State Street Trust Co. v. Hassett
| Decision Date | 12 June 1942 |
| Docket Number | Civil Action No. 1102. |
| Citation | 45 F. Supp. 671 |
| Parties | STATE STREET TRUST CO. v. HASSETT, Collector of Internal Revenue. |
| Court | U.S. District Court — District of Massachusetts |
Willard B. Luther, of Boston, Mass., for plaintiff.
Edmund J. Brandon, U. S. Atty., and George F. Garrity, Asst. U. S. Atty., both of Boston, Mass., Samuel O. Clark, Jr., Asst. Atty. Gen., and Andrew D. Sharpe and George H. Zeutzius, Sp. Assts. to Atty. Gen., for defendant.
In this action the plaintiff seeks to recover $11,897.92, with interest, assessed against and paid by it as documentary stamp taxes with respect to alleged sales, transfers and deliveries of corporate securities to the plaintiff in connection with a merger in 1936.
The facts in the case were stipulated and may be summarized as follows:
The plaintiff, State Street Trust Company (hereinafter referred to as State), was incorporated in 1891 under the laws of Massachusetts. The Union Trust Company (hereinafter referred to as Union) was incorporated in 1927 under the laws of Massachusetts. Both banking corporations had their usual place of business in Boston.
On June 1, 1936, the plaintiff entered into a written agreement with Union pursuant to which the latter thereafter was merged into the plaintiff corporation.
The agreement recited that it was for the purpose of merging Union and its business into the plaintiff and of vesting in the plaintiff all of the former's assets and property. It further recited that the merged company "desires to sell, transfer, assign, and deliver to the Merging company all of its assets and property of every nature and description so as to vest the same and the title thereto" in the plaintiff, subject to the liabilities of Union, and that the plaintiff was willing to acquire and purchase all such assets. The consideration to be paid for the assets of Union was also set forth in the agreement.
The merger contract was made subject to the ratification and approval of the directors and shareholders of each corporation, the Commissioner of Banks of the Commonwealth of Massachusetts and of the Board of Governors of the Federal Reserve System. The necessary ratification and approvals were duly obtained.
On July 11, 1936, the merger was actually completed. A bill of sale and acknowledgment of liability was executed by which Union sold, assigned, and transferred to the plaintiff "all of its assets and property of every nature and description whatsoever; including therein * * * securities of every nature; evidences of indebtedness of every nature; loans however evidenced; deposits of every class; transfer, registration, trust and agency business and the goodwill connected therewith; * * *".
Prior to the merger, Union held a great many securities in a fiduciary capacity and it controlled many more to which legal title was held by its nominees.
The stocks and bonds with respect to which the plaintiff paid taxes upon the merger may be grouped as follows:
Group I. In the name of its nominees under different types of "agency accounts" $359. These "agency accounts" were agreements with depositors under which Union undertook to collect income, dividends, and maturing securities, supply information and prepare income tax returns. Each party whose securities were held by Union under such agency agreements, promptly after the merger, executed a form by which he "accepted and approved" the substitution of the plaintiff for Union as agent under the "agency agreement" and appointed the plaintiff successor agent. The corporate stocks and bonds held by Union immediately prior to the merger in the name of its nominee were initially placed in the name of the nominee pursuant to verbal agreements that the securities should be so held. In connection therewith the customer either enclosed the certificates in blank on the assignment form thereon or signed a separate assignment thereof. However, in at least two cases the "agency accounts" were opened initially by a cash deposit with which the securities were purchased and placed immediately in the names of Union's nominee partnerships. In all instances of "agency accounts" documentary stamp transfer taxes were paid with respect to the transfers into the name of Union's nominee upon the creation, initially, of such accounts.
Group II. In its own name in its capacity as fiduciary of testamentary trusts $1,589.14. In all such trusts application was made to the appropriate Massachusetts Probate Court for the appointment of the plaintiff as successor trustee to Union and in each case the appointment applied for was made.
