment ofthe committee. The gross revenue costs would be about $50 million.Senator Dirksen. If Senator Smathers would give mehis atten-tion, going back for a momentto what he said about TV, my under-standing 1s that it is not a question of diminished sales {n May andJune but rather that right now the distributors are calling up andcanceling 5 cerluads, i0 carluads, 15 carluads of television seis andJust saying to the manufacturer.“don’t ship.” So they are in a bindTight now, and, of course, all we hopefor is retroactivity in the bill orthatit be signed as quickly as possible,if it got to the President’s deskbefore the lst of July. Senator Smaruers. I think it might be helpful for the record as long‘as this is an official document, this is Merchandiser Weekly, January1965 issue and it shows apparently historically that the worst monthsfortelevisionsets, dryers, things of that type are May, June, and July. 4075 EXHIBIT P June.17, 1965 restored the present tax law of 3 cents a gallon on cutting oil and 6 cents a galion on other lubricating oil. The House bill to which your conferees have agreed in this area, would have eliminated all of the tax on lubricating ofl and cutting . oll—elther by exemption or refund procedure—except in the case of lubri- cating oil used in highway vehicles. The 3-cent-a-galion tax on cutting oil un- der the House bill is eliminated entirely. The 6-cent tax on other lubricating oil would under the House bill, apply gen- erally, but refunds would be available for nonhighway use. Additionally, the House bill would allocate tax collected on lubricating oil to the highway trust fund. The House conferees felt quite strongly that the $50 million a year from highway use of lubricating . il should be allocated to the highway trust fund. Your con- ferees, after much discussion on this point, finally agreed to the retention of the tax on lubricating oil insofar as it relates to highway use and forits alloca- tion to the highway trust fund. This Senator detected that there was considerable sentiment in the House to accept the amendment. It would have taken the 1 percentage point retained by the Douglas amendment and placed it in the highway trust fund to guarantee the completion of highways on schedule. That would have been subject to a point of order by any Member of the House. Mr, DOUGLAS. Mr. President, will the Senator yleld? : Mr. LONG of Loulstana. I yield. Mr. .DOUGLAS. Mr. President, a point of order would most certainly have been raised if the 1 percent had been Placed in the highway trust fund by the conferees, Mr. LONG of Louisiana. That was the point that was made. We had to recognize the validity of it. We did not do that. We saved that 1 percentage point of tax for revenue purposes. Con- Bress can decide in the future how it wants it to be used. The House is not necessarily opposed to using this. They believe that if it should be done,it ought to be done by other committees, and not by the Committee on Ways and Means or by the Senate Committee on Finance. Mr. MORSE. Mr, President, will the Senator yield? Mr. LONG of Louisiana. I yield, Mr. MORSE. Mr. President, will the Senator advise me whether the confer- ence report contains an exemption to a lottery? — Mr. LONG of Louisiana. A Senate amendment provided that a State-owned sweepstake, which is related specifically to the State-owned sweepstake in New Hampshire, would not be subject to the gaming tax, Mr. MORSE. Mr. President, does the Senator think it makes any difference whether a State or an individual gam- bles, or whether the State encourages in- dividuals to gamble? Mr. LONG of Lousiana. That was the decision of the Senate. The Senate voted on that. / As the Senate conferees, it was our duty to urge the House to. acceptIt. Parlmutuels have always been ex- empted from the tax on gambling, For No. 110-——-15 CONGRESSIONAL RECORD — SENATE example, we have two horseracing tracks {n the New Orleans vicinity, One is in thecity itself and the other ts in Jefferson Parish. They are specifically exempt from the tax on gambling. Mr. MORSE. On the ground that they are a necessity? Mr. LONG of Louisiana. I do not say that they are a necessity, but they were not regarded as being the kind of cor- rupt operation that the Kefauver com- mittee referred to when it recommended this kind of legislation. Mr. MORSE. Could it be on the ground that they are a great educational institution for improving the morals of the young? Mr. LONG of Louisiana. ‘They are taxed under State laws. Louisiana gets quite a bit of money from the race- tracks. The city of New Orleans finds it to be a very important item of revenue. The same situation exists in Maryland. There are three racetracks, as I recall. There are two recetracks in West Vir- ginia, to my knowledge. Those are.not taxed. Those are private operations. They are not taxed by the Federal Gov- ernment, They are'all taxed, so far as I know, by the State. They are taxed rather heavily. The money derived from the tax from New Hampshire is used exclusively for education. Insofar as I know, a record was made when the amendment was of- fered by the Senator from New Hamp- shire [Mr. McIntyre] and his colleague the senior Senator from New Hampshire (Mr. Corron], They made their case. I would urge the Senator to look at the record, The amendment was objected to by the Sen- ator from Ohlo [Mr. Lauscus] and the Senator from New Mexico [Mr, ANDER- SON]. However, it was debated and was agreed to on a voice vote, The House felt that in view of the fact that it was entirely a State-owned operation, and that all of the revenue went to education, without any indica- tion that there is any improper use or control of the operation, it would be all right. Mr, MORSE. The Senator from Louisiana of course understands that theSenator from Oregon 1s not reflect- ing on the Senator from Louisiana. However, I do mean to reflect on Con- egress. ; I think it is inescapable that we are adding - another exemption—from another source of immorality in our country—-to taxes. Does the Senator believe that if Con- Bress were to legalize Immoral houses,- some people would say that the income from that source—because it would go to the education of the young—would justify exempting them? Mr. LONG of Loutsiana, That would be a better use for the money than the use that some of it is being used for now. ([Laughter.] Mr. MORSE. Mr. President, we are dealing with a basic question of morals. IT am at a complete loss to understand why we give such an operation a tax benefit. Mr. LONG of Louisiana. Mr. Presi- dent, I understand the argument of the 4A” 13573 Senator. I am sure that some agree with him. I am glad to report that the fifth substantive amendment made by the Senate; namely, the repeal of the 10- cent-per-pound tax on manufactured to- bacco—that 1s, smoking and chewing tobacco, and snuff—was agreed to by the conferees of the other body. As a result, this tax is repealed as of January 1, 1966. The chairman of the Senate Committee on Finance, the distinguished Senator from Virginia, was most effec- tive In persuading the House to agree to this amendment. In the area of floor stock refunds, the House accepted the two amendments in the Senate bill providing for floor stock refunds; namely, those applicable in the case of playing cards and sporting goods. However, the House conferees refused to go along with the action taken by the Senate in removing the floor stock re- fund on auto parts and accessories. The wholesalers and retailers in all three of these industries apparently desire floor Stock refunds and, therefore, the con- ferees have agreed to them. Two other amendments made by the Senate relate to the documentary stamp taxes. First, we would have postponed for 3 years the effective date of the repeal of the tax on real estate convey~ ances, We believe that this was desir- able because the States and local govern- ments depend upon these stampson real estate conveyances for assessment pur- Poses. Therefore, we were giving the States and local governments aM oppor- tunity to impose these taxes if they so desired. The House conferees apreed to this amendment but provided & 2-year, rather than a 3-year, postponement. Thus, this tax will go off on January 1, 1968, rather than January 1, 1969, The House conferees unfortunately re- fused, and adamantly refused to accept the second amendment relating to the documentary stamp taxes. This amend- ment would have advanced by 1 day— to December 31, 1965—the date for the repeal of the documentary stamp taxes on securities, Other amendments accepted by the House conferees Include the following: . The amendmentrelating to light bulbs incorporated as parts in refrigera- tors, ranges, radios, television sets, and other taxed articles. The tax on these items is removed this June, but the tax on light bulbs remains until January 1, 1966. The Senate amendment Prevented the initiation of a new tax on the bulbs incorporated in these applHances merely for this 6-month interval. The House agreed to this amendment. Second. Another amendment, offered by Senator Dmxsen, on the floor, would. make the club dues tax inapplicable to initiation fees incurred after June 30 in the case of new clubs going into opera- tion after that date. This was necessary to make it possible for new clubs to operate in this period. The House agreed to this amendment, Third. The House agreed to all of the amendments the Senate made with re- spect to the tax on truck bodies and truck parts. It agreed that the so-called camper coaches and bodies of mobile EXHIBIT Q ADVISORY COMMISSION ON INTERGOVERNMENTAL RELATIONS SEPTEMBER 1964 vee ae) _ -ADVESORY COMMISSIONON INTERGOVERNMENTAL RELATIONS Supervisor, © Member oft | State:‘Legisl GC. cotnan, Executive Direc tor oy A COMMISSION REPORT THE INTERGOVERNMENTAL ASPECTS OF DOCUMENTARY TAXES ADVISORY COMMISSION ON INTERGOVERNMENTAL RELATIONS September 1964 A-23 PREFACE This report deals with tax overlapping in a relatively minor area of taxation. The documentary taxes, which contribute some $300 million of the more than .$130 billion in taxes collected by all governments, consist primarily of taxes on the issuance and transfer of corporate stocks and bonds, on real estate transfers, and on mortgages. This is a part of a continuing project the Advisory Commission on Intergovernmental Relations is conducting under its mandate to recommend methods of coordinating and simplifying tax laws and administrative practices in order to achieve a more orderly and less competitive fiscal relationship between the levels of government and reduce the burden of compliance for taxpayers. Information for this report was initially assembled by Mr. H. Clyde Reeves, Vice President of the University of Alabama, and Con- sultant to the Commission. The staff work was conducted by Jacob M. Jaffe. This report was adopted at a meeting of the Commission held on September 17, 1964. Frank Bane Chairman ii WORKING PROCEDURES OF THE COMMISSION / This statement of the procedures followed by the Advisory Commission on Intergovernmental Relations is intended to assist the reader's consideration of this report. The Commission, made up of busy public officials and private persons occupying positions of major responsibility, must deal with diverse and specialized subjects. It is important, therefore, in evaluating reports and recommendations of the Commission to know the processes of consultation, criticism, and review to which particular reports are subjected. The duty of the Advisory Commission, under Public Law 86-380, is to give continuing attention to intergovernmental problems in Federal- State, Federal-local, and State-local, as well as interstate and inter- local relations. The Commission's approach to this broad area of responsibility is to select specific, discrete intergovernmental problems for analysis and. policy recommendation. In some cases, matters proposed for study are introduced by individual members of the Commission; in other cases, public officials, professional organizations, or scholars propose projects. In still others, possible subjects are suggested by the staff. Frequently, two or more subjects compete for a single "slot" on the Commission's work program. In such instances selection is by majority vote. Once a subject is placed on the work program, a staff member is assigned to it. In limited instances the study is contracted for