
    No. 373
    LAUNDRY MACH. CO. v. DEAN, Collector PROCTOR & GAMBLE CO. v. Same
    U. S. District Court, S. D. Ohio, W. D.
    Nos. 3244, 3259.
    Decided July 24, 1923
    653. INTERNAL REVENUE — No “original issue” of stock by an existing corporation subject to stamjp tax without change in the stock — The basis of stamjp tax on corporation stock is par value of the stock and not on number of certificates — Exchange issue of stock m'erely reducing par value of shares, held not an “original issue” subject to stamp tax.____
    Attorneys — Dinsmore, Shohl & Sawyer, Cincinnati, for Machinery Co. and Proctor & Gamble Co.; Benson W. Hough, U. S. Atty., Columbus, and Haveth E. Mau, Cincinnati, for U. S.
   HICKENLOOPER, D. J.

Epitomized Opinion

Actions were brought by the American Laundry Machinery Co. and by Proctor & Gamble Co. against one Dean, Collector of Internal Revenue. The petitions were to recover taxes paid under Sect. 1100, Schedule A, paragraph 2 of the Revenue Act of 1921 and Sect. 1100, Schedule A, paragraph 3 of the Revenue Act of 1918. The language of both sections is identical, and by both it is provided that there shall be ‘levied, collected and paid, for and in respect of . . . certificates of stock ... or for or in respect of the vellum, parchment or paper upon which such instruments . . . are written or printed . . . the several tares specified in such schedule.” Schedule A, paragraph 2, provides for the above mentioned stamp tax “on each original issue whether on organization or re-organization of certificates of stock ... by any corporation, on each $100 of face value or fraction thereof, 5 cents.”

In order to facilitate dealing in stock of the plaintiff corporations, and the wider distribution of the same among their employes and the public, amendments to the articles of incorporation were secured whereby the par value of the outstanding and issued shares of stock was reduced in amount and the holders of stock of the original $100 par value were given the right to transfer or convert the same into shares of a lesser par value. Neither the aggregate par value of any holder nor of all the stockholders was increased, nor was the type of stock changed. The collector imposed the above tax on this stock. The plaintiffs claimed that the shares were not taxable. Demurrers were filed to the petitions. In overruling the demurrers, the District Court held:

1. Under Revenue Act 1918, 1100, 11107 (2), being Comp. Si(. 'An'n. Suppi. {19/19, 6318i|, 6318p(2), imposing a stamp stock on each original issue, whether on organization of reorganization, of certificates of stock of a corporation, there can be no “original issue” of stock by an existing corporation, without an actual change in the amount of such stock outstanding or in the kind or character of such stock.

2. Such statute makes the par value of the stock, and not the number of certificates, the basis of the tax.

3. Where corporations to facilitate acquisition of their stock by employes and others, reduced the par value of their shares from $100 to $20, issuing to each stockholder five shares in exchange for each share held by him but without changing the aggregate par value of his stock or the aggregate par value of all outstanding stock, or the character of the stock, the new stock held not an “original issue,” subject to stamp tax.  