On appeal from Department of the Treasury, Transfer Inheritance Tax Bureau, certified to this court of its own motion.
For affirmance -- Chief Justice Vanderbilt, and Justices Heher, Oliphant, Wachenfeld, Burling, Jacobs and Brennan. For reversal -- None. The opinion of the court was delivered by William J. Brennan, Jr., J.
The executrix complains in this transfer inheritance tax proceeding of the bureau's evaluation of a minority stock interest in a closely held corporation. We certified of our own motion her appeal to the Appellate Division.
The decedent died June 29, 1951. The bureau assessed 531 shares of the common stock of Nevins-Church Press, Inc.,
a New Jersey corporation, at $813.54 per share. Appellant contends that the value of the stock is not in excess of $600 per share, the value determined for federal estate tax purposes by the Federal Bureau of Internal Revenue.
The company manufactures labels and was founded by the decedent many years ago. His son, Theodore C. Nevins, has run the business since 1936, and it has prospered. Sales from 1946 to 1950 averaged about $4,000,000 annually. Almost 90% of the sales have been and are to two customers who for years have purchased their label requirements from the company but are under no obligation to do so -- a point emphasized by appellant as having an important bearing on the worth of the stock. Profits after taxes averaged $352,000 annually during the years 1946 to 1950, or about $130 per share; but dividends were limited to $35 to $40 per share annually. A new plant and new equipment were acquired during 1950-1951, reflecting an increase of fixed assets on the books from $375,000 to $900,000. The book net worth of the company's assets at decedent's death indicated a book value for the stock of $986.42 per share, exclusive of good will.
When the decedent died 2,706 of the 2,708 common shares outstanding were held in two trusts. One trust of 2,175 shares was created in 1936 by decedent and his wife for the benefit of their five children, two sons, said Theodore C. Nevins and Matthew J. Nevins, Jr., and three daughters. The transfer of the shares in this trust was not deemed to be taxable by the Bureau. The other trust, holding the 531 shares involved in this proceeding, was created by the decedent in 1940 and the transfer of these shares thereunder was deemed to be taxable as one intended to take effect at decedent's death. That transfer was in substance a gift at that time of 424 shares to Theodore and 107 shares to Matthew, Jr., the decedent simply reserving the right to dividends during his lifetime and the trustee, a Montclair bank, being designated merely as "custodian of the shares" with "no other duties" except "to cause the dividends thereon to be paid to the said Matthew J. Nevins, Sr., during his
life, and to distribute the stock" to the two sons on his death. If either son died before the donor, that son's shares were to be distributed to the son's estate.
The 1936 trust indenture was unusual in that it withheld from the trustees the power to govern the company through the exercise of majority stockholder's rights and vested that power in Theodore C. Nevins under the broad provision that "the said Theodore C. Nevins shall operate the business of the said Nevins Church Press without interference by the said Trustees" unless his management was terminated by the unanimous vote of a named committee of the trustees. Theodore's brother and sisters have apparently been at times resentful of his management, especially toward what they consider a niggardly dividend policy, but it does not appear that any attempt has been made to have the committee of the trustees oust him. Appellant insists, however, that Theodore's one-man control and his conservative dividend policy should have been recognized by the bureau as a factor making the sale of the minority interest particularly difficult except at a tempting, that is, a low, price.
The bureau's duty under R.S. 54:34-5 is to determine the "clear market value" of the property subject to the tax. The clear market value is the fair value of the property as between one who desires but is not compelled to buy and one who is willing but not compelled to sell. Schroeder v. Zink, 4 N.J. 1, 13 (1950). Determination of value is often difficult in the case of shares of stock closely held and seldom or never sold, but, however difficult the discovery of such market value, the statutory standard is the one by which the bureau's determinations of value are and must be controlled. Grell v. Kelly, 132 N.J.L. 450 (Sup. Ct. 1945). The bureau is not lacking techniques of evaluation to discharge its duty in such cases. Principles by which to arrive at a reasoned and informed judgment of the bargain which such a ...