with an expert in the field or a research organization. The staff's job is to assemble and analyze the facts, identify the differing points of view involved, and develop a range of possible, frequently alternative, policy considerations and recommendations which the Commission might wish to consider. This is all developed and set forth in a preliminary draft report containing (a) historical and factual background, (b) analysis of the issues, and (c) alternative solutions. The preliminary draft is reviewed within the staff of the Commission and after revision is placed before an informal group of "critics" for searching review and criticism, In assembling these reviewers, care is taken to provide (a) expert knowledge and (b) a diversity of substantive and philosophical viewpoints. Additionally, representatives of the American Municipal Association, Council of State Governments, National Association of Counties, U. S. Conference of Mayors, U. S. Bureau of the Budget and any Federal agencies directly concerned with the subject matter participate, along with the other iii "critics" in reviewing the draft. It should be emphasized that participation by an individual ororganization in the review process does not imply in any way endorsement of the draft report. Criti- cisms and suggestions are presented; some may be adopted, others rejected by the Commission staff, The draft report is then revised by the staff in.light of criticisms and comments received and transmitted to the members of the Commission at- least two weeks in advance of the meeting at which it is to be considered. In its formal consideration of the draft report, the Commission registers any general opinion it may have as to further staff work or other considerations which it believes warranted, However, most of the time available is devoted to a specific and detailed exami- nation of conclusions and possible recommendations. Differences of opinion are aired, suggested revisions discussed, amendments considered and voted upon, and finally a recommendation adopted (or modified or diluted as the case may be) with individual dissents registered, The report is then revised in the Light of Commission decisions and sent to the printer, with footnotes of dissent by individual members, if any, recorded as appropriate in the copy. iv Page Preface wecessvevcsveces eeoeseeeseeaeaseeneeeoesee nee eoevneanvneeseoeosnense Li Working Procedures of the Commission weve seececeeeneccenceess§ Lili 1. Findings and Recommendations ...ccccsccccncccsccecccceres 1 2. The Federal Documentary Taxes ....cccccrecccccccccccecces 9 HLIStOTY cevcceeccccccnncrcecrcecccsvecevccessvcesecs 10 Compliance wocvecccccevcvcncvesvcsevcercccenssrssnns 13 3. State and Local Documentary TaxeS .. sessesesecsccevevens 17 4, The States’ Interest in Real Estate Transfer Taxes .....,. 22 TABLES 1. Federal Documentary Stamp Tax Rates, 1914-1964 ........., 11 2. Federal Internal Revenue Collections, Total and Documentary Stamp Taxes, Selected Years, 1916-1963 @eoeeestee ee eeeeseneeeeree eee eeeeese rosea ssvenene 14 3. Federal and State Documentary Taxes, 1963 ee eesteaeaeeresvenses 18 4, Federal Documentary Stamp Taxes Collected, by State, 1962 btee 2 20 5. States Conducting Periodic Assessment Ratio Studies ...., 25 THE INTERGOVERNMENTAL ASPECTS OF DOCUMENTARY TAXES 1. Findings and Recommendations The Federal Government, 17 States, the District of Columbia, and a number of local governments impose a group of taxes known collectively as "documentary taxes." Although generally of minor revenue significance to both the Federal Government and the States, they involve tax overlapping for thousands of taxpayers located in a number of States. Compliance with these taxes often requires the purchase of stamps from two sets of officials and computing the tax liability on differing bases, thus placing them in the "nuisance" category. The problems they pose are of the type the Congress contemplated in its mandate to this Commission: ++» (to) recommend methods of coordinating and simplifying tax laws and administrative practices to achieve a more orderlyand less competitive fiscal relationship between the levels of govern- ment and to reduce the burden of compliance for taxpayers. The several Federal documentary taxes fall into two broad groups: (1) those on the issuance or transfer of capital stocks and bonds; and (2) those on the transfer of real property (con- veyances). Another, the tax on policies issued by foreign insurers, concerns relatively few persons. The State and local documentary taxes are patterned, by and large, after the Federal taxes. They include real estate transfer taxes (imposed by 12 States, the District of Columbia, and local governments in 5 States), and securities transfer and issuance taxes (5 States). In addition, a number of States levy documentary taxes on mortgages, which are not subject to Federal taxes, With few exceptions, the documentary taxes are imposed at relatively low rates. The Federal tax on conveyances, for example, is 55 cents per $500 of the consideration involved in a real estate sale, excluding the value of any assumed mortgages; most of the State real estate transfer taxes carry comparable rates. The Federal stock transfer tax is 4 cents per $100 of market value (with a minimum of 4 cents per sale or transfer and a maximum of 1/ P. L. 86-380 (sec. 2:7). 8 cents per share); the New York State tax on stock transfers ranges from 1 cent to 4 cents per share (depending upon market value). Except for the portion of the tax on the transfer of securities that is paid through security exchanges and clearinghouses, the docu- mentary taxes are paid through the purchase of stamps which are affixed to the document at the time the transaction is consummated. The documentary taxes are relatively small revenue producers, - The Federal Government's take amounted to $140 million in fiscal year 1963, or 1/10 of 1 percent of its tax collections. About three-fourths of the Federal documentary tax revenue comes from the taxes on the issue and transfer of stocks and bonds. The States obtained $120 million, more than half of which came from New York State's stock transfer tax. Collections from locally imposed taxes are not tabulated. Fragmentary information suggests that they may approach $40 million. In total, Federal, State, and local receipts from documentary taxes account for about $300 million of the $131 billion annual tax collections of these governments. Of all the documentary taxes, overlapping is in a sense most pervasive in the case of the tax on stock transfers. Although only four States impose such a tax, the fact that New York is one of them means that most stock transactions in the country are subject to both State and Federal taxes, since almost 80 percent of the dollar value of stock transfers occurs in New York City. By virtue of this market concentration, the tax overlapping very largely involves only one State, although its impact is nationwide. The twofold taxation of stock transfers by the Federal Govern- ment and New York State entails little taxpayer compliance burden, because both taxing jurisdictions allow the tax to be paid through a central clearinghouse. This centralized tax payment arrangement provides the stock transfer tax (and the Federal Government's bond transfer tax) with reasonably efficient administration. From the viewpoint of national policy considerations, a case can be made for the proposition that the States (chiefly New York) relinquish the stock transfer tax and vacate the field for exclusive Federal use. Since the tax is paid on security transactions in all parts of the country, its revenue yield logically belongs to all of them, i.e., their national government, While logical, the suggestion is not practical. New York could not be induced to relinquish its documentary tax, except by constitutional amendment, and would not - voluntarily give up a lucrative tax source paid in large part by nonresidents. It has been suggested that the Federal Government ‘might persuade New York to relinquish the tax by reimbursing it for the amount of revenue involved. However, the other 49 States whose residents pay the tax, would doubtless claim a share, making the cost of the tax simplification too high. The Commission concludes that no action is indicated with respect to the overlapping of State and Federal documentary taxes on stock transfers. The duplication is largely limited to one State (New York). The compliance burden for taxpayers is minimized by the collection of both taxes through security exchanges and clearinghouses. On the other hand, State withdrawal from the field could be "purchased" only at substantial cost to the U. S. Treasury. The situation is different with respect to the other important documentary taxes -- the Federal tax on conveyances (real estate transfers) and the State and local. real estate transfer taxes. Although secondary as revenue producers ($35 million Federal and perhaps $70 million State and local), these taxes involve thousands of individual transactions at the county courthouse level and, in those cases where State and local taxes are also levied, involve overlapping taxation. They create the image of unnecessary Federal- State duplication in the minds of individuals (lawyers and realtors) required to purchase stamps at two different windows and to compute relatively small tax Liabilities two different ways. The Commission's concern with the real estate transfer tax, however, extends beyond tax overlapping. It stems from the possible usefulness to the States of the by-product information on the sales price of property that can be derived from the Federal stamps attached to deed documents. The relationship between the assessed value and the sales price of real property, a measure that is being developed in many States by means of assessment-sales ratio studies, is a valuable tool for improving the administration of property tax assessment. In its recent report on strengthening the property tax, this Commission strongly endorsed periodic State assessment ratio studies and enumerated a number of uses to which such studies can be put. 1 These include: disclosure of the degree of: compliance with the legal basis of assessment; guidance for the individual taxpayer in deter- mining the equity of his assessment; disclosure of full value of taxable property as one index of community fiscal ability; aid in 1/ Advisory Commission on Intergovernmental Relations, The Role of the States in Strengthening the Property Tax, (A-17), June 1963, Vol. 1, p. 51. the development of reliable measurement standards that use taxable valuations as a base; guidance for the equalization of State and local assessing; and indication of interarea nonuniformity in assessment to permit equitable distribution of taxes in taxing dis- tricts identified with more than one assessing area, and to permit also equitable distribution of State aid, The shortcomings of the Federal conveyance tax stamps as an indication of the selling price of property have long been recognized by State officials conducting assessment-sales ratio studies. In the Federal tax system ‘geared. to. self-assessed income taxes, enforce- ment of an extraneous revenue source like the conveyance tax falls by the wayside. Except for an occasional check of large property transfers in connection with income tax or inheritance and estate tax audits, the Treasury Department relies upon the voluntary purchase of tax stamps and their attachment to deed documents. Appeals by State tax administrators to Internal Revenue officials for stepped- up enforcement of the conveyance tax are doubtless sympathetically received, However, they have not had and, in the nature of the case, can not be expected.to have a significant effect on the quality of compliance. As the conveyance tax is presently constituted, it is unlikely that the Internal Revenue Service can allocate adequate enforcement resources to it. The inadequate enforcement of the conveyance tax impairs its usefulness for assessment-sales ratio studies since the amount of the affixed stamps often bears no true relationship to the selling price. Analyses in connection with ratio studies have uncovered numerous cases that range from complete noncompliance to under- or over-stamping. Another factor impairing the validity of the Federal tax stamps for establishing the selling price of realty is the limited base of the tax. 1/ Since the tax liability is computed net of assumed mortgages, it is necessary to make a detailed search of the records to determine whether the transfer involved assumption of a mortgage, and if so, to ascertain the amount of the assumed mortgage. 