Rev. Rul. 58-559

Advice has been requested whether the exemption from documentary stamp tax afforded by section 4382 of the Internal Revenue Code of 1954 is applicable to bonds issued by the nonprofit corporation described below.

A nonprofit corporation was organized under the laws of a certain state without capital stock and with perpetual existence. Its purposes are to own and operate a recreational park or parks with a lake or lakes for fishing, swimming, boating, water sking, and related activities for the benefit of the people of the county where these facilities are located and for the benefit of the general public. It is also the purposes of the corporation to promote in such county the conservation and fullest beneficial use and disposition of the water in and from such lake or lakes, and to render more productive in revenue the land upon which the lake or lakes are located for the benefit of the school land fund of that county.

In pursuance of this purpose the corporation leased from the county the major part of a section of land for a period of 25 years at an annual minimum rental and built a lake thereon. Bonds were issued for the purpose of financing the construction of the project. In order to amortize the bonds and to pay operating costs and rent, the corporation entered into a contract with a public utility company wherein the company agreed to pay a fixed rental per year for use of water from the lake or lakes. Any balance of income over and above the operation and maintenance expenses, reserve and contingent fund requirement, and payment of principal and interest on the indebtedness will be paid to the school land fund of the county.

The corporation is controlled by public officials, and no profits from the project go to any private individual or anyone other than the school land fund of the county. At the expiration of the lease the land and the recreational lake or lakes will revert to county ownership. The Board of Supervisors of the county, by resolution, resolved to accept the benefits derived from the corporation, and recognized that the corporation was organized for the benefit of the county.

Section 4311 of the Code imposes a tax on all certificates of indebtedness issued by a corporation. Section 4331 of the Code imposes a tax on each sale or transfer of any certificates of indebtedness issued by a corporation.

Section 4382(a)(1) of the Code provides that no documentary stamp tax shall be imposed on any certificate of indebtedness, note, or other instrument, issued by the United States, or by any foreign Government, or by any State, Territory, or the District of Columbia, or local subdivision thereof, or municipal or other corporation exercising the taxing power.

Under the circumstances described above, it is held that the issuance of the bonds was on behalf of the county, a local subdivision of the State, and that the exemption afforded by section 4382(a)(1) of the Code is applicable. Therefore, no documentary stamp tax will be incurred on the issuance or transfer of the bonds.