Johnson v. Zink

Decision Date15 July 1947
Docket NumberNo. 7703.,7703.
Citation54 A.2d 123
PartiesJOHNSON et al. v. ZINK, State Tax Commissioner. In re JOHNSON'S ESTATE.
CourtNew Jersey Prerogative Court
OPINION TEXT STARTS HERE

Proceeding in the matter of the transfer inheritance tax in the estate of Arthur R. Johnson, deceased, between Charlotte S. Johnson and Edward J. Nugent, executrix and executor under the last will of Arthur R. Johnson, deceased, and Homer C. Zink, State Tax Commissioner. From an assessment upon an inter vivos transfer by deceased as being either a gift made by deceased in contemplation of death or intended to take effect in possession or enjoyment at or after his death, Charlotts S. Johnson and Edward J. Nugent, executrix and executor, appeal.

Decree in accordance with opinion.

Syllabus by the Court

1. The statute (R.S. 54:34-1, N.J.S.A. 54:34-1) envelops all transfers which in their intrinsic character and intended effect are merely substitutes for testamentary dispositions.

2. A gift is taxable if it is made as a result of that contemplation of death which induces a decedent, aware of a choice, intentionally to make an inter vivos gift in the place and stead of a testamentary disposition.

3. Our statute ordains that ‘a transfer by deed, grant, bargain, sale or gift made without adequate valuable consideration and (as here) made within two years prior to the death of the grantor, vendor or donor of (as here) a material part of his estate or (as here) in the nature of a final disposition or distribution thereof, shall, in the absence of proof of the contrary, be deemed to have been made in contemplation of death within the meaning of paragraph (c) of this section.’ R.S. 54:34-1, N.J.S.A. 54:34-1. Held, the inter vivos transfer under consideration was taxable.

4. Lacking proof of current market value of stock of a close corporation, the taxing authority was justified in analyzing the balance sheets and profit and loss statements of the company, and resorting to the capitalization of earnings method in determining the value of the shares.

Thornton C. Land, of Newark, for petitioners-appellants.

Walter D. Van Riper, Atty. Gen. (by William A. Moore, Special Deputy Atty. Gen.), for respondent.

JAYNE, Vice Ordinary.

Our existing statutory law empowers the Director, Division of Taxation, State Department of Taxation and Finance, to impose a transfer inheritance tax upon the transfer of real or tangible personal property made by a resident in contemplation of death or intended to become operative and effective in the possession and enjoyment of the transferee at or after the death of the transferor. R.S. 54:34-1, subd. c., N.J.S.A. 54:34-1, subd. c. Where the tax is justifiably levied, the statute instructs the taxing authority to compute it upon ‘the clear market value’ of the property transferred. R.S. 54:34-5, N.J.S.A. 54:34-5.

The representatives of the estate of Arthur Raynor Johnson, who died on October 31, 1943, at his residence in Montclair, Essex County, New Jersey, desire me to determine whether in the circumstances disclosed by the present appeal, the Director properly or erroneously discharged those statutory duties. R.S. 54:33-2, No. J.S.A. 54:33-2; R.S. 54:34-13, N.J.S.A. 54:34-13.

In Squier v. Martin, 131 N.J.Eq. 263, 24 A.2d 865, I gathered the reported decisions illustrative of transfers made in contemplation of death and also those exemplifying transfers intended to become operative at and after the death of the transfer. Perhaps it will be of some aid to the bar for me to congregate occasionally the citations of those decisions that have been subsequently rendered. The more recent decisions are: Kavanagh v. Kelly, 131 N.J.Eq. 398, 25 A.2d 547; Plum v. Martin, 132 N.J.Eq. 1, 26 A.2d 529; Dommerich v. Kelly, 132 N.J.Eq. 220, 27 A.2d 871, affirmed 130 N.J.L. 542, 33 A.2d 893, affirmed 132 N.J.L. 141, 39 A.2d 30; Voorhees v. Kelly, 132 N.J.Eq. 230, 28 A.2d 61, affirmed 130 N.J.L. 61, 31 A.2d 404, affirmed 131 N.J.L. 226, 35 A.2d 895; Coffin v. Kelly, 133 N.J.Eq. 188, 31 A.2d 186, affirmed 131 N.J.L. 241, 36 A.2d 11, affirmed 133 N.J.L. 252, 44 A.2d 29; Pennsylvania Co., &c., Annuities v. Kelly, 134 N.J.Eq. 120, 34 A.2d 538; Grell v. Kelly, 134 N.J.Eq. 593, 36 A.2d 874, modified 132 N.J.L. 450, 41 A.2d 122; Kelly v. Kelly, 134 N.J.Eq. 316, 35 A.2d 618; Id., 135 N.J.Eq. 75, 37 A.2d 288; Bank of New York v. Kelly, 135 N.J.Eq. 418, 38 A.2d 899; Hagy v. Kelly, 135 N.J.Eq. 436, 39 A.2d 386; Ricardo v. Kelly, 136 N.J.Eq. 365, 41 A.2d 901; Lockwood v. Walsh, 137 N.J.Eq. 445, 45 A.2d 305; Avery v. Walsh, 138 N.J.Eq. 80, 46 A.2d 912; Ten Eyck v. Walsh, 139 N.J.Eq. 533, 52 A.2d 445; Creasey v. Zink, 140 N.J.Eq. 111, 53 A.2d 715.