1/ During the Civil War, both a mortgage tax and conveyance tax ~ were levied. Both taxes were employed also during the Spanish- American War and when the legislation which became the Revenue Act of 1914 was introduced, it also included both. The mortgage tax, however, was dropped before the legislation was enacted, Our findings with respect to the real estate transfer tax can be summarized as follows: (1) State-Federal overlapping is significant; (2) Enforcement of the Federal taxis weak and taxpayer compliance is spotty; (3) Federal tax enforcement effort is not likely to be increased because it is tangential to the mainstream of Internal Revenue activity (geared to the income tax) and the revenue yield is minor; (4) The principal consideration supporting the retention of this tax has been its alleged by-product value for assessment-sales ratio studies to improve property tax administration; and , (5) Because of inadequate enforcement and the ex- clusion of assumed mortgages from the tax base, the stamp value frequently bears little relationship to actual selling price, and this, in turn, severely limits its usefulness for assessment~sales ratio studies, The deficiencies of the Federal real estate transfer tax for establishing the sales price of realty could be overcome only by shifting enforcement responsibility to the States. To accomplish this, Congress would need to provide the States with fiscal incen- tives bordering on the coercive. One possible vehicle is the conditional shared tax arrangement. Under this plan, the Federal tax base would be broadened to include the amount of the assumed mortgage, and under certain conditions the revenue be turned over to the States. In return for all or a substantial share of the proceeds, the States would be required to enact legislation directing appropriate local officials to withhold recordation of real estate transfer documents in the absence of strict compliance with the Federal real estate transfer tax law. Since this conditional shared tax plan would dedicate virtually all the proceeds of the tax to purchase State and local enforcement resppnsibility, it might well be argued that the Federal Government would be better advised to step aside’and leave both the imposition and the administration of the tax to the States. The occasion of the Federal Government's withdrawal from the field might be utilized to encourage the States to avail themselves of the by-product utility of such a tax for assessment-sales ratio studies. This might be accomplished by the enactment of a transition tax credit plan. Under this arrangement, the Federal real estate transfer tax would be repealed prospectively to be effective, for example, 3 years after enactment of the plan. During the 3-year phasing out period, a credit would be allowed against the Federal tax for all State real estate transfer taxes. In other words, the . requirement of a Federal documentary stamp tax could be fully satisfied with a State stamp. By adopting the credit device, the Federal Government would be inviting the States to enact their own real estate transfer taxes without adding to the tax burden of their own taxpayers. Since the taxpayers! liability would be the same whether the State imposed the tax or not, the availability of the Federal credit would exert a strong compulsion on the States to impose their own transfer taxes, Consideration of either the conditional shared tax or transition tax credit plan raises a basic question as to the lengths to which the Congress should go in encouraging the States to obtain reliable data on the sales price of real property. As a basic proposition, intergovernmental fiscal coercion should always be restricted to the attainment of those important national objectives that can be realized in no other way. Moreover, a coercive approach becomes even less tolerable when it is applied to a tax, such as the real estate transfer tax, the existence of which is justified primarily by informational rather than regulatory or revenue purposes. By the same token, this Commission cannot justify urging the Treasury Department to assign to the stamp tax on conveyances the amount of resources that would be needed to enforce it adequately. Effective Federal enforcement of this tax might well require ex- tensive audit of the deed records at county courthouses throughout the nation. The cost of such auditing would probably be prohibitive in the light of the insignificant revenue return it would yield. We conclude, therefore, that in the interest of tax simplification and the elimination of one area of tax overlapping, the Federal stamp tax on real estate transfers should be repealed. Recommendation No. 1. The Commission recommends that Congress amend Chapter 34 of the Internal Revenue Code to repeal the stamp tax.on conveyances, such repeal to be effective 3 years after its L/ enactment. - Repeal of the Federal stamp tax on conveyances will rid the Internal Revenue Code of a "nuisance!" tax, When the Federal con- veyance tax was first imposed in the early days of the Republic it was needed to finance various crises (Civil War, Spanish-American War, etc.). It has long since stopped serving a revenue purpose, which is now the function of the income tax. Neither does it serve any regulatory purpose. The existence of the Federal tax gives the States a false sense of security in the reliability of assessment-sales ratios computed on the basis of the tax stamps, Since the Internal Revenue Service has little revenue incentive to enforce the tax, and also because assumed mortgages are not in the tax base, the validity of these computations is severely limited, The States can obtain the necessary market value information by other means, such as the enactment of their own real estate transfer taxes or the use of buyer-seller questionnaires and appraisals. The Commission's recommendation to defer repeal of the Federal tax for three years will give the States time to enact their own taxes or develop other means of obtaining real estate market data. State and local governments are showing a rising interest in real estate transfer taxes. Four of the 12 States using these taxes have enacted them since 1951, and an increasing number of local governments have been authorized to do so since Washington enabled its counties to impose a 1 percent real estate sales tax (1951). Some of the interest in State and local realty transfer taxes stems from their by-product use in property tax administration. On the other hand, the revenue potential of the tax is attractive to rapidly growing urban communities where property values are rising and a relatively large number of properties change hands. New York City, Washington, D. C., Baltimore, and Montgomery County, Maryland have imposed such taxes as revenue measures in the past five years, 1/ Secretary Dillon comments on this recommendation, as follows: "Our complex Federal excise tax system requires a thorough-going revision, and the Treasury is now cooperating with the Congress in a comprehensive study looking toward this objective. Although in this review repeal of the Federal conveyance tax should and will be carefully considered, until evaluation of the entire excise tax structure has been completed it would be premature for me to join in advocating repeal of any particular excise tax," Recommendation No. 2. The Commission recommends that when the Federal tax on real estate transfers is repealed, those States without such a tax consider it for use at either the State or local level, The States considering real estate transfer taxes are urged to fortify tax administration by requiring local officials charged with the recordation of transfers of title to verify that the transfer tax had been paid. Repeal of the Federal conveyance stamp tax would leave the field clear for exclusive State and local use. Some States will want to consider a State tax, some authorizing locally imposed taxes and some may prefer to make this revenue source available to their local governments by sharing a State tax with them, in part as an incentive for the local governments to render effective enforcement services. The recommended 3-year delay in repeal of the Federal tax provides for an orderly transition from Federal to State or local taxation. The tax on real estate transfers is one of the very few that can be enforced effectively at the local level. Most real estate transactions are recorded by county recorders, many of whom are elected officials. Since the States have it within their means to require such local officials to enforce their laws, the administrative support that local officials can give the tax is available for the enforcement of either State or local taxes. 2. The Federal Documentary Taxes The Federal documentary stamp taxes, imposed by Chapter 34 of the Internal Revenue Code, embrace a variety of transactions involving:the issue of a certificate of stock or a bond and its transfer, and the securities transactions in connection with corporate reorgani- zations, mergers, consolidations, recapitalizations, dissolutions andreincorporations, the settlement of estates and the creation, modifi- cation and extension of trusts, and the modification and renewal of bond issues; real estate transactions; and insurance and reinsurance contracts, Their rate provisions are as follows: 1. The issuance of capital stock is taxed at the rate of 10 cents per $100 value, or major fraction thereof. The rate on certain regu- lated investment companies is 4 cents per $100. 2. The issuance of corporate certificates of indebtedness is taxed at the rate of 11 cents per $100 value, or fraction thereof. 3. The sale or transfer of capital stock is taxed at 4 cents per $100 value, or major fraction thereof, but not more than 8 cents per share nor less than 4.cents on any sale or transfer, 4. The sale or transfer of corporate certificates of indebtedness is taxed at 5 cents on each $100 value, or major fraction thereof. 2. The transfer of real estate (conveyances) valued in excess of $100 is taxed 55 cents on each $500 value, or fraction thereof. The value of liens and encumbrances included in the transfer is exempted, 6. Premiums on casualty insurance policies and indemnity bonds issued by foreign insurers are taxed 4 cents on each $1 and premiums on life, sickness, accident and annuity policies of foreign insurers are taxed at 1 cent o each $1, With some exceptions, payments of these taxes are evidenced by affixing stamps to the relevant documents. The stamps are produced by the Bureau of Engraving and Printing and are available at local offices of the Internal Revenue Service, at Post Offices, and from agents designated by the Secretary of the Treasury. They are printed in 34 denominations, from one cent to $10,000. History The taxation of conveyances is an English inheritance. Stamp taxes levied by the British Parliament on documents required of ships clearing ports in the American Colonies were the source of the incidents of 1765. In the English tradition the imposition of fees on legal processes was supported by common usage and such taxes were among the last to require consent by representation. The American Colonies imposed taxes on legal processes to raise colonial revenues, Prior to the 16th.Amendment the Constitution of the United States required that direct Federal taxes be laid in proportion to population, Direct taxes were unpopular. 1/ Alexander Hamilton recommended a schedule of documentary stamp taxes in 1794 and Federal taxes on carriages and auction sales were then imposed. Congress first levied documentary stamp duties in 1814. 