For the estate of C. Aubrey Nicklas, deceased, Scammell, Knight & Reese (Scott Scammell).
For the taxing authorities, Walter D. Van Riper, Attorney-General, and William A. Moore.
Before Justices Case, Bodine and Porter.
The opinion of the court was delivered by
CASE, J. The main facts and the issues appear in the opinion of the Prerogative Court reported in 134 N.J. Eq. 593. The matter is before us on two writs of certiorari, the first of which is prosecuted by Harry W. Grell, executor of the last will and testament of C. Aubrey Nicklas, deceased, and the second by Frank E. Walsh, director, Division of Taxation and Finance of the State of New Jersey.
Under the first writ the decedent's estate challenges so much of the decree in the Prerogative Court as supports the action of the taxing authorities in assessing 450 shares of the capital stock of George W. Rogers Construction Company at $442.59 per share. The stock was reported at $150 per share, but the prosecutor agrees that the valuation should be increased to $175 at which price sale was later effected. The difference between the figure conceded by the estate and that contended for by the tax department lies chiefly in the appraisal of good will. The department, applying a formula to the statement of the company's finances, decided that a "good will" item of $230,426.20 should be included in the assets. The amount of the assets, thus supplemented and divided by the number of shares outstanding, gave to each share the book value of $442.59, the figure upon which the estate tax is calculated.
The mandatory statutory direction (R.S. 54:34-5) is that "taxes imposed * * * shall be computed upon the clear market value of the property transferred." We think that the legislature used those words in their ordinary meaning. The tax is to be computed upon value; upon market value; upon the clear market value. Some kinds of property always have a market and a quickly ascertainable price in that market; as for instance certain widely distributed securities traded daily in large volume on the floor of an exchange. Other classes of property have a "slow" but nevertheless a definite market; and real estate properties are ordinarily such. Still other classes of property, such as stock holdings in small, closely held corporations, present a difficult problem. But the difficulty is not only upon the tax appraiser; it is also upon those who own the equity and wish to sell it.
The problem may not be solved by disregarding it. It can be very perplexing; so perplexing that the Prerogative Court in such a case (In re Moore, 104 N.J. Eq. 400) was led to declare that "the clear market value is impossible of ascertainment" -- an observation which we hesitate to accept for the reason that it seems to exclude the mandatory statutory scheme of appraisal.
Those whose duty it is to assess property subject to the tax have many adverse elements with which to contend: innocent transactions in which the participants unconsciously involve themselves or their estates in tax obligations; ingenious devices whereby persons who do not intend to violate the law nevertheless squeeze tightly in the loopholes; venal and fraudulent schemes by those who deliberately endeavor to conceal taxable transactions under a false cover. The courts are alert to thwart unlawful evasions, Koch v. McCutcheon, 111 N.J.L. 154; but the courts, as well as the taxing authorities, must act within the law. Through a period of years it was the position of the Prerogative Court that it should not function to weigh the evidence on appraisals or to substitute its judgment as to the values for that of the taxing office. In re Pierce's Estate, 89 N.J. Eq. 171; In re Hall, 94 Id. 398; In re Moore, supra; Spalding v. Martin, 119 Id. 603. But the doctrine was renounced by that court in Kellogg v. Martin, 130 Id. 338; and rightly so, because, while the state must be protected and tax evasions should not be tolerated, there is a duty to the individual that is equally solemn. Mac Gregor v. Martin, 126 N.J.L. 492, 501.
However difficult it may be to discover the market value of an asset, such a discovery must, under the statute, remain the goal. What the property may be worth to the seller or what it may be worth to the buyer is important chiefly as a criterion to help in establishing the market value. The fruition of a market is the selling; and what better proof of market value can there be than the selling, honestly accomplished under all of the incidents that go to make a free and fair market, at that figure? Given an actual and ...