Appeal of AMP, Inc., 7418SC444
| Decision Date | 20 November 1974 |
| Docket Number | No. 7418SC444,7418SC444 |
| Citation | 210 S.E.2d 61,23 N.C.App. 562 |
| Parties | Appeal of AMP, INCORPORATED, from the Decision of the State Board of Assessment, Sitting as the State Board of Equalization and Review, Affirming the Action of the Guilford County Board of Commissioners Assessing Additional Taxes, Penalties and Interest for the Years 1964 Through 1968, Inclusive. |
| Court | North Carolina Court of Appeals |
Adams, Kleemaier, Hagan, Hannah & Fouts by William J. Adams, Robert G. Baynes, and Paul H. Livingston, Greensboro, for AMP, Inc., petitioner-appellee.
Ralph A. Walker, Greensboro, for Guilford County, respondent-appellant.
Atty. Gen. James H. Carson, Jr. by Asst. Atty. Gen. Myron C. Banks, Raleigh, for Property Tax Commission, Amicus curiae.
Appellant contends that the Superior Court committed error when it found that the decision of the State Board of Assessment was not supported by competent, material, and substantial evidence. In order to resolve this question, we have examined in detail the evidence offered by the parties at the hearing before the State Board of Assessment.
The basic controversy involves the interpretation of G.S. § 105--294 (now G.S. § 105--283), which furnishes the standard by which property is to be valued:
N.C.Gen.Stat. ch. 105, § 294 (1967), as amended, N.C.Gen.Stat. ch. 105, § 283 (1973).
The important provision of G.S. § 105--294 is the requirement that property is to be appraised at its true and actual value in money, in such manner as such property is usually sold, but not by forced sale thereof. We believe that the best and most reasonable test of true value in money, in such manner as such property is usually sold, but not by forced sale thereof, is the price estimated in terms of money at which the property would change hands between a willing and financially able buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of all the uses to which the property is adapted and for which it is capable of being used. The present statute, G.S. § 105--283, effective January 1, 1974, adopts such a test.
At the hearing before the State Board of Assessment, appellee strongly contended that its in-process inventory should have been appraised at cash realizable value, a value determined by a sale of goods in process 'in their presently existing state at this particular time.' Appellee's expert in the field of taxation, William Westphal, stated that
The statement by appellee's expert that appellee is not assigning a going concern value to its inventory, but instead is assigning a scrap value to its inventory, contradicts the express requirement of G.S. § 105--294 that true value in money is not to be the value arrived at by forced sale. Implicit in G.S. § 105--294 is the going concern assumption. All the evidence introduced by appellee at the hearing before the State Board of Assessment recognized that a forced sale would not measure true value in money. Yet, by failing to assign a going concern value to work in process and by arguing for a value determined by calculating the cash into which work in process might be transmuted at a specific date, appellee in effect constructed and used a valuation predicated upon a forced sale. This ignores the provisions of G.S. § 105--294.
At the hearing appellee introduced evidence to the effect that it does not sell goods in process in the normal course of business. Evidence does exist that, in the few instances when appellee sold work in process, it sold such work in process to the original suppliers of raw materials for scrap value. No evidence was introduced to explain why work in process was disposed of rather than completed. The goods in process must have been unsuitable for completion, or appellee would not have sold the goods in process prematurely at a value below cost. There is no evidence that a similar situation exists with respect to appellee's entire inventory.
Appellee does not contend that it would willingly sell its entire inventory, the subject matter of this appeal, at scrap value. Appellee is a going concern and has plans to complete its work in process. It seems clear that no manufacturer would willingly sell its in-process inventory at scrap value unless it had abandoned plans for completing and selling the in-process inventory for a reasonable profit or for a recovery of cost. The burden of proof is on the manufacturer to prove that the book value (cost) assessment made by the taxing authority is excessive. In this case appellee has not carried that burden.
Other jurisdictions have adopted a cost approach to the valuation of goods in process. In Aeronautical Communications Equipment, Inc., v. Metropolitan Dade County, 219 So.2d 101 (Fla.Dist.Ct.App. 1969), cert. denied, 225 So.2d 911 (Fla.1969), the taxpayer was an electronics company which manufactured specialized radio equipment. It assembled, cut, soldered, and altered hundreds of component parts and materials in the process of assembling its finished products. Partially finished work could not be disassembled for any other use or purpose. The taxpayer manufactured only against orders and did not maintain an inventory for future sale. If a purchaser did not take equipment when completed, the equipment, being of little use to another purchaser, had only scrap value. The taxpayer, in attempting to show that 'book value' as computed by the Florida Tax Assessor had no relation to 'actual value,' admitted that there was no going market for its products. The taxpayer claimed that its inventory had only 'junk value,' but no more than 2% Of the inventory had ever been junked, and 98% Had ultimately been sold, at a profit, to willing buyers. The court noted that as certain items such as labor were applied to the raw materials of the taxpayer, the value of the raw materials appreciated. The court, in adopting a valuation method based on cost, stated: 219 So.2d at 105. In a New Hampshire case concerning the proper valuation of inventory, the court rejected the argument that goods in process could be valued at scrap value:
'Among other arguments advanced by the plaintiff for excluding goods in process from taxation (as stock in trade) is that during the transitory period from raw material to finished product goods in process have no sale value except in liquidation at liquidation values as unfinished goods or goods finished at excess costs. . . .
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'To require the selectmen to place a forced sale value upon goods in process and uncompleted would ignore the purpose of the statute and offend the principle that taxation is to be administered in a practical way.' Verney Corporation v. Peterborough, 104 N.H. 368, 372--373, 188 A.2d 50, 54 (1962), aff'd on rehearing, 104 N.H. 375 (1963).
At the hearing before the State Board of Assessment, appellee strongly contended that its raw materials, as well as its work in process, should have been valued at scrap value. Appellee's tax manager, Ernest Price, stated that there were no manufacturers of similar products who would purchase the raw materials substantially at cost due to the peculiar nature of the materials: 'We have a very special raw material with a very special type of specification and generally speaking no one else can use...
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