Clapp v. Cass County

• Decision Date: 21 November 1975
• Docket Number: No. 9119,9119
• Citation: 236 N.W.2d 850
• Parties: Edwin G. CLAPP, Jr., as Executor of the Estate of Jean Hanna Clapp, Deceased, Appellee, v. CASS COUNTY, North Dakota, a Municipal Corporation, et al., Appellants. Civ.
• Court: North Dakota Supreme Court

Page 850

236 N.W.2d 850

Edwin G. CLAPP, Jr., as Executor of the Estate of Jean Hanna Clapp, Deceased, Appellee, v. CASS COUNTY, North Dakota, a Municipal Corporation, et al Appellants.

Civ. No. 9119.

Supreme Court of North Dakota.

Nov. 21, 1975.

Rehearing Denied Jan. 16, 1976.

Syllabus by the Court

1. Among the factors to consider in interpreting a statute are the actual language, its connection with other clauses, and the words or expressions which obviously are by design omitted.

2. Considering the repeal of specific language in a statute as to appraising listed

stocks and bonds, the addition of a subsection relating to the determination of the value of corporate stock and securities not listed on stock exchanges, and the application of the phrase 'fair market value' to all types of property in an estate, we conclude that the intent of the legislature by its use of 'fair market value' was to create a general standard which encompasses consideration of all relevant facts and elements of value. Section 57--37--21, N.D.C.C.

3. Where the legislature intent is clear, this Court will not invoke its general rule that tax statutes are to be construed strictly against the government and in favor of the citizen.

4. Rules and regulations promulgated by an administrative agency under specific statutory authority to interpret and enforce the law involved are given significant weight by this Court in interpreting and applying a general standard, especially if the administrative interpretation is consistent with the statutory language.

5. For reasons stated in the opinion, certain United States Treasury obligations, commonly known as 'flower bonds,' are to be appraised for North Dakota estate tax purposes at the value which actually accrues to the estate at the date of decedent's death. In this case, the bonds were redeemed at par value by their surrender to the United States Treasury in payment of federal estate taxes, a use which is an important element in the value of the bonds to the estate.

Mervin D. Nordeng, Cass County States Atty., Fargo, for Cass Countly and Maxine Liversage, Treasurer of Cass County, appellants.

Robert W. Wirtz, Special Asst. Atty. Gen.; Kenneth M. Jakes, Albert R. Hausauer, Special Asst. Attys. Gen.; State Tax Department, Bismarck, for Byron L. Dorgan, State Tax Commissioner, appellant; argued by Mr. Wirtz.

Vogel, Vogel, Brantner & Kelly, Fargo, for appellee; argued by James S. Clapp, Fargo.

ERICKSTAD, Chief Justice.

This case was commenced in the District Court of Cass County within the purview of Chapter 32--23 (Declaratory Judgments), N.D.C.C. The facts are stipulated as follows:

'(1) The plaintiff, Edwin G. Clapp. Jr., is the executor of the estate of Jean Hanna Clapp. Jean Hanna Clapp died on May 9, 1972, and was a resident of Cass County, North Dakota, at the time of her death.

'(2) Cass County, North Dakota, is a municipal corporation.

'(3) Maxine Liversage is the Treasurer of Cass County, North Dakota.

'(4) Byron L. Dorgan is the Tax Commissioner for the State of North Dakota.

'(5) This action is brought within the purview of Chapter 32--23 of the North Dakota Century Code which concerns itself with Declaratory Judgments under the laws of the State of North Dakota.

'(6) Among the assets of the estate of Jean Hanna Clapp, deceased, were certain U.S. Treasury Bonds, 3 1/2% Of 1998, and 4 1/8% Of 1989--1994, enumerated on Supplemental Information Form of the North Dakota Estate Tax Return. The face or par value of such bonds was $240,000.00, and the market value at the date of death according to stock and bond reports, was $187,542.52.