2/ The Federal documentary stamp taxes were repealed after the close of the War of 1812, but were reimposed during the Mexican War. This time they remained in effect until well after the Civil War (having been increased substantially to help finance that war). They were again levied to help finance the Spanish-American War but were prompt-_ ly repealed. Re-institution occurred in 1914 with the imposition of the capital stock tax, a tax on the issuance of corporate certificates of indebtedness, and a tax on conveyances, setting a pattern for the documentary stamp taxes which has continued to the present without major modification (table 1). Also imposed in 1914, but since repealed, were documentary taxes on sales of produce for future delivery and on a variety of legal documents, including promissory notes and powers of attorney. The documentary stamp taxes have been an insignificant source of Federal revenue in recent times. Since the beginning of World War II, documentary stamp tax receipts have accounted for considerably less than 1 percent of internal revenue collections. In the fiscal l/ David A. Wells, The Theory and Practice of Taxation, N.Y., Appleton, 1900, p. 351. , 2/ Davis R. Dewey, Financial History of the United States, N. Y.; ~ MeGraw-Hill, 1936, p. 139. - 10 - T A B L E 1. - F E D E R A L D O C U M E N T A R Y S T A M P T A X R A T E S , 1 9 1 4 - 1 9 6 4 T i t l e o f t a x R e v e n u e A c t o f - 1 9 1 4 1 9 1 6 1 9 1 7 1 9 1 8 1 9 2 1 1 9 2 6 I s s u e s o f c a p i t a l s t o c k S a l e s o r t r a n s f e r s o f c a p i t a l s t o c k I s s u e s o f c o r p o r a t e c e r t i f i - ‘ c a t e s o f i n d e b t e d n e s s S a l e s o r t r a n s f e r s o f c o r p o - r a t e c e r t i f i c a t e s o f i n - d e b t e d n e s s T r a n s f e r o f r e a l e s t a t e ( c o n v e y a n c e s ) F o r e i g n i n s u r a n c e p o l i c i e s o t h e r t h a n l i f e a n d i n d e m - n i t y , f i d e l i t y o r s u r e t y b o n d s ( e x c l u d i n g r e i n - s u r a n c e ) F o r e i g n l i f e , s i c k n e s s , a c c i - d e n t , a n d r e i n s u r a n c e p o l i c i e s 5¢/$100facevalueo r f r a c t i o n , — 2 ¢ / $ 1 0 0 f a c e v a l u e o r f r a c t i o n , 5 ¢ / $ 1 0 0 f a c e v a l u e o r f r a c t i o n . 5 0 ¢ / $ 5 0 0 o r f r a c t i o n o f t h e c o n s i d e r a t i o n 1 f i n e x c e s s o f $ 1 0 0 ( e x c l u s i v e o f i n s t r u - m e n t s g i v e n t o s e c u r e a d e b t ) . Repealed. Repealed. Repealed. Repealed. 5¢/$100 f a c e v a l u e o r f r a c t i o n o r i f w i t h o u t f a c e v a l u e , 5 ¢ / s h a r e . If a c t u a l v a l u e is o v e r $ 1 0 0 , 5 ¢ / $ 1 0 0 o f a c t u a l v a l u e o r f r a c t i o n , 2 ¢ / $ 1 0 0 f a c e v a l u e o r f r a c t i o n o r 1 £ w i t h o u t f a c e v a l u e , 2 ¢ / s h a r e . I f a c t u a l v a l u e i s o v e r $ 1 0 0 , 2 ¢ / $ 1 0 0 o f a c t u a l v a l u e o r f r a c t i o n , 5 ¢ / $ 1 0 0 . f a c e v a l u e o r f r a c t i o n , 5 0 ¢ / $ 5 0 0 o r f r a c t i o n o f t h e c o n s i d e r a t i o n i f i n e x c e s s : o f $ 1 0 0 ( e x c l u - s i v e o f i n s t r u m e n t s g i v e n t o s e c u r e a d e b t ) . Nochange. Nochange, Nochange. Nochange. 3¢/$1or fraction ofpre- mium. 5¢/$10 0 f a c e v a l u e o r i f w i t h o u t f a c e v a l u e : (a ) I f a c t u a l v a l u e is l e s s t h a n $ 1 0 0 , l ¢ o n e a c h $ 2 0 o r f r a c t i o n ; (b ) i f a c t u a l v a l u e is o v e r $ 1 0 0 , 5 ¢ o n e a c h $ 1 0 0 o r f r a c t i o n . 2 ¢ / $ 1 0 0 f a c e v a l u e o r f r a c t i o n o r i f w i t h o u t f a c e v a l u e , 2 ¢ / s h a r e . N o c h a n g e . N o c h a n g e , N o c h a n g e . e n e e r e e s e e r r e r s e r s r e e r s Nochange. Nochange. Nochange. Repealed. Nochange. ll - T A B L E 1 . - F E D E R A L D O C U M E N T A R Y S T A M P T A X R A T E S , 1 9 1 4 - 1 9 6 4 ( C o n t ' d ) T i t l e o f t a x R e v e n u e A c t o f - 1 9 3 2 1 9 4 0 1 9 4 2 1 9 5 8 J a n . 1, 1 9 6 4 I s s u e s o f c a p i t a l s t o c k (C on t 'd ) S a l e s o r t r a n s f e r s o f c a p i t a l s t o c k ( C o n t ' d ) I s s u e s o f c o r p o r a t e c e r t i f i - c a t e s o f i n d e b t e d n e s s ( C o n t ' d ) S a l e s o r t r a n s f e r s o f c o r p o - r a t e c e r t i f i c a t e s o f i n - d e b t e d n e s s ( C o n t ' d ) T r a n s f e r o f r e a l e s t a t e ( c o n v e y a n c e s ) (C on t' d) F o r e i g n i n s u r a n c e p o l i c i e s o t h e r t h a n l i f e a n d i n d e m - n i t y , f i d e l i t y o r s u r e t y b o n d s ( e x c l u d i n g r e i n - s u r a n c e ) ( C o n t ' d ) P o r e i g n l i f e , s i c k n e s s , a c c i - d e n t , a n d r e i n s u r a n c e p o l i c i e s ( C o n t ' d ) 1 0 ¢ / $ 1 0 0 f a c e v a l u e o r . i f w i t h o u t f a c e v a l u e : (a ) I f a c t u a l v a l u e is l e s s t h a n $ 1 0 0 , 2 ¢ o n e a c h § 2 0 o r _ f r a c t i o n ; (b ) i f a c t u a l v a l u e i s o v e r $ 1 0 0 , 1 0 ¢ o n e a c h $ 1 0 0 o r f r a c t i o n . 4 ¢ / $ 1 0 0 p a r o r f a c e v a l u e o r f r a c t i o n ; o r i f w i t h - o u t p a r o r f a c e v a l u e , 4 ¢ p e r s h a r e , I f s e l l i n g p r i c e i s $ 2 0 . o r o v e r , w h e t h e r w i t h o r w i t h o u t p a r o r f a c e v a l u e , r a t e i s 5 ¢ . 1 0 ¢ / $ 1 0 0 f a c e v a l u e o r f r a c t i o n , 4 ¢ / $ 1 0 0 f a c e v a l u e . 5 0 ¢ / $ 5 0 0 o r f r a c t i o n o f t h e c o n s i d e r a t i o n i f i n e x c e s s o f $ 1 0 0 ( e x c l u s i v e o f i n s t r u m e n t s g i v e n t o s e c u r e a d e b t ) . N o c h a n g e . 1 1 ¢ / $ 1 0 0 f a c e v a l u e o r L £ w i t h o u t f a c e v a l u e : (a ) I f a c t u a l v a l u e is l e s s t h a n $ 1 0 0 , 3 ¢ o n e a c h $ 2 0 o r f r a c t i o n ; ( b ) i f a c t u a l v a l u e i s o v e r $ 1 0 0 , l l ¢ o n e a c h $ 1 0 0 o r f r a c t i o n . 5¢ /$ 1L 00 p a r o r f a c e v a l u e o r f r a c t i o n ; o r i f w i t h o u t p a r o r f a c e v a l u e , 5 ¢ / s h a r e . I f s e l l i n g p r i c e i s $ 2 0 o r o v e r , w h e t h e r w i t h o r w i t h o u t p a r o r f a c e v a l u e , r a t e i s 6 ¢ . L l ¢ / $ 1 0 0 f a c e v a l u e o r f r a c t i o n . 5 ¢ / $ 1 0 0 f a c e v a l u e . 5 5 ¢ / $ 5 0 0 o r f r a c t i o n o f t h e c o n s i d e r a t i o n i f i n e x c e s s o f $ 1 0 0 ( e x c l u s i v e o f i n s t r u m e n t s g i v e n t o s e c u r e a d e b t ) . 4 ¢ / $ 1 o r f r a c t i o n o f p r e - m i u m , . Nochange. Nochange. Nochange. Nochange. Nochange. Nochange. 1¢/$1or fractiouw of premium. 10¢ / $ 1 0 0 o r m a j o r f r a c t i o n o f a c t u a l v a l u e ( N o d i s t i n c - t i o n m a d e b e t w e e n p a r v a l u e a n d n o p a r o r f a c e v a l u e s t o c k ) . 4 ¢ / $ 1 0 0 o r m a j o r f r a c t i o n o f a c t u a l v a l u e ( n o d i s t i n c t i o n m a d e b e t w e e n p a r v a l u e o r n o p a r o r f a c e v a l u e s t o c k ) . N o c h a n g e . N o c h a n g e . N o c h a n g e . N o c h a n g e , b u t i n c l u d e s i n - d e m n i t y b o n d s . N o c h a n g e . Nochange. Nochange. Nochange. Nochange. Nochange. Nochange. Nochange. " S o u r c e : A n n u a l R e p o r t s o f t h e S e c r e t a r y o f t h e T r e a s u r y , 1 9 4 0 , 1 9 5 0 , 1 9 6 2 , a n d 1 9 6 3 . - 1 2 - year 1963 they yielded $140 million, about 1/10 of 1 percent of internal revenue collections (table 2). Compliance By custom, documentary stamp taxes are paid by the seller (grantor), although all parties to a taxable transaction are equally liable. 1/ The stamps representing the tax imposed on the issuance of stock are required to be affixed to the stock books or correspond- ing records. In the issuance of corporate bonds or other certificates of indebtedness the stamps are affixed either to the instruments or to the identure under which they are issued, In the case of the transfer of stocks or bonds the stamps are required to be affixed to the certificate being transferred if it is endorsed to a named transferee or to the memorandum of sale if the certificate is endorsed in blank. The Internal Revenue Code provides an alternative procedure for paying the tax on stock and bond transfers, without stamps, this procedure, a member of a securities exchange may appoint the exchange or a clearinghouse as his agent for the purpose of paying the tax. The securities dealer reports daily to the exchange or the clearinghouse the amount of tax due on his transactions. The exchange and clearinghouse, in turn, make daily tax payments directly to the District Director of Internal Revenue. 2/ Deed documents conveying real estate and policies issued by foreign insurers are required to have the stamps affixed, The regulations allow considerable latitude, 3/ and affixing practice varies, Under No studies of the cost of administering documentary taxes have apparently been made, either within or outside the Treasury Department. Because the amount of revenue involved is small, the Internal Revenue Service devotes minimal effort to the enforcement of documentary stamp taxes. Payment of the tax by corporations on the issuance of securities is checked when "package" audits are made for income and other tax purposes. Security brokers on rare occasions have been checked and are presumed by Federal authorities to be complying with the law. As mentioned above, in many instances the security transfer tax is paid by the stock exchange or a clearinghouse which charges the broker's account, and the transfer memorandum issued by the 1/ Internal Revenue Service, Documentary Stamp Taxes, Document No, 5286, (12-62). 2/ Internal Revenue Service, Internal Revenue Bulletin, No. 1962-18, April 30, 1962; pp. 13,709 - 13,712. 3/ Ibid. -13- TABLE 2. - FEDERAL INTERNAL REVENUE COLLECTIONS, TOTAL AND DOCUMENTARY STAMP TAXES, SELECTED YEARS, 1916 - 1963 (Dollar amounts in millions) Documentary stamp taxes 4/ __ Year Total Amount - Percent of- total 1916 $ 512.7 $ 38.1 7.4 1918 3,699.0 21.9 0.6 1923 2,621.7 61.5 2.4 1933 1,619.8 53.4 3.3 1943 22,371.4 37.4 0.2 1953 69,686.5 82.6 0.1 1963 105,925.4 140.4 0.1 1/ Excludes stamp taxes on playing cards and silver bullion transfers. Source: Annual Report of the Secretary of the Treasury, 1943; Annual Reports of the Commissioner of Internal Revenue, 1953 and 1963. - 14 - broker bears an indicia indicating tax payment. Foreign insurers _of£ consequence are few and also enjoy a presumption of compliance. Compliance with the requirements of the documentary tax on real estate transfers is diffused. Generally, realtors and lawyers who write deeds and financial institutions that make real estate mortgage loans know the Law and endeavor to see that the tax is paid. Some purchasers, particularly commercial operators, systematically verify compliance by the seller. Deed recorders frequently make some effort to ascertain that stamps are affixed. ‘Typically when deeds are recorded by photographic processes the recordings show the affixed stamps. It is common practice in other recordings to indicate the amount of stamps affixed. These practices, however, are extra-legal. 1/ Compliance, in fact, is almost completely voluntary and non-compliance and violations may be considerable, Objective measures of the degree of tax compliance are not available. No record is compiled of delinquent taxes collected on the issuance of corporate securities resulting from audits, Attempts to correlate tax payments with other indices are thwarted by the fact that the same stamps are used for the various types of documentary taxes and receipts from the several taxes as annually reported by the Secretary of the Treasury and the Commissioner of Internal Revenue are necessarily combined. 2/ ~=+Endeavoring to apply rates to national 1/ A century ago the documentary stamp tax regulations attempted to invalidate instruments without stamps (Stamp Duties Regulation 1 in George S. Boutwell, A Manual of the Direct and Excise Tax System of the United States, 1863). This was promptly set aside (McBride v Doty, (1867) 23 Lowa 122 and Craig v Dimock (1868) 47 I11. 