the one now under consideration in that, in the outset, that instrument contained a promissory note signed by the borrower; then stipulated in express terms that the borrower had deposited with, and pledged to, the company from which the money was borrowed, and to which the note was given, as collateral security for the payment of the note, a certain number of shares of stock described in the said instrument. Following this express pledge of the said stock as security for the payment of a definite and certain sum of money, evidenced by the said note, were further stipulations in the said instrument, substantially the same as those contained in the instrument of which the above is a copy.

In the opinion referred to, I advised you that my construction of the law led me to the conclusion that the transaction was stampable only in so far as the property described was made security for the payment of a definite and certain sum of money, to wit, that sum which was evidenced by the note which was a part of the transaction. I reiterate what I said in my previous opinion, that any mortgage or other written instrument by which property is made security for the payment of a definite and certain sum of money, lent at the time or previously due and owing or forborne to be paid, being payable, is, together with other papers relating thereto, taxable as one transaction under the paragraph of Schedule A of the war revenue act headed "Mortgage or pledge," and the amendment thereto of February 28, 1899 (30 Stat., 1390).

66

I do not think it necessary to discuss the question raised in some of the briefs filed in this matter, as to whether shares of stock are movable personal property," because the language of the statute is as follows: "Mortgage or pledge, of lands, estate, or property, real or personal, heritable, or movable, whatsoever."

This is broad enough to include anything which is the subject of ownership, and, therefore, if shares of stock or other securities are conveyed by mortgage or other written instrument as security for the payment of a definite and certain sum of money, such transaction is taxable under the provision of the war-revenue act above cited, and the stamp or stamps required to pay the tax must be affixed to the papers, or some one of them, which constitute the evidence of the transaction. In order, however, to bring the transaction within the purview of the statute, it is my opinion that the property conveyed in the mortgage or pledge must be so definitely described therein as to be capable of identification from such description in case of foreclosure, and the amount for which the mortgage or pledge is operative must be a definite and certain sum set forth on the face of the instrument itself or made certain by reference to some other paper in which the sum secured to be paid is specifically stated, and which constitutes a part of the transaction.

If stock is hypothecated as security for the payment of money simply by the delivery of the certificates to the lender, or deposited as a basis of credit without a mortgage or other written instrument being executed or made, whereby the said stock is pledged to secure the payment of a definite and certain sum of money, it is my opinion that no tax collectible by the affixing and cancellation of an adhesive documentary stamp can be imposed.

The taxes provided for under Schedule A of the war revenue act are stamp taxes, and the method provided for the collection of said taxes is by the affixing of stamps to instruments, papers, or documents, and for this reason the stamps issued for the payment of taxes under Schedule A are called "documentary stamps."

In section 6 of the war-revenue act it is provided:

"That on and after the first day of July, eighteen hundred and ninety-eight, there shall be levied, collected, and paid, for and in respect of the several bonds, debentures, or certificates of stock and of indebtedness, and other documents, instruments, matters, and things mentioned and described in Schedule A of this Act, or for or in respect of the vellum, parchment, or paper upon which such instruments, matters, or things, or any of them, shall be written or printed by any person or persons, or party who shall make, sign, or issue the same."

* *

It will be seen that by this provision the tax is levied in respect of the things described themselves, or of the vellum, parchment, or paper upon which they are written or printed. I see no provision which indicates that any tax is imposed upon anything which is not written or printed, and, the tax being collectible through the instrumentality of adhesive stamps, the statute contemplates that such stamps shall be affixed to the vellum, parchment, or paper upon which the instruments are written or printed.

And, further, in section 7 it is enacted:

"That if any person or persons shall make, sign, or issue, or cause to be made, signed, or issued, any instrument, document, or paper of any kind or description whatsoever, without the same being duly stamped for denoting the tax hereby imposed thereon, or without having thereupon an adhesive stamp to denote said tax, such person or persons shall be deemed guilty of a misdemeanor," etc.

Now, what constitutes the offense under this section? Undoubtedly, it is the making, signing, or issuing, or causing to be made, signed, or issued, of instruments, documents, or papers, without the same being duly stamped, or without having thereupon-that is, on the instrument, document, or paper-an adhesive stamp to denote the tax.

Section 14 of the act provides that:

"No instrument, paper, or document required by law to be stamped, which has been signed or issued without being duly stamped, * * * shall be recorded or admitted, or used as evidence in any court," etc.

