Renwick v. Martin

• Decision Date: 30 December 1939
• Citation: 10 A.2d 293,126 N.J.Eq. 564
• Parties: RENWICK et al. v. MARTIN, State Tax Com'r. In re RENWICK'S ESTATE.
• Court: New Jersey Supreme Court

10 A.2d 293

126 N.J.Eq. 564

RENWICK et al.

v. MARTIN, State Tax Com'r.In re RENWICK'S ESTATE.

Prerogative Court of New Jersey.

Dec. 30, 1939.

[Copyrighted material omitted.]

Syllabus by the Court.

1. Where a testamentary transfer is specifically made to a corporation, transfer inheritance tax is to be levied at the statutory rates for transfers to corporations and not at the rates for transfers to the wife and daughters of the testator, notwithstanding the wife and daughters are the sole stockholders of the corporation.

2. Evidence examined and certain transfers inter vivos held taxable as having been made in contemplation of death.

3. Where transfer was made inter vivos to a holding company of which the sole stockholders were the transferor and his wife and daughters, in exchange for stock of said company in an amount bona fide believed by the transferor to be the approximate full value of the property, no transfer inheritance tax is leviable in respect thereof, notwithstanding the commissioner finds the value of the property so transferred to have been in fact less than the value of the stock received in exchange.

4. The statute, P.L.1909, C. 228, as amended up to and including March 15, 1933, N.J.S.A. 54:34-1 et seq., according to the true interpretation and meaning thereof, directs that for the purpose of assessing and levying tax on an inter vivos transfer made in contemplation of death but not being a transfer intended to take effect at or after the death of the transferor, the valuation of the property transferred is to be made as of the date of the transfer.

5. The said statute, notwithstanding such provision, does not contravene par. 1 or par. 16 of Article 1, nor par. 4 or par. 12 of section VII of Article 4 of the Constitution of this state, nor section 1 of the 14th Amendment to the Constitution of the United States, U.S.C.A.

6. Where a testator created a trust in his lifetime in favor of his daughters for their lives with remainder to the donor himself if he survived them, and reserved the power to amend the said trusts, a transfer occurred at his death of the remainder interest following the said life estates, which transfer is taxable under the statute.

7. "Book value" method of determining value of shares of stock held correct, under the circumstances of this case.

8. Imposition of statutory penalty of interest at ten percent held unjustifiable under the circumstances of this case.

Proceeding in the matter of the estate of William W. Renwick, deceased. From an assessment of transfer inheritance tax by J. H. Thayer Martin, State Tax Commissioner, Edward B. Renwick and others, executors, etc., appeal.

Decree in accordance with opinion.

John M. Emery, of Newark, for petitioners.

David T. Wilentz, Atty. Gen., and William A. Moore, Asst. Atty. Gen., for respondent.

BUCHANAN, Vice Ordinary.

William W. Renwick, a resident of this state, died March 15, 1933, leaving by will a net residuary estate of about $145,000 to Renwick Studios, Inc., a corporation of this state. Transfer inheritance tax was assessed on this testamentary transfer at the rate of 8%. Additional taxes were assessed in respect of transfers made by decedent prior to his death comprising property appraised at approximately $655,000. The total tax assessed by the Commissioner was $29,791.85, of which the executors paid $1,223.82. By the present appeal they challenge the validity of the assessment of the balance of $28,568.03, and of the charge of 10% interest thereon from March 15, 1934.

Appellants contend that the Commissioner erred in the following particulars:

1. In taxing the testamentary transfer to Renwick Studios, Inc., at the rate of 8% instead of at lesser rates.

2. In imposing any tax whatever upon transfers made by Renwick to his wife and daughters on June 22, 1928.

3. In imposing any tax whatever upon transfers made by Renwick to his daughters and to Renwick Studios, Inc., on March 1, 1929.

4. In taxing the transfers of 1928 and 1929 on the basis of the value (of the property transferred) as of the date of those transfers instead of as of the date of Renwick's death.

5. In taxing the remainders under three trust deeds.

6. In determining that the value of stock of Renwick Studios, Inc., was $65.66 per share on June 22, 1928, and $81.64 per share on March 1, 1929.

7. In assessing "penalty" interest at 10% from March 15, 1934.

The several issues will be taken up seriatim.