308). Unstamped documents are admissible as evidence (Cole v Ralph, 252 U.S. 286); however, States may make payment of a State tax on mort- gages a criterion of admissibility as evidence (Greenwood v Price, 27 P. 2d 822), ~ 2/ Annual reports of the Secretary of the Treasury for 1929 and prior years lump all documentary stamp tax receipts, From 1929 through 1952 a different stamp was used to evidence payment of the tax on the transfer of capital stock. Reports of 1930 through 1952 under the head "Bonds, issues of capital stock, deeds of conveyance, etc." included the tax on the premiums of foreign insurance policies and of passage tickets when applicable. A very rough estimate of the $140 million collected in fiscal year 1963 ylelds the following breakdown, by source: Amount Percent Source (millions) distribution Securities $100 71.4 Issues 15 10.7 Transfers 85 60Conveyances 35 38:4 Foreign insurers 5 3.6 Total $140 100.0 - 15 - aggregates is equally unproductive for the same reason and additionally because the revenue effects of fractional values and of the exemptions of assumed mortgages from the tax on real estate transfers are not ascertainable, Some efforts have been made in individual States, in connection with property tax administration, to ascertain the degree of com- pliance with the tax on deeds of conveyance. One example is Kentucky, which has been concerned with the problem since 1936. A report of a field investigation covering the deed recordings of the first six months of 1953 in eighty-one typical counties, excluding the largest, Jefferson, by the Kentucky Department of Revenue revealed that about 10 percent of the recorded deeds showed no indication of tax payment. Reports on subsequent investigations (1962) verified the earlier results with some outstanding examples of probable violation. In one rural mountain county in an eight-month period, only two recorded deeds evidenced tax payment. In another, only six, and in the latter case at least 200 deeds should have been stamped. 1/ The Kentucky investigations also showed that understamping of deeds was practiced and that subdivision developers and others holding real estate for speculative purposes sometimes overstamped. 1/ Kentucky Department of Revenue, inter-office memorandum, August 2, 1962, This memorandum observes that not more than $1,000 in Federal tax may have been involved, - 16 - 3. State and Local Documentary Taxes In addition to the $140 million obtained in fiscal year 1963 by the Federal Government -- mainly (about three-fourths) from taxes on securities transactions -- 18 States and the District of Columbia collected $120 million from a variety of documentary stamp taxes, These consisted of taxes on mortgages, securities transactions, and real estate transfers (table 3). More than half of the total collected by the States accrued to New York from its stock transfer tax. 1/ In 5 States (Maryland, New York, Pennsylvania, Virginia, and Washington) local governments impose real estate transfer taxes; in 4 (Kansas, Maryland, New York, and Oklahoma) local governments collect and retain the proceeds from statewide mortgage taxes. The amount of locally collected and retained documentary taxes is unknown, but may approach $40 million, which would-bring the total of Federal, State, and local documentary taxes to the neighborhood of $300 million. Of the 18 States and the District of Columbia with State docu- mentary taxes in 1963, 13 (including the District of Columbia) levied such taxes on real estate transfers. These taxes are patterned, by and large, after the Federal tax. State tax rates are frequently identical with the Federal rate (at rates of about 1/10 of 1 percent). In 5 States, assumed mortgages are excluded in computing the tax, as in the case of the Federal tax. With two or three exceptions, the State real estate transfer taxes are not significant revenue producers. The Pennsylvania tax, at 1 percent of the selling price (exclusive of assumed mortgages) produced almost $20 million in 1963, and the 1/2 percent District of Columbia tax yielded $1.7 million. Even in these cases, the amounts are minor relative to these jurisdictions’ total tax collections. As previously indicated, data on Federal documentary stamp tax collections do not provide detail for categories of transactions subject to tax. As a rough indication of the portion that came from ‘the tax on conveyances, the dollar volume of real estate transfers in i/ The New York State tax on stock transfers is a flat rate per share graduated according to its selling price: 1 cent per share when the selling price is less than $5, 2 cents when it is $5 to $10, 3 cents from $10 to $20, and 4 cents when $20 or more, -17- TABLE 3, - FEDERAL AND STATE DOCUMENTARY TAXES, 1963 Distribution Rate Use of of receipts Collections State and type of tax an. I, 1963 Jan. 1964 stamps (thousands)? State Local Federal Government: Issuance of capital stock. ...........0.000005 10¢/$1007,......... vee ef Yes... XX... XX..., Transfer of capital stock, .........cceeeee cues 4¢/$100. eee Yes...., XX... XX... Issuance of corporate bonds,...............+ 11¢/$100 ....... Yes... XX..... XX... $140,371 Transfer of corporate bonds, ..............55 5¢/$100... 0.0.0... reed YOS. 0.0, XX...... XX... Transfer of real estate. ..........c0ceseeeees 55¢/$5008, Yes...,. XX...., XX...,. Premium onpolicies issued by foreign insurers.| 1¢ or 4¢/$14.,,.........] Yes. .... XX..... XX... | Alabama: 50¢/$5008 Transfer of property,............. taeseees oe} 00¢/95008. eee eee No,.... hee... Vasseeee Mortgages B anveneaes see cetaeseeeeneee 15¢/$100... 2.02... No,.... pens: 1.448 Issuance of stocks and bonds, ..............- 25¢/$100. 0... No,.... AM. pee e eee ; Transfer of mineral leaseholds,..,.,........ 5-15¢/acre®,a, No,.... weeeeee eel All... Colorado: Transfer of real estate.............. . Repealed in 19638 18 District of Columbia: Transfer of real estate.,..... 05%... eee eee ee eee ed No..... eesecce.e| AML... 1,7007 Florida: Issuance and transfer of stocks and bonds, ...| 15¢/$100............... Yes..... AN, decceeenee Transfer of rea] estate... 0... .... 0. cece eee 30¢/$100............0.5 Yes... All, oe Jeseeeeeee 18,718 Indiana: Transfer of real estate. .... ce ceerce vel 2008s ccc uecccevaes ceveel YOR... .\; eeen a na. Kansas: Mortgages ...........cccesecenenseeces 25¢/$100...eee No,.... coeseseeed AMLec eee. Maryland: 8 Transfer of property...........ce cece see eee 55¢/¥500, 0... eee Yes..... seees All®,...] 56 Mortgages ..... be eb eee ees etereteteseenees 55¢/$500...oe Yes...., wen ee ALD... Massachusetts Transfer of real estate............ 55¢/$5009 29)... Yes..... All,.... eeeeee 1,494 Minnesota: ; Transfer of real estate... 2.0.0... 00.0000. oe] 55¢/$5008Bs. Yes, .... All.....) @ 1,206 Mortgages ..... 2... sce e eect e eet eee ren eree 15¢/$100,............ oe Now... 14.2.0...) 56.0000 Mississippi Transfer of mineral leaseholds, ...... 6-8¢/acre), .. os... Yes. ....4.00...0., All, ....].-. 0005 ones New York: 8 Transfer of stock, ...... 00 .cecceceeeneec cece 1-4¢/sharel#. ..,.......] Yes..... Allo Jaaseceees 65,878 MOTtgages 0... .. cc cece eee cect ee eect cees 50¢/$100. 0... No.,... weeee All, ...Je-- eee sees Oklahoma: Mortgages ..........ccceceeeeceeeee 2-10¢/$100............. No.....]. 000.004. All,....|[e...eceeeees Pennsylvania: 15 Transfer of real estate,,........ re Yes..... All.....]... deeees 19,523 South Carolina: Issuance of stocks and bonds,.............0. 10¢/$100..... ce veeceeee Yes..... All,.... saeeeces Transfer of stocks, ,........ccececseeccecers 4¢/$100, ............00, Yes,....| All..... secseere 1,657 Transfer of real estate... .......... cece eee $1/$5008,.. oof Yos,....] Alls... Jeccescecs Tennessee: Transfer of real estate... ........, taeeeeene $1.50/$1000... 2.2... No,.... All... fecccecees 1.830 MOrtgages . 0... . ccc cece cence ere e ete eene eens 10¢/$100............. .| No..... All... bocce cee , Texas: Transfer of stock... 00... ....eceeceeecees 3.3¢/$100............65 Yes. .... All,.,.. J... cccees 284 Virginia: 16 Transfer of real estate... ......cccecnes ene 15¢/$100.0... 4.840 Mortgages 0... .. cc cece cece eter ene eeenes 15¢/$100... . , Washington: 17 Transfer of real estate.,........ .| 50¢/$500,.............. 1,077 West Virginia: Transfer of real estate...........{ $1.10/$500.......... tee 487 Federal, ,... se enebeneven eee bee aeeeseeeneees been te eee een ever eeanee wee ee cetslerccesces [oaseesens $140,371 State... ccc ccc see e eee e cues cues veseees cen ede cece rn acecensceseesnatthessenssndesusenseelersctenee 120,216 Total. oo... cece cc eens rece tes settceee ven nreens eee teveteaces weer ee seee eeesseeeles esas 260,587 n.a.—Data not available. XX—Not applicable. 2 Excludes amounts collected and retained by local gov- ernments. Data are preliminary. 2 Rate is 4¢/$100 on certain regulated investment .com- anies, P 3 Exclusive of assumed mortgages. The Indiana tax is applicable only to corporationssubject to the gross income 4 Depending on of policy. 5 Depending on Ieagth bf jeaxe. © Rate was 1¢/$100. 7 Tax went into effect in May 1962, 8 The city of Baltimore and 7 specified counties are au- thorized to supplementthe State tax, : ® Except that tax on recordation of instruments granting encumbrances on property situated in two or more coun- des, as security for corporate bonds of public utilities, are paid to the State. 10 Rate is $1 on first $500. 1 Rate is $1.10 on first $1,000. 44 Except that the tax on mortgages that are secured by property exempt from property taxation is paid to the tate. 13 New York City imposes a tax of 0.5% on transfers of real property where the consideration exceeds $25,000. Assumed mortgages are excluded in computing the tax. 14 Depending on value per share. See text. 18Local governments are authorized to impose a real estate transfer tax up to 1% and more than 400, mainly school districts, have doneso. 36 Counties and cities levy a tax of Y% the State tax (5¢/$100). 37 Counties are authorized to levy a 1% real estate sales tax; all 39 counties have doneso. Source: U.S, Bureau of the Census, Detail of State Tax Collections in 1963; and US, Commissioner of Internal Revenue, Annual Report, 1963. (Pub. No. 55.) -~ 18 - each State for 1962 was estimated from sales data reported by the Bureau of the Census in its 1962 Census of Governments, discounted 10 percent for assumed mortgages, and the Federal rate applied to the residual. This would indicate a maximum Federal take of $35 million from the tax on conveyances. The State-by-State breakdown of that amount (table 4) indicates approximately the amount each State would have obtained from a real estate transfer tax at the Federal rate of 55 cents per $500, exclusive of assumed mortgages, Tt is clear that the bulk of the Federal (as well as State) documentary tax revenues is derived from the taxes on securities transactions. Real estate transfer taxes, as currently imposed by the Federal Government and by some States, have little revenue impact. The interest in them derives from their possible usefulness in connection with assessment-sales ratio studies for property tax administration purposes. - 19 - TABLE 4. - FEDERAL DOCUMENTARY STAMP TAXES COLLECTED, BY STATE, 1962 (in thousands) State total L/ Conveyances 4! Other (deeds) Alabama $ 728 $ 308 $ 420 Alaska 66 n.a. nea, Arizona 823 409 414 Arkansas 387 192 195 California 18,138 7,952 10,186 Colorado 1,285 619 666 Connecticut 1,558 387 1,171 Delaware 663,) 163 500 District of Columbia 397- 180 217 Florida 2,853 1,702 1,191 Georgia 1,336 501 835 Hawaii 315 98 217 Idaho 216 111 105 Illinois 11,413 1,971 9,442 Indiana 1,094 665 429 Towa 789 321 468 Kansas 654 491 163 Kentucky 747 415 332 Louisiana 1,424 292 1,133 Maine 194 112 82 Maryland 1,6112/ 756 855 Massachusetts 3,817 808 3,009 Michigan 2,793 1,090 1,703 Minnesota 1,954 677 1,277 Mississippi 354 176 178 Missouri 2,320 832 1,488 Montana 199 114 85 Nebraska 702 247 455 Nevada 299 79 220 New Hampshire 177 96 BL New Jersey 2,770 995 1,775 New Mexico 332 166 166 New York 61,931 2,153 59,778 North Carolina 991 502 489 North Dakota 127 69 58 Ohio 4,358 2,087 2,271 Oklahoma 965 571 394 Oregon 954 373 581 Penneylvanta 5,953 1,551 4,402 Rhode Island 338 113 225 South Carolina 407 176 231 South Dakota 164 83 81 Tennessee 1,065 392 673 Texas 5,273 1,641 3,632 Utah 356 169 187 Vermont 97 56 41 Virginia 1,408 921 487 Washington 2,048 810 1,238 West Virginia 263 128 135 Wisconsin 1,304 485 8L9 Wyoming 121 59 58 Total 150,572 4/ 35,263 115,242 See footnotes on next page, - 20 ~ TABLE 4.-FEDERAL DOCUMENTARY STAMP TAXES COLLECTED, BY STATE, 1962 (Concl'd) n.a. ~ Data not available. 1/ Excludes receipts from stamp taxes on playing cards and silver bullion transfers. 2/ Estimated on the basis of data in the Census Bureau report, Taxable Property Values, (1962 Census of Governments, Vol. II). The "total" estimated sales price of sold real properties during a six-month period, 1961, for each state was multiplied by two, arbitrarily discounted 10 percent for assumed mortgages, divided by $500 and multiplied by 55 cents. 