Sears' Estate, In re

• Citation: 172 Ohio St. 443,178 N.E.2d 240
• Decision Date: 29 November 1961
• Docket Number: No. 36745,36745
• Parties: , 17 O.O.2d 417 In re ESTATE of SEARS. BOWERS, Tax Commr., Appellant, v. SEARS, Exr., Appellee.
• Court: Ohio Supreme Court

Page 443

172 Ohio St. 443

178 N.E.2d 240, 17 O.O.2d 417

In re ESTATE of SEARS BOWERS, Tax Commr., Appellant, v. SEARS, Exr., Appellee.

No. 36745.

Supreme Court of Ohio.

Nov. 29, 1961.

Syllabus by the Court

1. The Ohio succession tax is a tax on the succession of the beneficial interest of each heir, legatee, devisee or other beneficiary of a decedent's estate, and the tax on each succession is determined from the actual market value of the property passing thereunder.

2. Market value is the fair and reasonable cash price which can be obtained in the open market, not at a forced sale or under peculiar circumstances but at voluntary sale between persons who are not under any compulsion or pressure of circumstances and who are free to act; or, in other words, between one who is willing to sell but not compelled to do so and one who is willing to buy but not compelled to do so.

3. For succession tax purposes, the market value of shares of corporate stock is, as of the date of death, the actual market price of such shares in units in which they are usually sold, without regard to any reduction in such market value by reason of the size of a particular block of shares.

The subject of this litigation is the determination of the Ohio tax on the succession to 8,100 shares of stock issued by the Towmotor Corporation, which shares were a part of the residuary estate of Anna L. Sears who died testate, a resident of Cuyahoga County, on November 28, 1957.

By the terms of her will, the stock in question was bequeathed to designated trustees to be held by them in successive trusts for the lives of testatrix's son, daughter-inlaw and granddaughter and, upon the death of the survivor thereof, to be apportioned among the lineal descendants of the granddaughter and continued to be held in trust for varying purposes and under varying conditions.

The trustees under the will were given wide powers, among them being the ones mentioned in the following, which is the only specific reference in the will to the Towmotor stock:

'2. The trustees may retain as an investment of any trust estate, without liability for depreciation in value, any securities or other property received by them pursuant to any provision contained in this will * * *. Without limiting the generality of the foregoing powers, the trustees expressly may retain as an investment, without liability for depreciation in value, any and all securities issued by Towmotor Corporation, however and whenever acquired, irrespective of the proportion of the property comprising any trust estate which may be invested therein. * * *'

The executor of the estate testified, at a hearing on exceptions to the determination of succession tax, that, in the administration of the estate, none of the Towmotor stock had been sold or would need to be sold for any reason.

The auditor of Cuyahoga County, under authority of Section 5731.22, Revised Code, ascertained the value of the Towmotor shares at $19.75 per share, that figure being the mean between the bid and asked price of over-the-counter sales on the date of death of decedent.

The Probate Court, in determining the succession tax, applied the so-called blockage rule and fixed the value of the stock at $18 per share. Exceptions filed pursuant to Section 5731.38, Revised Code, were, after a hearing thereon, overruled by the Probate Court.

The Court of Appeals, apparently without written opinion, affirmed the judgment of the Probate Court, and the cause is before this court upon an appeal as of right and pursuant to the allowance of a motion to certify the record.

Mark McElroy, Atty. Gen., Milton D. Holmes and Arthur P. Lambros, Cleveland, for appellant.

Thompson, Hine & Flory and Harvey B. Hobson, Cleveland, for appellee.

BELL, Judge.

The sole question for determination here is whether the so-called blockage rule should have been applied in this cases in determining the value of the Towmotor stock for succession tax purposes.

It was stipulated before the Probate Court that the mean between the bid and asked price of the stock on the date of death was $19.75 per share.

