My corporation is merging with a subsidiary of another company: shareholders will automatically have their shares converted into a set ratio of the acquirer's newly issued shares (with cash instead of any leftover fractional share), and separately, the merger subsidiary's own shares will convert into 1,000 shares apiece of the surviving company. Is any of this share conversion activity subject to New York's Stock Transfer Tax?

Plain-English summary

NYNEX Corporation ("Old NYNEX") and Bell Atlantic Corporation entered into an Amended and Restated Agreement and Plan of Merger (dated April 21, 1996, as amended July 2, 1996). Under the deal, Bell Atlantic formed a wholly-owned Delaware merger subsidiary that merged into Old NYNEX, with Old NYNEX surviving as "New NYNEX," a wholly-owned Bell Atlantic subsidiary. The merger agreement provided that every outstanding share of Old NYNEX common stock (other than treasury shares or shares Bell Atlantic already owned) would automatically -- without any shareholder action -- cease to exist and convert into 0.768 newly issued shares of Bell Atlantic common stock (the "Exchange Ratio"), with Bell Atlantic authorized to increase its total authorized share count to cover the newly issued shares needed. No fractional Bell Atlantic shares would be issued; shareholders entitled to a fraction instead received a cash payment for that fractional value. Separately, every share of the merger subsidiary (100% owned by Bell Atlantic) would automatically convert into 1,000 shares of New NYNEX common stock. NYNEX asked whether any part of this conversion and delivery process triggered New York's Stock Transfer Tax.

Tax Law § 270(1) broadly taxes "all sales, or agreements to sell...and all deliveries or transfers of shares or certificates of stock," but 20 NYCRR § 440.1(h) exempts the ORIGINAL ISSUANCE of stock, and § 440.1(j) lists specific exempt transactions including surrendering a certificate for reissuance of a new certificate to the same stockholder representing the same aggregate share count, and transferring a fraction of a share. The Department reasoned that once the merger took effect, the surrendered Old NYNEX shares no longer represented valid Old NYNEX stock at all -- they instead represented an ownership interest in Bell Atlantic, making them, in effect, ORIGINALLY ISSUED Bell Atlantic shares. So the "exchange" was really just the same stockholder surrendering a certificate representing newly issued Bell Atlantic shares in return for a new certificate of the same issue -- an exempt reissuance under § 440.1(j)(2)-(3), building on the underlying original-issuance exemption in § 440.1(h). The cash paid instead of fractional shares was separately exempt under § 440.1(j)(4) because it represented less than one share. And the merger subsidiary's own share conversion (one share into 1,000 New NYNEX shares) was analyzed the identical way: those shares became originally issued New NYNEX shares, so converting them was just a same-stockholder reissuance of the same-issue certificates, with no Stock Transfer Tax liability.

What this means for you

Corporate attorneys structuring stock-for-stock mergers involving a New York-taxable entity

A merger's automatic share-for-share conversion into the ACQUIRER's newly issued stock is generally not a taxable "transfer" under the Stock Transfer Tax -- the Department treats the converted shares as originally issued stock of the surviving/acquiring entity, which falls under the original-issuance exemption rather than being taxed as a sale or transfer.

Accountants handling cash-in-lieu-of-fractional-shares payments in a merger

Cash paid to shareholders for fractional shares they'd otherwise receive is separately exempt from the Stock Transfer Tax, since it represents a transfer of less than one full share.

Tax professionals analyzing merger-subsidiary share conversions

The same original-issuance/reissuance exemption logic applies to BOTH legs of a typical reverse-triangular-merger structure: the target's shareholders converting into acquirer stock, and the merger subsidiary's own shares converting into stock of the surviving entity.

Common questions

Q: Does this merger-conversion exemption still apply today?
A: This opinion reflects the law and Department policy as of 1996; verify current collection practice under Tax Law Article 12 with the Department or a tax professional before relying on it for a present-day transaction.