3/ The District of Columbia and Maryland are reported as a unit by the Commissioner of Internal Revenue. The data are separated on the basis of the 1960 census of population. 4/ Detail does not add to total because of unavailability of data for Alaska. Source: Commissioner of Internal Revenue, Annual Report 1962, Table 1, pp. 140-141; estimate of conveyance taxes by staff of Advisory Commission on Intergovernmental Relations. - 21 - 4. The States' Interest in Real Estate Transfer Taxes The Internal Revenue Code requires that a tax be paid on every piece of real estate that is sold, at the rate of 55 cents per $500 of the consideration, exclusive of any assumed mortgages. As alréady noted, the tax is paid by the purchase of Internal Revenue stamps; which must be affixed to the deed. When the tax is computed accurately and the proper amount of Stamps attached to a deed document the stamps provide an indication -- usually the only indication on the deed -- of the price (or transfer consideration) paid for real estate. This selling price information is useful to tax administrators concerned with the assessment of real estate for property tax purposes, The most widespread use by the States of the Internal Revenue stamps attached to deed documents is in connection with assessment- sales ratio studies. In essence, an assessment ratio study compares the selling price of real estate with its assessed value in order to estimate the level in relation to "fair" or "market" value at which real property is assessed for property tax purposes ina particular taxing jurisdiction. This measure is called the "assessment ratio," Although almost all State property tax laws require uniform assessment, usually at full value, this requirement is more often than not honored in the breach. Thus, even in the same State, assessment ratios for local jurisdictions vary considerably. This problem is discussed in some detail in another report of this Commission. 1/ This interjurisdictional variation in assessment levels poses numerous problems, the solution of which can be aided by the data that result from assessment ratio studies, Their usefulness for im- proving the property tax has long been recognized by State tax administrators. This Commission has enumerated some of the uses to which the findings of assessment ratio studies can be put, including: disclosure of the degree of compliance with the legal basis of assessment; guidance for the individual taxpayer in determining the equity of his assessment; disclosure of full value of taxable property as one index of community fiscal ability; aid in the development of reliable measurement standards that use taxable valuations as a base; guidance for the equalization of State and local assessing; and 1/ Advisory Commission on Intergovernmental Relations, The Role of the States in Strengthening the Property Tax, (A-17), June 1963, Vol. 1. -~ 22 - indication of interarea nonuniformity in assessment to permit equitable distribution of taxes in taxing districts identified with more than one assessing area, and equitable distribution of State aid. 1/ The national organization of State Tax Administrators has elaborated on the "equalization" aspects of assessment ratio studies, 2/ Railroads and other public utilities, whose property holdings are generally assessed on a unitary basis by the States but are taxed at local property tax rates, have long been concerned with the inter- area differences in assessment levels. 3/ They have usually contended that the States assess public utility properties at close to full value while the local jurisdictions' property tax rates are levied on the basis of various fractional values, and that as a result the utilities are relatively overtaxed. Much Litigation has resulted from these contentions and the utilities have themselves conducted assessment ratio studies to bolster their case, Over the past several decades the courts have come to recognize that officials may not achieve uniform assessments and the legal requirements of full value and they have increasingly granted judicial relief to taxpayers able to demonstrate systematic and substantial relative overassessment. The quest for equality in assessment has been spurred by the recent increases in property tax rates and liti- gation clarifying the right of overassessed taxpayers has developed in practically every State. The usefulness, indeed the necessity, of measuring the level of local assessments is thus widely acknowledged and such measurements are now being developed routinely by many States. ‘There are two generally accepted methods of accomplishing this: either by comparing the assessments of properties selected at random from among the , various classes of property with the independent and professional 1/ Ibid., p. 51. 2/ National Association of Tax Administrators, Equalization Programs and Other State Supervisory Activities in the Property Tax Field, Federation of Tax Administrators, Chicago, 1957, footnote 17, table III. 3/ For explanation and discussion, see Committee on Unit Valuation, ‘National Association of Tax Administrators, Appraisal of Railroad and Other Public Utility Property for Ad Valorem Tax Purposes, Federation of Tax Administrators, Chicago, 1954, - 23 - market value appraisal of the same properties; or by conducting assessment~sales ratio studies.. These methods of computing assess- ment levels have been compared many times. and if capably done either method gives reliable results. The assessment-sales ratio study method, however, is simpler, quicker, and less expensive. 1l/ Itis therefore most widely used, In 1956 at least 20 States were conducting statewide assessment ratio studies annually, 3 others biennially, while another State made a special study that year, 2/ Of these, 12 used sales data only, 3 appraisal data only. and 9 used both types of data. Statewide and local interest in the use of sales ratio data has been increasing, and more than half of the States and the District.of Columbia are now conducting assessment ratio studies on a regular basis (table 5). 3/ An assessment-sales ratio study typically involves drawing a sample of transferred properties from the deed records and developing the necessary sales price and assessed value data pertaining to those properties, Additional information is also needed about each sample transaction, such as the relationship between the buyer and seller, special circumstances surrounding the sale, etc., to make sure it was a bona fide arm's length sale involving a willing buyer and a willing seller, 4/ By tradition, the legal documents filed in connection with realty transfers do not indicate the actual price paid, but merely recite some nominal consideration such as "One dollar and other 1/ For a recent judicial recognition of this, see: The People ex rel Mike Wenzel, County Collector v Chicago and North Western Railway Company, Docket Nos. 37584-85-86-87, Supreme Court of Illinois, May 1963. 2/ National Association of Tax Administrators, Equalization Programs and Other State Supervisory Activities in the Property Tax Field, Federation of Tax Administrators, Chicago, 1957.- 3/ See Advisory Commission on Intergovernmental Relations, op. cit., Vol. 2, for brief accounts of the assessment ratio studies being conducted by the several States. 4/ The procedures are described in detail in Committee on Sales Ratio Data, National Association of Tax Administrators, Guide for Assess- ment-Sales Ratio Studies, Federation of Tax Administrators, Chicago, 1954, - 24 - TABLE 5. - STATES CONDUCTING PERIODIC ASSESSMENT RATIO STUDIES Arizona Missouri Arkansas — Nebraska California Nevada Colorado New Jersey *Dist. of Columbia New York *Florida North Dakota Hawaii Oregon Illinois *Pennsylvania *kIndiana Rhode Island Kansas South Dakota Kentucky Utah *MaryLand *Virginia Michigan *Washington *Minnesota Wisconsin NOTE: In most instances the States rely on sales data, sometimes supplemented by appraisals. Some States, notably California and Michigan, rely entirely or almost entirely on appraisal data, *Imposes a real estate transfer tax. **kImposes a Limited real estate transfer tax, - 25 - valuable consideration." However, those interested in sales prices for assessment ratio studies quickly discovered that the price could be computed from the tax payment indicated by the Internal Revenue stamps attached to the deed, The fact that assumed mortgages were excluded from the tax computation complicated the procedure, for this necessitated checking mortgage records when the deed indicated assumption of a mortgage, Investigators examining the deed records for assessment ratio studies have found numerous instances where Internal Revenue stamps should have been attached but were not, And even when stamps were attached, the sales price estimates derived from them often indi- cated prices that on further investigation were found to be inaccurate, Since the accuracy of the selling price is crucial to the validity of the findings of an assessment-sales ratio study, effective use of Federal tax stamps to compute the price is limited by poor compliance, as well as by the exemption of assumed mortgages. State tax administrators charged with conducting ratio studies have been concerned with this problem for decades. 1/ Both understamping and overstamping often result from misinter- pretation of the assumed mortgage exclusion. In some instances, the value of a mortgage may be excluded whether it is assumed by the purchaser or a new mortgage is placed. In other instances, stamps are attached for the full price, just to be on the safe side, In addition to the discrepancies arising from misunderstanding of the statutes there are cases where the seller has deliberately increased the amount of tax stamps on a transaction to give the impression that the selling price involved is higher than the actual amount paid, When the real estate market is very active and resales of the same property occur frequently, subdivision developers have been known to "overstamp" for the purpose of overstating the price paid for a property. The Federal Government's tax system is predicated upon self- assessment with spot audits by the Internal Revenue Service. It is reasonable to expect that the enforcement efforts of the Internal Revenue Service are concentrated on those taxes that yield the bulk of the revenue -- personal and corporate income taxes, inheritance and estate taxes, and manufacturers' excise taxes, The insignificant 1/ For some record of this, see: George W. Mitchell, "Using Sales ~ ‘Data to Measure the Quality of Property Tax Administration," National Tax Journal, Vol. 1, p. 336, Dec. 1948, - 26 - yield of the low fractional rate conveyance stamp tax makes it unprofitable to put even token resources into its enforcement which would require auditing efforts in some 3,000 county courthouses. Therefore, reliance is placed upon the voluntary purchase of tax stamps, mainly by lawyers and realtors. The argument that States derive useful by-product information from the tax is poor justifi- cation for retaining a tax that has little revenue significance and no regulatory purpose. Furthermore, States have access to other means of obtaining information on the selling price of real estate. A number of States. and the Bureau of the Census obtain the information required, by questionnaire, from the parties to the transaction. This has been found. to produce satisfactory results. The questionnaire serves also to obtain other kinds of information needed for the ratio studies, such as the relationship between buyer and seller, the value of any personal property included in the sale, and any unusual cir- cumstances surrounding the sale. For its 1962 Census of Governments, the Census Bureau obtained responses from over 90 percent of the 154,000 parties to real estate transactions it solicited for infor- mation. 