1. Did the Commissioner err in taxing the transfers to Renwick Studios, Inc., at the rate of 8% ?

The transfers so taxed were made, in part on March 1, 1929, and in part on March 15, 1933. Concededly they were made to that corporation; and concededly, under the literal wording of the statute in force on each of those dates, they are required to be taxed (if taxable at all) at the rate of 8%. The entire capital stock of the corporation however was held by Mr. Renwick's wife and daughters; and the contention of appellants is that the transfers were intended as, and in substance and effect, were, transfers to the wife and daughters and therefore should have been taxed at the lesser rates provided by the statute for transfers to such wife and daughters.

Respondent argues that if the corporate entity were here ignored, there would be no end of difficulties. In the event decedent's wife and children decided to sell a fraction of their holdings, the question as to when the corporation had ceased to be theirs would arise. It would also be necessary to determine what proportion of the transfer should be allocated to creditors of the corporation and at what rate that proportion should be taxed. Insolvency of the company would present greater problems.

While these contentions are unquestionably true, it may well be doubted that such an argumentum ab inconvenienti would be sufficiently cogent to support a conclusion adverse to appellants, if the statute stated or indicated a purpose and intent in conformity with appellants' contentions. The statute however does not express or indicate any such purpose or intent. It provides simply (after exempting certain transfers from any tax) that the transfer of property to charitable corporations or organizations shall be taxed at a certain rate; that property passing to certain individuals who are close relatives of decedent shall be taxed at certain rates on a sliding scale according to the value of the property transferred, and that all other transfers (which of course includes transfers to corporations like the one here under consideration) shall be taxed at certain other rates likewise on a sliding scale but higher than the rates on transfers to relatives.

There is no provision, express or implied, for any differentiation of rate of tax on transfers to a corporation where the sole stockholders of the corporation are relatives of the transferor. That being so, there is no justification for doing other than applying the plain language of the statute strictly according to its terms. Cf. Koch v. McCutcheon, 111 N.J.L. 154, 167 A. 752.

Appellants' contention that a transfer to a corporation whose sole stockholders are the transferor's wife and children is, in substance and effect, a transfer to those stockholders,—is unsound. There is a very real distinction between a corporation and its stockholders; and while this distinction will be disregarded in equity where it is necessary so to do in order to prevent fraud, deception, evasion or injustice, it is only to be disregarded in such cases and will not be disregarded in ordinary circumstances. See White v. Evans, 117 N.J.Eq. 1, 174 A. 731; Fidelity Union Trust Co. v. Roest, 113 N.J.Eq. 368, 166 A. 918; Whitfield v. Kern, 120 N.J.Eq. 115, at page 129, bottom, 184 A. 333; Id, 122 N.J.Eq. 332, at page 347, top, 192 A. 48.

In the instant case that which is sought by appellants is not any adjustment of equities among the stockholders, but the adjustment of an alleged equity between the state and the stockholders. No such alleged equity is discernible.

The testamentary transfer in question was a gift,—to the corporation directly, to the stockholders indirectly. The donees, direct or indirect, had no interest or right in the property prior to the gift. They had no right, legal or equitable, that the donor should give to them as individuals, instead of to the corporation. Their right to receive any benefit from this testamentary gift,—either directly or through the medium of the corporation,—was not a natural, inherent right; the right to succeed to the property of another at his death is a right created by the state and existing only by virtue thereof and subject to such conditions as the state imposes,—one of which is the payment of the transfer inheritance tax imposed by the statute.

Neither is there any equity accruing to them indirectly through the testator. He had no equity against the state, to compel the state to assess tax as though his transfer had been to the individuals. He had his free choice, either to bequeath the gift to the corporation or to the individuals. He knew,—or is presumed to have known, —that the gift in the former mode would be subject to a larger tax than if made in the latter mode. That fact, by itself, would be an inducement for him to choose the latter mode; but there would be other results attainable by the fromer mode and not by the latter, which he might well believe out-weighed the matter of increased tax. At any rate, for reasons of his own, he chose to make the gift to the corporation itself, rather than to the corporation in trust solely for the individuals or to the individuals themselves. It is not perceived that there is any reason whatever why the tax imposed by the statute upon such a transfer should not be assessed and collected in exact accordance with the statutory provisions.

It may be added that the case of In re Estate of James A. Paisley, 32 Ohio N.P., N.S., 228, is precisely on all fours with the...