Group III. In the name of its nominee in its fiduciary capacity under testamentary trusts $210.28. In all of such cases application was made to the appropriate Massachusetts Probate Court for the appointment of the plaintiff as successor trustee to Union and in each case the appointment applied for was made.
Group IV. In its own name in its capacity as fiduciary under living trusts $1,252.28. In one of these trusts, involving taxes of $10.36, the trust instrument contained a provision that any bank or trust company in which Union might be merged should be the successor of Union without the necessity of any appointment or assignment. In sixteen of these trusts, involving taxes in the amount of $1,241.92, there were provisions in the trust instruments authorizing some party or parties therein named or described to appoint a successor trustee in the event of a vacancy in the trusteeship. The forms varied, but the party authorized to appoint the successor was usually the settlor, sometimes a beneficiary or group of beneficiaries, and occasionally some named person. In every case, however, the appointment was to be definitely consummated by a written designation of the successor trustee affixed to the original instrument and required no application to any court. In all such cases the party or parties designated to appoint the successor did in fact appoint the plaintiff in the manner indicated by the instrument.
Group V. In the name of its nominee in its capacity as fiduciary under living trusts $8,226.38. In thirteen of these trusts involving stamp taxes in the amount of $1,013.18, the trust instrument contained a provision for automatic substitution as trustee for Union of any bank or trust company into which Union might be merged or consolidated. In seventy-three trusts, involving $7,199.02 in taxes, there were provisions in the trust instruments authorizing some party or parties therein named or described to appoint a successor, similar to those in the trusts where Union held securities in its own name. In each case, Union, and not the nominee to whom it later passed title, was named as trustee. And in all cases, the party or parties designated to appoint the successor did in fact appoint the plaintiff in the manner indicated by the instrument.
All securities held in the names of nominee partnerships under either trusts or agencies were immediately upon issue endorsed in blank by the partnerships. None of the nominee-held securities were re-registered after the merger but continued as before. Securities standing in the name of Union as trustee were, upon the merger, duly endorsed by it as trustee and later transferred either to the plaintiff as trustee or to a nominee partnership.
On August 14, 1940, the plaintiff filed its claim for refund of $11,897.92 of the aforesaid assessment on the ground that the taxes were illegally and improperly assessed for the alleged reason that $11,277.56 in tax was collected on transfers which occurred wholly by operation of law under Massachusetts General Laws and under the Internal Revenue Act and Departmental Regulations; that $359 of the tax was improperly assessed for the reason that no transfer of any character occurred; that, therefore, $11,636.56 of tax should be refunded to the plaintiff, plus interest of $261.36. By letter dated December 16, 1940, the Commissioner rejected the plaintiff's claim.
The question presented is whether under the circumstances set out the taxes assessed with reference to the above five groups were properly assessable under the provisions of Section 800, Revenue Act of 1926 and Schedules A(3) and A(9) of Title VIII thereof, as amended, added to and extended by Section 723(a), 723(c) and 724(a) of the Revenue Act of 1932, 26 U.S.C.A. Int.Rev.Acts, pages 630, 634.
The Revenue Act of 1926 imposes a tax, Section 800, Schedule A(3) of Title VIII, "On all sales, or agreements to sell, or memoranda of sales or deliveries of, or transfers of legal title to any of the shares or certificates mentioned or described in subdivision 2, stocks and bonds * * *, whether made upon or shown by the books of the corporation * * *, or by any assignment in blank, or by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale (whether entitling the holder in any manner to the benefit of such share, certificate, interest, or rights, or not), * * *".
The plaintiff contends that under the Revenue Act involved there must be a "transfer of legal title" to make the transfers taxable and it argues, with respect to Group I (agency agreements), that there was no transfer of legal title; that the only change here was the physical custody. The plaintiff contends as to Groups III and V, where the trust securities were held in the name of the nominees, that there was no transfer of any kind, and, as to Groups II and IV, though it admits in these securities transfers of legal title occurred, yet these transfers were by operation of law. The plaintiff further contends that if it is wrong in its assertion that no transfers took place in Groups I, III, and V, the transfers here were also by operation of...
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