Sales Tax on Stock Transfer Service?

We at Shareholder Service Solutions routinely see how corporations are charged for their stock transfer service.  Indeed, we have viewed thousands of individual company invoices from transfer agents over a 27 year period.  The charges are always split between fees for services rendered, and expenses to cover the transfer agent’s out-of-pocket costs – or at least, what are supposed to be out-of-pocket costs.  Sometimes agents get a little creative in the “expense pass-through” area.

At the outset of 2014 we were surprised to see a major transfer agent begin to charge “sales and use tax” on stock transfer – not a “transfer tax” on stock transfers themselves, which states like New York have imposed for years and which tend to get embedded/covered in charges generally labeled “commissions” – but rather a sales tax on corporate stock transfer service itself.  To be clear on this, it is only one agent – but it is a huge player in the industry.  To be even more clear, when we recently asked other agents in our stock transfer RFP facilitation work if they did or planned to charge sales/use tax in the future, the answer was no.  (Of course, the respondents tended to be sales versus service delivery people.)

Regarding the large agent’s sales/use tax, when we asked how it is calculated the answer was a somewhat evasive “it depends.”  After several back-and-forth attempts at clarification we believe we determined (only) that it is 7% times certain of the agent’s stationery costs.  When we looked at our last five Shareholder Service Check-Ups® done for clients using this agent, we deduced that annual sales and use tax is approximately 1½% of total annual expenses.

This is not a large amount, but we suggest it is too large not to know how it is actually computed – let alone why it is charged in the first place (if not by all agents).  We will keep an eye on this, and share updates as they appear.  In the meantime, if you are a corporation using a stock transfer agent that charges sales and use tax, we suggest you start asking some pointed questions about it.  And, if you don’t mind, please let us know at 928-862-2048 if you learn something specific on the subject.