Q: Why does it matter that the converted shares are "originally issued" rather than "transferred"?
A: Because the Stock Transfer Tax regulations specifically exempt the original issuance of stock -- once the merger legally extinguished the old shares and replaced them with new shares of the surviving/acquiring company, the Department treated that as issuance rather than a taxable sale or delivery of pre-existing stock.

Q: What if a shareholder received MORE shares in the new company than they held in the old one (as here, 0.768-to-1 or 1-to-1,000)?
A: The exchange ratio didn't matter to the exemption analysis -- what mattered was that the new shares represented originally issued stock of the surviving entity, and the surrender-for-reissuance regulation covers reissuing "the same number of shares" only in the sense of the SAME underlying transaction, not a fixed 1-for-1 count.

Q: Can another company in a similar merger rely on this exact ruling?
A: No. An Advisory Opinion binds the Department only as to the petitioner and facts presented, though the underlying original-issuance exemption is of general application under the regulations.

Citations and references

Statutes and regulations:

• Tax Law § 270(1) (imposes the Stock Transfer Tax on sales, agreements to sell, and deliveries or transfers of stock)
• 20 NYCRR § 440.1(h) (the original issuance of stock is not subject to the Stock Transfer Tax)
• 20 NYCRR § 440.1(j)(2), (3) (surrendering a certificate for reissuance of a new certificate to the same stockholder representing the same aggregate number of shares is not a taxable transaction)
• 20 NYCRR § 440.1(j)(4) (transferring a fraction of a share, or a certificate for less than one share, is not taxable)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/stock_tran_ao.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/misc/a96_2m.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (2) M
Miscellaneous Tax
November 27, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M961003A

On October 3, 1996, the Department of Taxation and Finance received a Petition for
Advisory Opinion from NYNEX Corporation, 1113 Westchester Avenue, White Plains, New York
10604.
The issue raised by Petitioner, NYNEX Corporation, is whether the conversions and
deliveries of shares of stock related to the merger of Petitioner with a subsidiary company of Bell
Atlantic Corporation are subject to the Stock Transfer Tax imposed pursuant to Article 12 of the Tax
Law.
Petitioner presents the following facts. NYNEX Corporation ("Old NYNEX") and Bell
Atlantic Corporation ("Bell Atlantic"), each a Delaware corporation, have entered into an Amended
and Restated Agreement and Plan of Merger, dated as of April 21, 1996, as amended and restated
on July 2, 1996 (the "Merger Agreement"). Pursuant to the Merger Agreement, Bell Atlantic will
form, under Delaware law, a wholly-owned subsidiary (the "Merger Subsidiary"), which will be
merged with and into Old NYNEX (the "Merger"). NYNEX ("New NYNEX") will survive the
Merger and will become a wholly-owned subsidiary of Bell Atlantic.
Section 2.2 of the Merger Agreement provides that, as a result of the Merger, each share of
Old NYNEX common stock issued and outstanding immediately before the Merger (excluding Old
NYNEX stock held as treasury stock or owned by Bell Atlantic) and all rights related to such stock
will "without any action on the part of any holder thereof, forthwith cease to exist and be converted
into and become exchangeable" for 0.768 shares (the "Exchange Ratio") of newly issued Bell
Atlantic common stock. The approval of the Merger Agreement authorizes Bell Atlantic to restate
its Certificate of Incorporation to increase the total number of shares of stock that Bell Atlantic is
authorized to issue. A portion of these newly authorized shares will be used in the conversion and
exchange of the Old NYNEX stock.
In addition, section 2.7 of the Merger Agreement provides that no fractional shares of Bell
Atlantic stock will be issued to the Old NYNEX shareholders in connection with the conversion and
as a result of the Exchange Ratio, but instead, each such shareholder shall be entitled to a cash
payment representing the value of any fractional share due to the shareholder (such value to be
computed according to the terms of the Merger Agreement).
Finally, section 2.4 the Merger Agreement provides that, once the Merger takes place, each
share of common stock of the Merger Subsidiary issued and outstanding (100 percent of which is
owned by Bell Atlantic) immediately prior to the Merger and all rights related to such stock will
"without any action on the part of Bell Atlantic, forthwith cease to exist and be converted into" 1,000
shares of common stock of New NYNEX, as the survivor of the Merger.