'(7) the total taxable estate and the tax thereon as calculated by the plaintiff as executor was as follows:

                Other assets                  $1,238,153.30
                Value of U.S. Treasury bonds
                on date of death                 187,542.52
                                              -------------
                Total Gross estate            $1,425,695.82
                Deductions allowable             581,112.00
                                              -------------
                                              $  844,583.82
                                              -------------
                Tax calculation               $   92,079.25
                                              -------------
                

'(8) The total taxable estate and the tax thereon as claimed by the North Dakota Tax Commissioner was as follows:

                Other assets                      $1,238,153.30
                Par value of U.S. Treasury bonds     240,000.00
                                                  -------------
                Total Gross Estate                $1,478,153.30
                Deductions allowable                 581,112.00
                                                  -------------
                Taxable estate                    $  897,041.30
                                                  -------------
                Tax Calculation                   $  100,997.02
                                                  -------------
                

'(9) Edwin G. Clapp, Jr., as executor of the estate of Jean Hanna Clapp, paid to the Internal Revenue Service of the United States, a portion of the applicable federal estate taxes, by submitting all of the United States Treasury Bonds listed in supplemental information form of the North Dakota Estate Tax Return (pursuant to Federal Statute, 40 Stat. 505, codified as 31 U.S.C. § 765).

'(10) Byron L. Dorgan, Tax Commissioner of North Dakota, has taken the position that an additional amount of tax is due the State of North Dakota, and that this additional amount is in the sum of $8,917.77. This additional tax is due solely to the difference between the market value and the face or par value of the United States Treasury Bonds above-described existing at the time of the death of the decedent.

'(11) The Treasury Bonds were accepted and redeemed by the United States at par.

'(12) This is a justiciable controversy within the meaning of Chapter 32--23 of the Century Code of North Dakota.

'(13) The facts are as stipulated herein, and the parties agree that the same may be submitted to the Judge of the First Judicial District, Cass County, North Dakota, for determination.'

In its memorandum opinion the trial court stressed that portion of Section 57--37--21, N.D.C.C., which defines 'value' for purposes of determining the value of a decedent's gross estate:

'57--37--21. Basis of appraisal * * *--1. The value of the gross estate of the decedent shall be determined by including to the extent provided in this chapter, the value at the time of the decedent's death of all property, real or personal, tangible or intangible. The term 'value' shall mean, for the purposes of this chapter, the fair market value at date of death unless provided otherwise by the provisions of this section.' N.D.C.C.

In concluding that the bonds should be valued at market value rather than par value the court said:

'Fair market value is no enigma. It is a term well known to the law. It has a definite, fixed meaning upon which the courts uniformly agree. Fair market value means the price for property that a willing buyer would pay a willing seller, neither being under compulsion to buy or sell, and both being fully informed. Therefore under Sec. 57--37--21, and under the accepted meaning of fair market value, there is no room left to argue that the term 'fiar market value' can also mean or include a radically differing concept, par value.

'The statute requires that All estate assets be valued at fair market value for estate tax purposes. No exception is made for U.S. treasury bonds. Therefore such bonds must valued at fair market value as would any other asset in the estate.' (Emphasis in original.)

We cannot agree that the phrase 'fair market value,' with its generic application to 'all property, real or personal, tangible or intangible,' Section 57--37--21(1), N.D.C.C., mandates valuation of flower bonds at the stock exchange quotations on the date of Mrs. Clapp's death. For reasons stated in this opinion, we reverse the judgment of the district court.

Flower bonds have caused a flurry of recent litigation because they are traded regularly on established stock exchanges at quotations substantially below their par value and because, under certain conditions, they may be redeemed at par value for the limited purpose of paying federal estate taxes due from the estate of the holder. 31 U.S.C. § 765 (1954), repealed by Pub.L.No. 92--5, § 4(a)(1), Mar. 17, 1971, 85 Stat. 5, as to obligations issued after March 3, 1971.

An annotation entitled 'Estate Tax--.valuation of Treasury Bonds,' 62 A.L.R.3d 1272 (1975), summarizes the divergent holdings:

' § 3. General principles

'The state inheritance, succession, or estate tax statutes variously require that property of the decedent be appraised or valued at its market value, fair market value, clear market value, actual market value, or its full and true value, which the courts regard as 'market value.'

"Market value,' it has been pointed out, refers to the value of property as determined by the marketplace, and the courts are quite generally agreed the 'market value' is the price which a willing purchaser will pay to a willing seller in a voluntary transaction, that is, where neither is compelled to sell or buy, and where both have full or reasonable knowledge of all pertinent facts affecting value. Market value, of course, reflects the discount from face value of bonds not due for redemption until some time beyond the date of death of the deceased owner.

'From this point there is a divergence in the views of the courts dealing with the question whether United States Treasury bonds are to be valued for state inheritance or estate tax purposes at par or face value or at the lower market price. Some courts declare that market value does not vary when applied to different estates, and recognize that market value is not necessarily the same as actual value, or that the inflated value to a particular personal representative is not the market value to which the statute refers, and, construing the taxing statute strictly against the state and in favor of the taxpayer, hold that in view...