And section 15 forbids the recording or registration of any instrument or paper or document required to be stamped unless the stamp is affixed and canceled. Section 16 is to the effect that no instrument, paper, or document required by law to be stamped shall be deemed or held invalid and of no effect for the want of a particular kind or description of stamp designated for and denoting the tax on such instrument, paper, or document, provided a legal documentary stamp or stamps denoting the necessary tax shall have been duly affixed and used thereon.

There are certain transactions upon which a tax is imposed under the provisions of the war-revenue act, in which the act itself requires the making of the instrument or paper to which the stamp is to be affixed. For instance, as to common carriers, the law provides that when_goods are accepted for transportation, a bill of lading shall be given by the carrier, and upon this bill of lading a 1-cent stamp shall be affixed, and it is made a misdemeanor not to give the bill of lading, and also a misdemeanor to give the bill of lading without the stamp. Also in case of sales or agreements of sale, or agreements to sell any products or mer chandise at any exchange or board of trade or any similar place, the seller is required to make and deliver to the buyer a bill, memorandum, agreement, or other evidence of such sale, agreement of sale, or agreement to sell, and the stamp denoting the payment of the tax is to be

affixed to this. A similar provision will be found in the case of an agreement to sell stock, or where the transfer is by the delivery of the certificate assigned in blank. The seller is required to deliver to the buyer a bill or memorandum of the sale with stamp affixed.

There is a further provision in regard to the sale of stocks, that where the transfer is made upon the books of the company, then the stamp must be placed upon the transfer entry on the book, and where the change of ownership is evidenced by the transfer certificate, the stamp shall be affixed to the certificate.

I have cited these various provisions and requirements in the warrevenue act in order to show that wherever a documentary tax, to be paid by the use of an adhesive stamp, is provided for, it contemplates the making, signing, or issuing of some instrument or paper to which the stamp can be attached.

There are certain instruments and papers required by the war-revenue act to be stamped, if such instruments or papers are made or executed; but there is no provision of the law requiring them to be made. For example, if A loans to B $1,000 and B gives a note for it, he is required to affix revenue stamps to the value of 20 cents. But if A lends him the money and does not elect to take a note, then B does not have to pay the tax. The same may be said of a lease or contract for the hire of land. If the lease is in writing, then a documentary stamp must be placed upon it; but there is no law which requires the lessor to put the lease in writing; he can make an oral lease, if he sees proper, and thereby escapes the payment of the tax.

I, therefore, conclude that no tax collectible by the use of an adhesive documentary stamp can be imposed, unless an instrument, paper, document, or writing, falling within some one of the descriptions given in the act, is executed, made, signed, or issued to which the stamp denoting the payment of the tax is to be affixed. The paper under consideration does not in my opinion meet the requirements necessary to constitute a mortgage or pledge such as is taxable under that head in the war-revenue act. It does not convey or pledge any property, capable of identification from the paper itself, nor is any property, so far as appears in the paper, made security for the payment of any definite and certain sum of money lent at the time or previously due and owing or forborne to be paid, being payable.

In your second question you inquire whether stock pledged as security for a loan may not properly be taxed under the first paragraph of Schedule A, which is as follows:

"Bonds, debentures, or certificates of indebtedness issued after the first day of July, anno Domini eighteen hundred and ninety eight, by any association, company, or corporation, on each hundred dollars of face value or fraction thereof, five cents, and on each original issue, whether on organization or reorganization, of certificates of stock by any such association, company, or corporation, on each hundred dollars of face value or fraction thereof, five cents, and on all sales, or agreements to sell, or memoranda of sales or deliveries or transfers of shares or certificates of stock in any association, company, or corporation, whether made upon or shown by the books of the association, company, or 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 stock, or to secure the future payment of money or for the future transfer of any stock, on each hundred dollars of face value or fraction thereof, two cents: Provided, That in case of sale where the evidence of transfer is shown

only by the books of the company the stamp shall be placed upon such books; and where the change of ownership is by transfer certificate the stamp shall be placed upon the certificate; and in cases of an agreement to sell or where the transfer is by delivery of the certificate assigned in blank there shall be made and delivered by the seller to the buyer a bill or memorandum of such sale, to which the stamp shall be affixed; and every bill or memorandum of sale or agreement to sell before mentioned shall show the date thereof, the name of the seller, the amount of the sale, and the matter or thing to which it refers."

