Commissioner of Corporations and Taxation v. Worcester County Trust Co.
| Decision Date | 26 March 1940 |
| Citation | 26 N.E.2d 305,305 Mass. 460 |
| Court | United States State Supreme Judicial Court of Massachusetts Supreme Court |
| Parties | COMMISSIONER OF CORPORATIONS AND TAXATION v. WORCESTER COUNTY TRUST COMPANY & another, trustees. |
January 2, 1940.
Present: FIELD, C.
J., QUA, DOLAN COX, & RONAN, JJ.
Tax, On legacies and successions. Corporation, Value of stock. Appellate Tax Board. A statement by the Appellate Tax Board in the part of its decision entitled
"Opinion," that the board "rule . . . that the value of the [corporate] stock in question is" a stated amount, which was the amount at which the corporation had the right to purchase it before it could be transferred elsewhere, was interpreted by this court on the record as a ruling of law that that amount was the maximum market value, not as a finding of the value of the stock as a fact.
In determining the market value for inheritance tax purposes of shares of stock of a corporation, closely held, where no market quotations are available and the stock is subject to a restriction in substance that, before a transfer of shares, the shareholder must give the directors an opportunity to buy the shares for the corporation at their book value, such option price is not as a matter of law a limitation on the market value but is only one factor to be taken into consideration in determining as a question of fact the highest price which a hypothetical willing buyer would pay to a hypothetical willing seller in an assumed free and open market.
APPEAL by the commissioner of corporations and taxation from a decision by the Appellate Tax Board.
E. O. Proctor Assistant Attorney General, for the Commissioner of Corporations and Taxation.
J. A. Crotty, for the taxpayers.
The question in dispute relates to the determination by the commissioner under G.L. (Ter. Ed.) c. 65, Section 25, of the value for inheritance tax purposes of shares of stock in Southwell Wool Combing Co.
The amended agreement of association and articles of organization of this corporation provided, in so far as pertinent to the question here involved, that a shareholder desirous of making a transfer should first offer his shares in writing to the directors, who might at their option within thirty days buy the shares in behalf of the corporation at book value with certain specified adjustments (see Longyear v. Hardman, 219 Mass. 405); that this "restriction" should not apply to a transfer in the distribution of the estate of a deceased shareholder to legatees or next of kin; and that the board of directors might waive compliance with these provisions. The stock was closely held and was not listed on any exchange, and there had been no recent sales. The commissioner determined the value of the shares by capitalizing the earnings of the corporation, thereby arriving at the value of $35 per share. The taxpayers contended before the Appellate Tax Board that the restriction upon the transfer of the stock fixing the price at which the transferor might be required to sell it to the corporation was decisive as setting an upper limit to its value.
The Appellate Tax Board in its decision, after ruling that the value to be determined was "fair cash value or market value," discussed several decisions by Federal courts which the board construed as holding that restrictions upon the sale of stock similar to those found in the present case precluded any finding of a value for tax purposes in excess of the option price, and then distinguished our decision in Bryant v Commissioner of Corporations & Taxation, 291 Mass. 498 from the present case on the ground that in this case the limitation upon the sale is incorporated in the articles of organization, applies to all the stock, and is indorsed upon the certificates, whereas "These elements were lacking in the Bryant case." The board stated its belief that "the elements present here are sufficient to support a decision that the book value should govern." The opinion then continues, "We rule, accordingly, that the value of the stock in question is $17.91, which was the book value as found, and is the price at which the stock must be offered to the directors. . . ." In view of the rulings of law contained in the cases cited by the board, the distinguishing of the Bryant case on grounds which would lead to a different result in law, the use of the appropriate word "rule," and the fact that the entire discussion is placed in that part of the decision entitled "Opinion" and not in the part entitled "Findings of Fact" (see G.L. [Ter. Ed.] c. 58A Section 13, as amended), we interpret the statement of the board just quoted not as a finding of fact on all the evidence that the market value of the stock was $17.91 a share, but as a ruling of law to which the board will henceforth adhere in similar cases that no market value could be found in excess of the price at which the directors could buy under the option. It therefore becomes necessary to pass upon the correctness of...
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