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TSB-A-96 (2) M
Miscellaneous Tax
November 27, 1996
Subdivision (1) of section 270 of Article 12 of the Tax Law provides in part:
There is hereby imposed . . . a tax . . . on all sales, or agreements to sell, or
memoranda of sales and all deliveries or transfers of shares or certificates of stock
. . . in any domestic or foreign association, company or corporation . . . whether
made upon or shown by the books of the association, company, corporation, or
trustee, or by any assignment in blank, or by any delivery, or by any paper or
agreement or memorandum or other evidence of sale or transfer, whether
intermediate or final, and whether investing the holder with the beneficial interest in
or legal title to said stock, or other certificates taxable hereunder, or merely with the
possession or use thereof for any purpose . . .
Subdivision (h) of section 440.1 of the Stock Transfer Tax Regulations provides as follows:
(h) The tax imposed by article 12 of the Tax Law does not apply to the original
issuance of stock.
Subdivision (j) of section 440.1 of such regulations provides in part:
(j) The following are examples of transactions not subject to tax:
*

*

*

(2) The surrender of a single certificate for reissuance to the same stockholder of
several certificates representing, in the aggregate, the same number of shares.
(3) The surrender of a number of certificates of reissuance, to the same stockholder,
of a single certificate for the same number of shares.
(4) The transfer of a fraction of a share of stock or a certificate representing the right
to receive less than one share of stock.
We reach the following conclusions regarding the issue raised by Petitioner.
The surrender of Old NYNEX shares to Bell Atlantic by the shareholders of Old NYNEX
in exchange for new shares of Bell Atlantic will not be subject to the Stock Transfer Tax. By
operation of the Merger Agreement, once the Merger occurs, the shares to be surrendered no longer
represent legally valid stock of Old NYNEX, but instead represent an ownership interest in Bell
Atlantic and are, in effect, originally issued shares of Bell Atlantic. The original issuance of stock
is exempt from the imposition of the Stock Transfer Tax (Regulations, section 440.1(h)). When the
exchange of shares takes place, the Old NYNEX shareholders are, therefore, exchanging Bell
Atlantic stock for new certificates of Bell Atlantic stock. Pursuant to paragraphs (2) and (3) of

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TSB-A-96 (2) M
Miscellaneous Tax
November 27, 1996
section 440.1(j) of the Stock Transfer Tax Regulations, the surrender of a certificate of stock
previously issued to a stockholder (the Old NYNEX certificates, which represent newly issued shares
of Bell Atlantic) in exchange for new certificates of the same issue (the new certificates of Bell
Atlantic stock) to the same stockholder representing, in the aggregate, the same number of shares,
does not result in any Stock Transfer Tax liability.
The cash payments made to the Old NYNEX shareholders where, as a result of the Exchange
Ratio, the conversion would have resulted in a fractional share of Bell Atlantic stock, will not be
subject to the Stock Transfer Tax because the sale is of less than one share of stock (Regulations,
section 440.1(j)(4)).
The conversion of each share of Merger Subsidiary stock into 1,000 shares of New NYNEX
stock will not be subject to the Stock Transfer Tax. Once the Merger takes place, the Merger
Subsidiary shares represent an ownership interest in New NYNEX, as the survivor of the Merger and
are, in effect, originally issued shares of New NYNEX. These shares are, therefore, certificates of
New NYNEX being exchanged for several new certificates of the same issue (i.e., one share of
Merger Subsidiary stock is converted into 1,000 shares of New NYNEX). As is discussed above with
respect to the surrender and exchange of shares between the shareholders of Old NYNEX and Bell
Atlantic, this type of transaction does not result in any Stock Transfer Tax liability.

Dated: November 27, 1996

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.