Since all initial appeals in transfer inheritance tax cases are uniformly referred to the Vice Ordinary of the Trenton vicinage, I have accordingly commented so frequently and repetitiously upon the state of the law and the cardinal elements and factors to be considered, that the time has probably arrived for me to proceed directly to the factual circumstances of the case at hand and assume that my discussions of those subjects in previous decisions have not fallen upon inattentive ears. I have resolved to pursue that course in deciding the present appeal.

The decedent, Arthur R. Johnson, was in reality the owner of all of the common capital stock of Arthur R. Johnson Co., Inc., a commercial enterprise incorporated in the year 1938. The business of the company was styled in trade nomenclature as a converter and exporter of textiles. The enterprise was relatively profitable, and the stock became correspondingly valuable. By means of an indenture bearing date November 27, 1941, the decedent transferred seven hundred shares of the capital stock of the company to trustees for the future benefit of his wife, his children, their issue, and others, to which trust agreement I shall subsequently refer. The decedent retained at his death the ownership of 339 shares.

The respondent resolved that a transfer inheritance tax should be levied upon the inter vivos transfer in that in his judgment it was a gift made by the decedent in contemplation of death or intended to take effect in possession or enjoyment at or after his death. The stock was appraised at $172.90 per share.

The present appeal projects two controversial issues. The appellants assert (1) that the tax assessed upon the inter vivos transfer was unjustifiable; (2) that the appraisal value of the stock is excessive and exorbitant.

The transcript of the exhibits and other proofs provides the factual material to be explored in the consideration and ultimate determination of those issues. It is from a deliberate examination of the transcript that I have acquired and collected the following facts which seem to me to be somewhat fruitful of inference relevant to the probable intent and purpose of the decedent in making the transfer. In Coffin v. Kelly, supra (133 N.J.Eq. 188, 31 A.2d 187), I commented: ‘In general, a motive is a consideration which determines choice and becomes an incentive to undertake the accomplishment of some act. The inducement normally arises from the attractive and gratifying character of the consideration. Motives are frequently concealed or disguised. Ofteh their detection is a perplexing task. The operation of human emotions cannot be reduced to definite and precise rules, but usually, there are existing facts preceding, accompanying, surrounding and following the particular course of action from which the probable motive of the person can be logically and reasonably inferred.’

The decedent was exceedingly proud of the success of his business undertaking, and he was ardently interested in its continued existence. In 1938 he clothed it with corporate immortality. In 1941 he selected from his portfolio approximately two-thirds of all of the outstanding capital stock of his company as the sole corpus of a trust to endure by its terms into the future.

In 1938 or 1939 the decedent lost the sense of sight in his left eye. In 1939 he began to experience occasional ‘dizzy spells' which his physician ascribed to ‘arterial changes.’ Significantly he died in 1943 from a ‘cerebral...

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5 cases
  • Montclair Trust Co. v. Zink
    • United States
    • New Jersey Prerogative Court
    • 19 Febrero 1948
    ...becomes significant in these cases only in proportion to its degree. Cf. Avery v. Walsh, 138 N.J.Eq. 80, 46 A.2d 912; Johnson v. Zink, 140 N.J.Eq. 255, 54 A.2d 123; Fidelity Union Trust Co. v. Walsh, 141 N.J.Eq. 181, 56 A.2d 591. I conclude that the taxability of the specified inter vivos t......
  • Fiedler's Estate, In re
    • United States
    • New Jersey Superior Court — Appellate Division
    • 8 Mayo 1959
    ...v. Martin, 126 N.J.Eq. 564, 10 A.2d 293 (Prerog.1939); Plum v. Martin, 132 N.J.Eq. 1, 26 A.2d 529 (Prerog.1942); Johnson v. Zink, 140 N.J.Eq. 255, 54 A.2d 123 (Prerog.1947). Generally, the proper method of establishing the value of such stocks in closely held corporations for purposes of di......
  • Corry v. Passaic Nat. Bank & Trust Co. Passaic Nat. Bank & Trust Co.
    • United States
    • New Jersey Superior Court
    • 29 Junio 1949
    ...A. 426; 100 N.J.L. 405, 126 A. 924; In re Moore, 104 N.J.Eq. 400, 145 A. 727; In re Deutz, 105 N.J.Eq. 671, 149 A. 257; Johnson v. Zink, 140 N.J.Eq. 255, 54 A.2d 123. The plaintiff properly followed the theory enunciated in these cases in calculating the value of the good will and adopted t......
  • Nazzaro v. Neeld, A--7
    • United States
    • New Jersey Superior Court — Appellate Division
    • 5 Febrero 1952
    ...in Squier v. Martin, 131 N.J.Eq. 263, 24 A.2d 865 (Prerog.1942). Citations of later decisions are congregated in Johnson v. Zink, 140 N.J.Eq. 255, 54 A.2d 123 (Prerog.1947), to which may be added: Fidelity Union Trust Co. v. Walsh, 141 N.J.Eq. 181, 56 A.2d 591 (Prerog.1948); Montclair Trust......
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