The recent Louisiana case of State v. Stewart Brothers Cotton Co., lnc. raises the question of the treatment of treasury stock 2 for franchise or privilege tax purposes. In that case the state statute provided that the base for the franchise tax was the corporation's issued and outstanding capital stock, surplus and undivided profits. Stewart Bros. Cotton Co., Inc., had an authorized capital stock of 10,000 shares; in 1930 it purchased 3,333 1/3 shares of this stock, and did not cancel the shares until 1935. The surplus, which was more than sufficient to allow the corporation to purchase the stock in 1930, dwindled, and in the years 1933 and 1934 the corporation had a deficit, if its capital stock was carried on the basis of 10,000 shares. In regard to the latter two years, the Supreme Court of Louisiana held that the corporation must consider the treasury stock as issued and outstanding for tax purposes, and pay the franchise tax on the basis of 10,000 shares, rather than allowing the treasury stock to be deducted from the authorized issue and paying the tax on a base of 6,666 2/3 shares.
James A. Lee,
TAXATION - CORPORATIONS -TREATMENT OF TREASURY STOCK UNDER THE MICHIGAN PRIVILEGE TAX STATUTE,
Mich. L. Rev.
Available at: https://repository.law.umich.edu/mlr/vol38/iss7/10