1/ Another means States have at their disposal is to enact their own real estate transfer taxes. As has been indicated, 12 States and the District of Columbia, as well as a number of Local governments in 5 additional States, have done so. A real estate transfer tax is particularly well suited to State administration through local officials. Counties are creatures of the State, and their officials are utilized in many areas as agents in enforcing State laws. Those States that have levied their own real estate transfer taxes can and do require the local recorders to enforce the law. Almost without exception, the State real estate transfer tax laws require the recorder to verify that the State tax has been paid before he can accept the deed for recordation. In many instances there is a penalty for noncompliance. Pennsylvania, West Virginia, and the District of Columbia require the parties to a real estate transaction to submit a sworn affidavit as to the selling price of the property. The West Virginia law con- tains the following provision: 2/ 1/ U.S. Bureau of the Census, Taxable Property Values, 1962 Census of Governments, Vol. II, p. 16. The questionnaire used by the Census Bureau is reproduced on pages 20 and 21 of that report. 2/ W. Va. Code, Sec. 6, Act 22, Ch. ll. -27- "When offered for recording,..each instrument subject to the tax as herein provided shall have appended on the face or at the end thereof, a statement or declaration signed by the grantor, grantee or other responsible party familiar with the transaction therein involved declaring the consideration paid for or the value of the proper- ty thereby conveyed...," The States could, if they were so inclined, tie their real estate transfer taxes directly to assessment-sales ratio studies. 1/ However, 1/ Colorado did this.when it. enacted the Realty Recording Act in 1957. The recording fee under this law was nominal -- only l¢ per $100 of value ~- but the law required the county clerk and the county assessor to report each real estate transaction to the Legis- lative Council which was authorized to conduct assessment ratio studies primarily for the information that was needed in connection with the State school aid program. Section 118-6-31 of the Colorado Revised Statutes, 1953 (1960 Supplement) reads as follows: Disposition of records (1) (a) The clerk and recorder of each county, on or before the fifteenth day of each month: (b) Shall file with the county assessor all certificates submitted to him pursuant to the provisions of section 118-6-25 together with the daily records provided for in section 118-6-30; (2) (a) The county assessor for each county, or his deputy, .on or before the last day of each month: (b) Shall enter on the daily records received from the clerk and recorder the assessed value of the real estate listed in such daily records and a certificate subscribed to under oath, that such assessed values are true and correct; (c) Shall file with the legislative council a copy of each document received from the clerk and recorder in accordance with the provisions of sections 118-6-21 to 118-6-33. The Colorado Realty Recording Act was repealed by the 1963 Legis- lature. - 28 - even if there is no direct reference in the State real estate trans- - fer tax law to assessment~-sales ratio studies, the evidence of tax payment attached to the deed is a matter of public record, and the State or any individual wishing to use this evidence to compute the selling price from the tax is at liberty to do so. Six of the States and the District of Columbia with their own real estate transfer taxes conduct regular assessment-sales ratio studies, utilizing the tax as one tool for this purpose. On the other hand, three of the States that develop outstanding assessment ratio data -- Wisconsin, New Jersey, and New York -- have not found it necessary to rely on tax information, preferring to solicit the selling price and related information directly from the parties to real estate transactions. To summarize, the States’ need for valid weal estate market value information (as measured by selling prices) could be met by an adequately enforced, broad-based Federal tax on conveyances, Asa practical matter, however, an adequately enforced Federal conveyance tax law is not readily reconciled with rational allocation of en- forcement resources, Furthermore, other means are available to the States for obtaining realty market value information, including the use of questionnaires and enactment of their own real estate transfer taxes, - 29 - % U.S. GOVERNMENT PRINTING OFFICE : 1965 O-+732-511—{265) PUBLISHED REEORTS: OF THE ADVISORY COMMISSION ON_ INTERGOVERNMENTAL RELAT ONS y ReportA-1.- Jamary 1961. A23. » January alances. of. 5, “gay.ben: : sions, » Commthee : . “Report MA15. M-16. October 1962. 150 pp., Areas: “Report M28. June 1962. -148-pp., printed, ‘ Functions: ocalameena, Revert Mrel.. September 1963. 283 PP., offset, duly 1964. 235 pp.,. printed, ($1.50) “ob-Tatebe vernmentalRelations. Report Me2k pance to. Local Debt Managenent, ‘Report M-26. January 1965. . 80-4“pp.; offset. oa Single “copies of: reports may be obtained without charge from the Advisory Commission onIntergovernmenta; Relations , Washington,- D. C., 2057S: Multiple copies of items. marked with e purchased: from the Superintendent, of Docunients, Government Printing Offiee,, “Boho, a . . : washington, Be EXHIBIT R SB 816 Senate Bill - Bill Analysis Page 1 of 4 BILL ANALYSIS SENATE REVENUE & TAXATION COMMITTEE Senator Lois Wolk, Chair SB 616 ~ Ducheny Introduced: February 27, 2009 Hearing: April 22, 2009 Fiscal: Yes SUMMARY; Makes Three Changes to Enhance Enforcement and Administration of the Documentary Transfer Tax I. The Documentary Transfer Tax EXISTING LAW (California Constitution, Article XILIA, Section 4) prohibits transaction taxes or sales taxes on transfers of real property; however, the Revenue and Taxation Code authorizes counties to approve an ordinance to impose a documentary transfer tax (DTT), which applies to deeds of transfer of realty within that jurisdiction and is based on the value of the transfer. In counties, the rate is fifty-five cents ($0.55) for each five hundred dollars ($500) of value. All of California's 58 counties apply the tax, which is modeled after the repealed Federal Documentary Stamp Tax. EXISTING LAW also allows cities to enact ordinances to impose a DTT: Noncharter cities within a County that impose a DTT may apply its tax at half of the rate of the county and applies as a credit against the county rate, Charter cities may impose a DTT at a higher rate under the municipal affairs doctrine in the California Constitution (Article XI, Section 5}. If they do so SB 816 - Ducheny Page 4 at a higher rate than the non-charter rate, then the city DTT does not serve as a credit against the county tax. EXISTING LAW provides several exemptions to the tax, including when any public agency acquires land, land acquired as a result of a plan of reorganization or adjustment such as bankruptcy, and certain transfers in lieu of foreclosure, among others. THIS BILL allows.DTT ordinances to include an administrative appeal process to resolve disputes. The Measure additionally states that the when this administrative process or a court of law fixes the value of the property for purposes of applying the DTT, that determination does not bind the value for property tax purposes. II. Assessor Records EXISTING LAW provides that any information and records in the Assessor's office are not Public documents and shall not be open to public inspection, unless specifically exempted by law. Exemptions include information for law enforcement agencies, county grand jury, or the Board of Supervisors. THIS BILL requires the Assessor to disclose information, furnish abstracts, and permit access to all records to the County Recorder when conducting an investigation to determine whether the documentary transfer tax is due. . http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0801-0850/sb 816 cfa 20090420 15552... 9/29/2015 SB 816 Senate Bill - Bill Analysis Page 2 of 4 Il. Change of Ownership Statements EXISTING LAW requires the person acquiring ownership or control of a corporation, partnership, limited liability SB 816 - Ducheny Page 4 company, or other legal entity to submit a change in ownership statement to the Board of Equalization (BOE), signed under penalty of perjury, listing all the counties in which the firm operates. If the Person fails to file the statement within 45 days of a written request from the BOE, a penalty applies of 10% of the taxes applicable to the new base year reflecting the change in ownership or control, However, the penalty is extinguished if the person files a change in ownership statement within 60 days of BOE notification of the penalty. THIS BILL instead provides that the penalty applies if the person acquiring the corporation, Partnership, limited liability company, or other legal entity does not file the change of ownership statement within the earlier of 45 days from the BOE request or 45 days from the date in change of control or ownership. The bill changes two sections of law, the first which applies to changes in control of a firm, the second which applies to changes in ownership. THIS BILL also deletes the provision requiring the penalty to be extinguished if the person files the statement within 60 days of notification of the penalty. FISCAL EFFECT: Committee staff estimates that SB 816 will result in some increased revenue for local agencies as a result of increased DTT collections due to increased application of existing penalties. COMMENTS: A. Author's Statement According to the Author, "SB 816 requires that the existing 10% penalty be applied on taxes due for the year SB 816 - Ducheny Page 4 when a new business owner fails to file a change in ownership statement with the BOE within 45 days of a change of ownership or control, Under current law, the penalty is only applied after a written request for filing is sent from the BOE. This has resulted in multi-year delays in reassessments of business properties and losses of hundreds of millions in taxes to State and Local Governments." B. The DIT The Documentary Transfer Tax, enacted in 1967, allows Boecities and counties to enact taxes on documents that serve prsto transfer real property. The tax may be used for general :or specific purposes, although all DTTs levied thus far are general taxes. The tax is administered by county recorders, who cannot by law record the property transfer ieuntil the tax is paid. Counties collect the tax but remit :the city tax to the appropriate city. Hundreds of California Cities levy the tax, ranging from the general law city rate of fifty-five cents per $1000 of value up to $15.00 in the City of Oakland. SB 616 provides a firmer deadline to file change of ownership statements and removes a sixty day grace period, thereby encouraging taxpayers to file the legally required forms, which may or may not trigger the D?T. Additionally, http://wwwleginfo.ca.gov/pub/09-10/bill/sen/sb_0801-0850/sb_816cfa2009042015552... 9/29/2015 SB 816 Senate Bill - Bill Analysis Page 3 of 4 by providing access to assessor information, SB 616 will help recorders determine whether the DTT applies to certain changes of ownership. C. Gears and Wheels When property or control of a firm changes hands, the acquiring person must submit one of two reports. When a new owner acquires property, he or she must attach a Preliminary Change of Ownership Report (PCOR) to with any document effecting a change of ownership to the County Recorder, or pay an additional recording fee of $20; SB 816 - Ducheny Page 4 however, the recorder must record the property change documents if the person pays the additional recording fee. The County Recorder will then share the PCOR information along with grant deeds with the County Assessor, who then determines whether to reassess the property, If the PCOR is not filed, the person must file a Change in Ownership Statement (COS). However, no Penalty applies for failing to file the COS unless the assessor asks for one, in which Case the person must file the COS within 45 days of the assessor's written request or face a penalty of the greater of $100 or 10% of the taxes applicable to the new base year reflecting the change of ownership, not to exceed $2,500 unless the failure was willful, in which case the penalty reflects the full amount of the taxes applicable to the new base year. Typically, a person acquiring control or ownership of the firm notes the change when answering specific questions on his or her state income tax forms filed with FTB, which notifies BOE. BOE then notifies the person of the Cos requirement, who must file the form with the BOE at its office in Sacramento listing all the counties in which the firm does business. The California Assessors’ Association states that only 9% of COSs are filed voluntarily according to BOE, showing that Persons usually respond only after prodding from the BOE. After receiving the COS, the BOE then notifies the affected counties of the change in control or ownership of the firm, and assessors determine whether to reassess property owned by that firm as a result of the change in control or ownership. The Assessors state that BOE takes an average of five months, and occasionally up to five years, to inform the person acquiring ownership or control to file a COS, and SB 616 hastens this process by placing an affirmative responsibility on the person acquiring control or ownership of the firm to file the legally-required forms. Currently, the penalty of 10% of the taxes applicable to the new base year reflecting the change in ownership or contro] only applies if the person acquiring ownership or control does not file a COS within 45 days of BOE's request. SB 816 instead provides that the penalty applies SB 616 - Ducheny Page 4 from the earlier of 45 days of the BOE's request, or 45 days from the change in control or ownership, meaning that affected persons must now submit the form or face a penalty regardless of whether BOE files a request. D. Suggested Amendments On Page 3, Line 10, delete "due" and insert “imposed” to reflect the appropriate verbage of the Documentary Transfer Tax Act. Support and Opposition Support:California Assessors' Association http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0801-0850/sb_816cfa20090420 15552... 