What Is the New York Stock Transfer Tax?

The New York Stock Transfer Tax is a levy on securities transactions within the state, originating in 1905. While the law remains active, its direct financial impact was neutralized in 1981 when a 100% rebate was introduced. This feature means that although the tax is calculated on certain transactions, the full amount is returned to the taxpayer. The tax applies to sales, transfers, and deliveries of stock and similar financial instruments. For most individuals and firms, it is not an out-of-pocket expense but a procedural matter handled by clearing corporations and brokers.

Determining Tax Liability

The tax is imposed on the sale or transfer of specific securities when the transaction occurs within New York State. This includes instruments such as stock, agreements to sell stock, certificates of rights to stock, and certificates of interest in business trusts. The tax applies to shares in both domestic and foreign corporations if the transfer has a significant connection to New York.

For the tax to apply, a part of the transaction must take place within the state. This can include the sale, the agreement to sell, the delivery of the shares, or the transfer on the company’s books. The physical location of the stock certificate or the parties involved can determine if the transaction falls under New York’s jurisdiction. If the only event in New York is the transfer of record ownership on a corporation’s books, the tax liability is triggered.

Legal responsibility for paying the tax falls upon the seller or the party transferring the stock; the buyer is not the liable party. In practice, this liability is managed by financial intermediaries like stockbrokers or dealers. These entities are responsible for ensuring the tax is accounted for, even though it is ultimately rebated.

Calculating the Base Tax Amount

The stock transfer tax is calculated using a tiered rate structure based on the selling price of a single share, not the total value of the transaction. This method results in a different effective tax rate depending on the stock’s price.

The tax rates are:

• 1.25 cents per share for shares selling at less than $5.
• 2.5 cents per share for shares selling at $5 or more but less than $10.
• 3.75 cents per share for shares selling at $10 or more but less than $20.
• 5 cents per share for shares selling at $20 or more.

Transfers that are not sales are taxed at a flat rate of 2.5 cents per share.

For example, a sale of 100 shares at $15 per share would fall into the 3.75 cents per share category, resulting in a base tax of $3.75. A separate calculation applies to large block trades, where the maximum tax for a single transaction by one seller is capped at $350.

The Rebate and Filing Process

While a tax liability is created, a 100% rebate implemented in 1981 nullifies the cost for the taxpayer. The process is largely automated and handled by financial institutions, meaning the average investor is unlikely to interact with it directly. Most transactions are processed without any tax being collected from the client.

Most trades are processed through clearing corporations like the Depository Trust & Clearing Corporation (DTCC). These organizations are authorized to pay the tax and immediately claim the 100% rebate on behalf of their members, such as brokerage firms. This netting process means the tax liability is reported and canceled out, requiring no direct payment from the seller.

In less common situations where transactions are not handled by a clearing house, the process is more manual. A taxpayer would need to purchase tax stamps from the tax department, affix them to the stock certificate or bill of sale, and then file a claim for the rebate. This involves using Form MT-650, the Stock Transfer Tax Return, to report the transaction and claim the refund, though this method is rare.

Specific Exemptions and Special Cases

Certain transactions are entirely exempt from the New York Stock Transfer Tax and are not subject to the calculation and rebate process. These exemptions are distinct from the 100% rebate and involve situations where there is no change in beneficial ownership or where public policy warrants relief.

One of the most common exemptions applies to transfers between a principal and their broker or nominee. If shares are transferred to a broker to be held in “street name” for the client, or transferred back, no tax is due because the ultimate owner has not changed. Transfers to or from government entities are also not subject to the tax.

Other specific cases also receive exemptions, such as transfers made as collateral to secure a debt. Certain corporate reorganizations, like the initial transfer of shares in a newly formed cooperative housing corporation to its first owners, are also exempt. To claim an exemption, a proper exemption certificate must accompany the transaction documents.