In re Bottomley's Estate

• Decision Date: 08 November 1920
• Citation: 111 A. 605
• Parties: In re BOTTOMLEY'S ESTATE.
• Court: New Jersey Supreme Court

111 A. 605

In re BOTTOMLEY'S ESTATE.

Prerogative Court of New Jersey.

Nov. 8, 1920.

(Syllabus by the Court.)

Appeal from Transfer Inheritance Tax Assessment.

In the matter of the estate of John Bottomley, deceased. From an order of the comptroller levying a tax under the Transfer Inheritance Tax Act, the executor, John A. Bottomley, appeals. Tax appealed from affirmed.

Harris & Harris, of Camden, for appellant.

Thomas F. McCran, Atty. Gen., and Francis H. McGee, Asst. Atty. Gen., for the State.

BUCHANAN, V. C. The tax as levied by the comptroller, under Comp. Stat. N. J. p. 5301, as amended by P. L. 1914, p. 267, against the estate of John Bottomley, deceased, was $9,333.69. The present appeal therefrom is by the executor, John A. Bottomley, and presents two questions.

Dealing with these questions in the inverse order of their specification in the petition of appeal, it is claimed that the proceedings by the comptroller were erroneous in that a portion of the property admittedly taxable, to wit, 570 shares of stock of Highland Shaker Sweater Company, was erroneously and excessively appraised at $105 per share. In this behalf it was sought to prove before this court that the true value of the stock in question was less than the value placed upon it by the comptroller, by evidence as to a certain sale of some of this stock—evidence which had not been submitted to the comptroller, and is therefore inadmissible on this appeal. In re Pierce, 89 N. J. Eq. 171, 104 Atl. 298. Furthermore, the circumstances of the sale were such as to deprive the price brought thereat of any weight as evidence of value, particularly in an attempt to override the judgment of the comptroller.

The appraisal is further attacked upon the ground that the comptroller, in arriving at the value of the stock by computation of the assets and liabilities of the corporation (admittedly a close corporation), included among the assets of the corporation an item of "good will, $26,965.19." Appellant's contention is that good will is not an asset of a corporation, at least for the purpose of arriving at the value of the stock of the corporation for transfer tax purposes, and that the comptroller should not have considered it in his computation of the net assets of the company. Surely little more than the statement of this contention is necessary to demonstrate its unsoundness. Not every corporation, of course, necessarily has good will amongst its assets. That the corporation did have such an asset is hot denied. The present appellant in the proofs submitted by him under oath to the comptroller listed it as an asset of the corporation and fixed its value as $36,348.76. The comptroller in his computation estimated its value at only $26,965.19. The question here presented is not whether good will is taxable property under the statute as an asset of decedent's estate (such as might arise in the case of a testamentary gift of a business carried on by decedent as an individual in his lifetime), but whether good will, if it in fact exists as an asset of a corporation, is to be considered in arriving at an estimate of the net value of the corporate property.

Moreover, it must not be lost sight of that the error alleged is that the value of $105 per share at which the stock was appraised by the comptroller "is in excess of the actual or true value of said stock." It is therefore with the result of the comptroller's computations that we are now concerned, and not a mere step in the method of reaching that result. Unless the result be wrong—that is, the comptroller's valuation be in excess of the true value—any defect or any number of defects in the steps taken to reach the result are utterly immaterial. A mistake in one direction may be more than counterbalanced by another mistake in the other direction. The burden of proof is on the appellant, and it is for him to show that the true value is less than $105 per share.

In so far as this appraisal is concerned, the tax proceedings must be affirmed.

The other issue raised is as to whether or not the comptroller erred in including as taxable amongst the property passing to the executor as an individual 520 shares of preferred stock and 378 shares of common stock of Highland Worsted Mills. This stock, of the total aggregate value of $343,999.16, was by the comptroller determined to be a "gift, taking effect at death."

The stock in question was owned by decedent (the owner of the majority of the stock of the company) until January, 1918, at which time he assigned it to his son, the present appellant; the assignment being physically completed by transfer on the books of the company and the issuance, of new certificates to the son. The only testimony as to the circumstances of the transfer is that of the son. He says that the father had taken little, if any, active part in the management of the company since his stroke of apoplexy in 1904. The son had entered the company's employ in 1908, to learn the business. In 1909 he was made assistant manager; one Henry being the manager. In 1913 he was made manager in place of Henry, as the result of bis representations to his father, and so continued till the father's death. His salary as manager was $3,000 a year at first. For the last two or three years it was $12,000, which was a normal salary for the office.

In 1913, when the son became manager, the concern was, he says, insolvent, with a floating indebtedness of $300,000 and a credit at bank of only about $15,000. He succeeded in a financial reorganization and establishing bank credit limited only by the bank's capital. The company's operation for each of the years 1910-1915, inclusive, showed large net losses; for the years 1916-1918 large net profits. He says that war conditions were little, if any, factors in these profits.

Some years prior to 1918 the father had made a gift of $25,000 of the common stock of the company to Mr. Henry. The son toward the end of 1917 suggested to the father that some such similar recognition ought to be given him, in view of his low salary at the start and what he had done for the company since, and received the reply that he would think it over. In January, 1918, the father agreed to transfer and did transfer the stock as above mentioned, on the son's oral promise to pay him for the rest of his life an annual sum equivalent to the 6 per cent. dividend on the preferred stock, which would be $15,600. The father had received dividend of $15,600 January 1, 1918, and the son forthwith commenced and continued to pay him monthly $1,300, receiving January 1, 1919, dividend of $15,600.

The son needed his salary for the living expenses of himself and family, and had no other securities from which income could be used to pay the $15,600 annuity. The father needed the $15,600 annuity, for his annual income aside from that was only some $6,000 or $7,000. This gift to the son comprised some 70 or 75 per cent. of the father's property, and comprised seven-eighths of the father's total provision for the son; that is, the son received by the will about one-seventh of the value of the stock comprised in the transfer of January, 1918.

At the same time as this gift to...