On appeal from Department of the Treasury, Division of Taxation, Transfer Inheritance Tax Bureau.
For reversal -- Chief Justice Vanderbilt, and Justices Heher, Oliphant, Burling, Jacobs and Weintraub. For affirmance -- None. The opinion of the court was delivered by Burling, J.
Margaret K. Bassett died on February 28, 1954, a New Jersey resident. The state inheritance tax has an impact upon 2,619 shares of stock of Bassett Estates, Inc., by virtue of gifts made by the decedent in contemplation of death or as a part of her estate at death. The "clear market value" of the stock (R.S. 54:34-5) was reported at $68.746 per share. The Director of the Division of Taxation has determined the value to be $116.53 per share. From this determination the executors appealed to the Superior Court, Appellate Division (R.S. 54:33-2) and we certified the cause prior to a review below.
Bassett Estates, Inc. was organized in 1930 by the decedent and her late husband, Carroll P. Bassett. They each contributed individually owned real estate and securities to the corporation in exchange for stock. Through the years the stock has been closely held and has remained within the Bassett family. It was never traded on the market. The tenor of the operation has remained the same -- a family investment in securities and real estate.
The total appraised value of the corporate assets (balance sheet -- 12/31/53) was nearly $1,900,000. Of this amount approximately $1,200,000 represented fixed assets of realty and equipment; investment securities amounted to $366,000; the entire stock of the Commonwealth Land Co. was owned by the corporation and was appraised at $165,000; and the balance was in receivable mortgages, notes and other accounts and cash on hand.
The realty holdings consist of rental property in Summit, New Jersey; offices, retail stores and apartments. These are actively managed by nine employees. In addition the corporation owns an extensive farm property of some 700 acres. It receives a rental income from tenants on this property and operates a dairy business which regularly employs six men. The Commonwealth Land Company, a wholly owned subsidiary, owns and rents a small office building and is developing other property for sale as building lots in the Summit area.
In valuing the stock of Bassett Estates, Inc., the examiner in the Transfer Inheritance Tax Bureau restricted his analysis to the net assets of the corporation. That is, he subtracted total liabilities from total assets (appraised as of decedent's death) and divided the remainder (net assets) by the total shares outstanding. (In legal parlance this method has been termed a net asset value criterion.) This resulted in a value of $116.53 per share.
The market experts who filed opinions on behalf of the executors did not restrict themselves to a net asset approach. They considered other factors as well, e.g., the minority position of the stock, earnings, dividend record, a by-law restriction upon the sale of the stock. The five opinions submitted ranged from $68.7 to $78 per share as the clear market value.
The examiner did not disregard the expert analyses submitted by the executors because of a mere difference in opinion. They were rejected by holding that the various criteria used in the reports to construct a market value were wholly inapplicable in valuing the stock of "closely held holding companies." The examiner's Finding No. 15 recites:
"15. That the appraisal methods employed by the various appraisers for the estate have application, if at all, only in the case of the valuation of shares of stock of closely held operating companies. Such methods, however, have no application, as a matter of law, in the case of the valuation of shares of stock of closely held holding companies, and, for this reason, have been disregarded in establishing the value of the stock of Bassett Estates, Inc."
There is a substantial difference between rejecting per se all accepted criteria in establishing market value of closely held stock and considering these aids but attributing minimal significance to them upon the facts of a particular case. In re Nathan's Estate, 166 F.2d 422, 426, 427 (9 Cir. 1948). Our inquiry concerns the former situation; questions which might arise from the latter are not before us.
The starting point in valuation problems is the statute itself. R.S. 54:34-5 ordains that the ...