9/29/2015 SB 816 Senate Bill - Bill Analysis Page 4 of 4 Oppose: None Received Consultant: Colin Grinnell http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0801-0850/sb_816. cfa 20090420 15552... 9/29/2015 EXHIBIT S AB 503 Assembly Bill - Bill Analysis BILL ANALYSIS AB 563 Page 1 Date of Hearing: April 4, 2011 ASSEMBLY COMMITTEE ON REVENUE AND TAXATION Henry T. Perea, Chair AB 563 {Furutani) - As Introduced: February 16, 2011 Majority vote. Fiscal committee. SUBJECT : Property taxation: assessor: disclosure: appraisalinformation. SUMMARY : Authorizes city employees to obtain or accessotherwise confidential information from the county assessor whenthe city is conducting an investigation to determine whether thedocumentary transfer tax (DTT) is imposed. Specifically, this_ bill 1)Requires a county assessor to disclose information, furnishabstracts, and permit access to all records in his/her officeto employees of a city that is conducting an investigation todetermine whether a DTT is to be imposed. 2) Imposes a state-mandated local program and states that, if theCommission on State Mandates determines that this billcontains mandates by the state, reimbursement to localagencies and school districts for the costs shall be madepursuant to the statutory provisions. EXISTING LAW 1) Requires assessors to keep certain information confidential.YRevenue and Taxation Code (R&TC) Section 408{a)). 2)Provides an exception to the general rule of confidentialityfor certain governmental agencies or representatives.Requires the county assessor to disclose information, furnishabstracts, or permit access to all records in his/her officeto law enforcement agencies, the county grand jury, and otherspecified entities, including the county recorder in the caseof an investigation to determine whether a DTT is imposed. YRETC Section 408{b)}. AB 563 Page 2 3) Allows charter cities to levy a DTT pursuant to a local ordinance and their authority. The locally imposed DTT is generally collected by the county recorder. YR6TC Part 6.7 ofDivision 2 (Sections 11901-11935)). FISCAL EFFECT : None. COMMENTS : 1)The Author's Statement . The author states that, "AB 563 wouldallow for information sharing between County Assessor's Offices' and cities to identify change of ownership legal entity transfers and other real Property transfers that maynot be currently captured. Enactment of the proposed legislation is estimated to result in improved and increased collection of the Documentary Transfer Tax at a time of fiscalcrisis for local governments." 2)Arguments in Support. . The City of Los Angeles, sponsor of AB563, believes that “an information sharing program, modeledafter the AB 63/SB 1146 Program that was initiated in the Fallof 2001 would prove successful in capturing tax owed to localgovernments, while maintaining taxpayer confidentialityprotections." The sponsor states that, "At a time of fiscalcrisis for local governments, this type of program would helpresult in improved and increased collection of an existing revenue source.” 3)DTT_ . The California Constitution (Article XIIIA, Section 4)prohibits transaction taxes or sales faxes on transfers ofreal property. However, the DTT law, enacted in 1967, allowscities and counties to enact, by ordinance, taxes on documentsthat serve to transfer real Property. The DTT applies todeeds of transfer of realty within the jurisdiction that imposes a DTT and is based on the value of the transfer. Thetax may be used for general or specific purposes, although allDTTs levied thus far are general taxes. The tax is administered by county recorders who cannot, by law, record http://www.leginfo.ca.gov/pub/11-1 2/bill/asm/ab_0551 -0600/ab_563_cfa20110401 1048... Page 1 of 3 9/29/2015 AB 563 Assembly Bill - Bill Analysis Page 2 of 3 the property transfer until the tax is paid. Counties collectthe tax but remit the city tax to the appropriate city. All of California's 58 counties impose the tax, which is Modeledafter the repealed Federal Documentary Stamp Tax. Hundreds of AB 563 Page 3 California cities also levy the tax, ranging from the generallaw city rate of $.55 for each $500 of value up to $7.50 inthe City of Oakland. Non-charter cities within a county thatimposes a DTT may impose its tax at half of the rate of thecounty, which works as a credit against the county rate. Charter cities may impose a DTT at a higher rate under themunicipal affairs doctrine in the California Constitution (Article XI, Section 5). I£ they do so at a higher rate thanthe non-charter rate, then the city DTT does not serve as acredit against the county tax. Existing law provides severalexemptions to the tax, including when any public agency acquires land, land acquired as a result of a plan ofreorganization or adjustment such as bankruptcy, and certaintransfers in lieu of foreclosure, among others, The courts have consistently held that a DTT is an excise tax for the privilege of exercising one of the incidents ofProperty ownership, its conveyance. It is hot a property taxbecause it is imposed solely on the privilege of disposing of one's property and realizing its actual value. Fielder v. City of Los Angeles, 14 Cal.App.4th 137; Fisher v. Alameda County, 20 Cal, App. 4th 120. 4)Access to Records in the County Assessor's Office Existinglaw provides that any information and records in the countyassessor's office are not public documents and shall not beopen to public inspection, unless specifically exempted by law. Exemptions include sharing of information with law enforcement agencies, county grand jury, or the board of supervisors. In 2009, the List of enumerated exemptions was expanded to allow a county recorder access to all records in the assessor's office for purposes of determining whether aDTT is due. YR&TC Section 408(b}}. The DIT is administeredat the local level by the county recorder, so providing access to assessor information helps recorders to determine whether the DTT applies to certain changes of ownership. AB 563 would further amend R&TC Section 408{b) to add cityemployees to the list of agencies that May have access to all records in the assessor's office for purposes of determiningwhether a DTT is due. AB 563 is sponsored by the City of LesAngeles, a charter city. According to the State Board ofEqualization's (BOE) analysis of this bill, the City of Los AB 563 Page 4 Angeles has an agreement with the Los Angeles County for theCollection of taxes between the city and county. Apparently,the agreement provides that, if the County is unable to, ordoes not, collect the DTT when the instrument or writing ispresented for recordation, the City has the responsibility tocollect the DTT. In order to determine whether the DIT isdue, the City may have to conduct investigation and/or performaudits of city revenues related to DITs, which may require access to assessor's records. Currently, both California and many cities face difficultbudget times. AB 563 aims to increase taxpayer compliance atthe local level, thereby generating more revenue to help closebudget gaps, consistent with the State's own efforts to close the tax gap. 5) Taxpayer Confidentiality . Generally, critics of information sharing between government entities are concerned about possible unlawful disclosure or inspection of confidential taxinformation. Thus, often, provisions allowing information sharing contain safeguards against, and penalties for,unlawful disclosure of confidential taxpayers’ information. For example, an existing information sharing program betweenthe Franchise Tax Board {FTB) and cities provides for criminalsanctions for unlawful disclosure or inspection of such information, which supplements FTB's institutional commitment to taxpayer information confidentiality. The information possessed by the county assessor's office is considerably less http://www.leginfo.ca.gov/pub/1 1-12/bill/asm/ab_0551-0600/ab 563 cfa 20110401 1048. 9/99/9015 AB 563 Assembly Bill - Bill Analysis Page 3 of 3 Sensitive than the information found on income tax returns.Nonetheless, the Committee may wish to consider amending AB563 to include some sort of safeguards against unlawfuldisclosure of information acquired by city's employees from the county assessor. 6)Similar Legislation. SB 816 (Ducheny), Chapter 622, Statutes of 2009, made changes inthe DTT law relative to city ordinances, assessor records, andchange of ownership statements, including allowing countyrecorders to assess the county assessors’ records wheninvestigating if a DTT is due. SB 1146 (Cedillo), Chapter 345, Statutes of 2008, extended the AB 563 Page 5 sunset date for the program that allows the FTB to shareinformation with tax officials of any city in California untilDecember 31, 2014. SB 1374 (Cedillo), Chapter 513, Statutes of 2006, extended theprogram that allows the FTB to provide information to taxofficials of any city in California until December 31, 2011, AB 63 (Cedillo}, Chapter 915, Statutes of 2001, extended thecircumstances under which the FTB may disclose tax informationto tax officials of any city, until December 31, 2008, REGISTERED SUPPORT / OPPOSITION :Teeee Support California Tax Reform Association The City of Los Angeles, Office of the Mayor Antonio R.Villaraigosa {sponsor} Opposition None on file Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916)319-2098 http://www.leginfo.ca.gov/pub/1 1-12/bill/asm/ab_0551-0600/ab 963 cfa 20110401 104k = gMa/on16 CERTIFICATE OF SERVICE Title of Action: 926 North Ardmore Avenue, LLC Supreme Court Case No. $222329 I, the undersigned, am employedin the City of Red Bluff, County of Tehama,State of California; my business address is 727 Oak Street, Red Bluff, CA 96080. I am overthe age of eighteen years andnota party to the within action. On October 14, 2015 I caused the following documents to beserved as follows: REVISED MOTION FOR JUDICIAL NOTICE Causing a true copy thereof, enclosed to be delivered to the office of each party shown below at the address indicated and by leaving the same with a person apparently in charge and overthe age of eighteen years; (X) Placing a true copy there, enclosed in a sealed envelope with first-class postage thereon fully paid, in the United States mail at Red Bluff, California, addressed as follows: Clerk of the Appellate Court Honorable Rita Miller Lemoine SkinnerIII Second District Court Los Angeles Superior Court, Fisher Broyles LLP 300 S. SpringsStreet, 2" Floor Dept. 16 1334 8" Avenue Los Angeles, CA 90013 111 North Hill Street San Francisco, CA 94122 Los Angeles, CA 90012 MarkJ. Saladino, County Counsel Daniel M. Kolkey Albert Ramseyer, Principal Deputy Julian W. Poon 648 Kenneth Hahn Hall of Lauren M.Blas Administration GIBSON DUNN & CRUTCHER 500 West Temple Street 555 Mission Street, Suite 3000 Los Angeles, CA 90012-2713 San Francisco, CA 94105-2933 I declare under penalty of perjury that the foregoingis true and correct, executed at Tehama County, California, on October 14, 2015. ARMINDA SEARCY °