The Commissioner in his letter calls particular attention to the following language in the above paragraph: "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 stock, or to secure the future payment of money or for the future transfer of any stock, on each hundred dollars of face value or fraction thereof, two cents;" and asks if the delivery of certificates of stock to secure the future payment of money is not a taxable transaction under this provision.

My opinion is that it would be if the delivery of the stock was accompanied by any paper or agreement or memorandum or other evidence of transfer such as contemplated by the statute. But I can

not construe this act to mean that the mere hypothecation of certificates of stock by depositing the same without any written or printed instrument of hypothecation, although the same may be held as security for the payment of a loan or taken as a basis of credit, is subject to stamp tax.

The language of this paragraph is involved, and presents difficulties of construction which are insurmountable if we attempt to give a clear and precise meaning to every clause. The rule of construction in tax laws is that if there is doubt as to the liability of any instrument or other thing to taxation, the construction is in favor of the exemption, because a tax can not be imposed without clear and express words for that purpose. (United States v. Isham, 17 Wall., 503.)

An analysis of the language under consideration reduces the provision which is supposed to cover the deposit of stock certificates as security for loans to this:

"On all sales * ** made * * * by and delivery * * * to secure the future payment of money * * * on each hundred dollars of face value, * * * two cents."

The subsequent language of the proviso indicates that the kind of sales intended is such only as possesses the incident of a definite price :

"And in case of an agreement to sell or where the transfer is by delivery of the certificate assigned in blank there shall be made and delivered by the seller to the buyer a bill or memorandum of such sale, to which the stamp shall be affixed; and every bill or memorandum of sale or agreement to sell before mentioned shall show the date thereof, the name of the seller, the amount of the sale, and the matter or thing to which it refers."

This would not be applicable to mere deposits of stocks to remain as collateral for indebtedness, where no price is fixed, and where there is in no sense a sale effected. There is nothing in the act requiring an appropriate memorandum of a mere deposit of that kind, and in the absence of such a memorandum in writing, there is no subject of taxation clearly and definitely indicated by the act, and hence the transaction will not, under the rule above cited, be taxable.

Aside from this, we have a right to assume that the Legislature intended to use the term "delivery" in its legal technical sense.

Chancellor Kent, in his Commentaries (vol. 2, page 439), says, in treating of the subject of delivery:

"If the thing given be a chose in action, the law requires an assignment, or some equivalent instrument, and the transfer must be actually executed."

And in Bouvier's Law Dictionary it is said:

"To constitute a legal delivery it is necessary that all present and future dominion over the thing delivered pass from the person making the delivery."

In my opinion, it is entirely consistent with the provisions of the act under consideration to apply this meaning to the term "delivery" and to hold that, in order to constitute a stampable transaction, the delivery of certificates of stock must be accompanied by some assignment, transfer, or agreement, in writing, such as is described in the statute. Very respectfully, JAS. E. BOYD, Assistant Attorney-General. Approved: JOHN W. GRIGGS, Attorney-General.

(83.)

Stamp tax on loans secured by pledges of collateral under Schedule A, act of June 13, 1898.

[Int. Rev. Circular No. 560.]

TREASURY DEPARTMENT,

OFFICE OF COMMISSIONER OF INTERNAL REVENUE,

To collectors of internal revenue:

Washington, D. C., March 29, 1900.

The following rulings, with regard to internal-revenue taxation on loans secured by pledges of collateral under Schedule A of the warrevenue act of June 13, 1898, are in accordance with the late opinion of the honorable Attorney-General, dated March 20, 1900 (see TREASURY DECISIONS, internal-revenue ruling No. 80), and are published for the information and guidance of collectors of internal revenue and all others interested:

1. Any promissory note, whether given for a call loan or any other indebtedness, and whether payable on demand or on time, requires to be stamped at the rate of 2 cents for each hundred dollars of face value, or fractional part thereof. Interest accrued, or to accrue, on a promissory note forms no part of the face value of such note in determining the amount on which tax is to be computed. Each renewal of a promissory note requires stamping at the same rate as an original note, and payment of interest in advance on a matured note is considered to be a renewal of the same.

2. Pledges of stocks, bonds, etc., as collateral security for the payment of loans, are liable to tax under the provisions of that paragraph of Schedule A headed "Mortgage or pledge," at the rate of 25 cents for each $500 or fractional part thereof in excess of $1,000.