Schroeder v. Kelly

• Decision Date: 02 June 1949
• Docket Number: No. A-64.,A-64.
• Citation: 66 A.2d 456
• Parties: SCHROEDER et al. v. KELLY, State Tax Commissioner.
• Court: New Jersey Superior Court

66 A.2d 456

SCHROEDER et al.

v.KELLY, State Tax Commissioner.

No. A-64.

Superior Court of New Jersey, Appellate Division, Part A.

Argued March 28, 1949.

Decided June 2, 1949.

Appeal from Tax Bureau.

Action to recover a transfer tax by Marian L. Schroeder, executrix, etc., and another against William D. Kelly, State Tax Commissioner. From the action of the Tax Bureau, the plaintiffs appeal.

Action of the Tax Bureau affirmed.

Before JACOBS, Senior Judge, and EASTWOOD and BIGELOW, JJ.

Ralph E. Lum, Jr., Newark, argued the cause for appellants (Lum, Fairlie & Foster, Newark, attorneys).

Joseph Jansen, Trenton, argued the cause for respondent (Theodore D. Parsons, Attorney General of New Jersey; Attorney William A. Moore, Trenton, Special Counsel).

The opinion of the Court was delivered by

BIGELOW, Judge.

The problem arises under our inheritance tax law. Testator, Arthur Schroeder, and his brother, Leslie, each owned 48 percent of the capital stock of a corporation. In 1937, when Arthur was 43 years old and Leslie was 38, they entered into a contract with the corporation whereby it bound itself to purchase from the estate of each of them within 30 days after his death, half of his stock for $25,000. Ten years later, Arthur died and the corporation bought the agreed shares from his executor at the stipulated price. When the contract was made in 1937, $25,000 was a little more than the fair market value of the stock but by the time of Arthur's death, the post war boom had begun and the stock had increased in value to $100,000. The Tax Bureau has charged testator's estate with the $25,000 received by it under the agreement, and has levied against the corporation a transfer tax based on the excess market value of the stock as a transfer made to take effect in enjoyment or possession at death. R.S. 54:34-1(c), N.J.S.A. It is the assessment against the corporation that is questioned on the appeal.

While our statute, paragraph (c) of section 1, literally construed, seems to impose a tax on all transfers which are made in contemplation of death, or which are intended to take effect in possession or enjoyment at death, our courts have recognized that the dominant legislative purpose embodied in this paragraph is to reach substitutes for testamentary gifts. In re Kraft's Estate, 103 N.J.Eq. 543, 143 A. 764 (Buchanan, V.O., 1928); Perry v. Martin, 125 N.J.L. 46, 14 A.2d 266 (S.C. 1940). The transaction now under consideration was not of that character. The purpose of the contract was to assure that whichever brother survived, he would have control of the business, and to assure to the estate of the deceased brother liquidation at a fair price, of a substantial part of his stock in the family enterprise. But a transfer that is intended to take effect at death is regarded as if it were a substitute for a testamentary disposition, and taxable, unless the decedent or his estate receives a consideration of actual financial value and in such an amount that the transferrer's estate is not substantially diminished. In re Hollander's Estate, 123 N.J.Eq. 52, 195 A. 805 (Buchanan, V.O., 1938). If there is a consideration of money value but not equal in amount to the property transferred, the transfer is taxable only to the extent it is a gift. If there is full consideration, the transfer is not taxable at all, since the legislature intended to tax only transfers...