The testimony of two expert witnesses was offered in the Probate Court, one on behalf of the estate and the other on behalf of the Tax Commissioner. The witness for the estate testified that, in his opinion, the entire block of 8,100 shares could have been sold within a 30-day period without depressing the market only if they were sold by way of a secondary offering, i. e., by discounting them to a brokerage firm which would later have offered them for resale in smaller blocks. He stated that, in his opinion, the discount which would have been required by a brokerage firm would have been $1.75 a share.

By stipulation, the testimony of the expert for the Tax Commissioner was that the 8,100 shares could have been sold in the over-the-counter market at prices prevailing when offered if sales were made in small quantities and if spread over a six-month period without having the effect of depressing the market by reason of the offering.

The finding of the Probate Court is summed up in the following paragraph from the entry overruling the exceptions to the determination of succession tax:

'3. The block of 8,100 shares of Towmotor stock owned by the decedent could not have been sold in the existing over-the-counter market within a reasonable period of time, to wit, 30 market trading days, without materially depressing the market price of said shares. The most efficient method of marketing said block of 8,100 shares owned by the estate would be through the sale of said shares to a brokerage underwriter at approximately $18 per share with the consequent resale of the stock by the underwriter group on the over-the-counter market.'

Section 5731.02, Revised Code (127 Ohio Laws, 102), in the portions pertinent hereto, read as follows:

'A tax is hereby levied upon the succession to any property passing, in trust or otherwise, to or for the use of a person, institution, or corporation, in the following cases:

'(A) When the succession is by will * * * from a person who was a resident of this state at the of his death;

* * *

* * *

'Such tax shall be upon the excess of the actual market value of such property over the exemptions made and at the rates prescribed * * *.'

This court has consistenly held that the tax imposed by the above-quoted statute is a tax on the succession of the beneficial interest of each heir, legatee, devisee or other beneficiary of a decedent's estate. Tax Commission ex rel. Price, Atty. Gen. v. Lamprecht, Adm'r, 107 Ohio St. 535, 140 N.E. 333, 31 A.L.R. 985; In re Estate of Daniel, 159 Ohio St. 109, 111 N.E.2d 252. It is a tax that is due and payable at the time of the succession. Section 5731.17, Revised Code. The county auditor is, in the first instance, charged with the responsibility of appraising a succession, i. e., the property succeeded to, at its actual market value as of the date of the accrual of the tax. Section 5731.22, Revised Code. From this determination by the auditor and such other evidence as may be offered, the Probate Court determines the actual market value of all estates and the amount of taxes to which the successions are liable. Section 5731.32, Revised Code.

In all the sections of the Succession Tax Chapter of the Revised Code, where it is pertinent so to do, reference is made by the Legislature to the 'actual market value' of the succession. So the question to be determined under these sections, both by the county auditor and by the Probate Court, is the actual market value of the succession as of the date of the accrual of the tax, i. e., the date of death. Neither the auditor, Probate Court nor we are concerned with the determination of the 'fair cash value' of shares, as that term is used in Section 1701.85, Revised Code, which value is based on the intrinsic value of the shares determined from the assets and liabilities of the corporation upon consideration of every factor bearing on value. Cf. Roessler v. Security Savings & Loan Co., 147 Ohio. St. 480, 72 N.E.2d 259.

Market value traditionally has been defined in Ohio as 'the fair and reasonable cash price which could be obtained in the open market, not at forced sale or under peculiar circumstances, but at voluntary sale as between persons who are not under any compulsion or pressure of circumstances and who are free to act; or in other words, as between one who wants to sell and is not compelled to do so and one who wants to purchase and is not obliged to do so.' City of Cincinnati v. Eversman, 4 Ohio Law Rep. 140. See, also, Giesy v. Cincinnati, Wilmington & Zanesville R. Co., 4 Ohio St. 308; Riegle v. State, 45 Ohio App. 251, 259, 186 N.E. 875; McAdams v. Bolsinger, Adm'r, Ohio Prob., 129 N.E.2d 878.

Market value has thus been defined in terms of the willing seller and the willing buyer. It has never been construed to mean the selling price of property at a forced sale, i. e., a sale which the vendor must make immediately without the time or opportunity to find a buyer who will pay a price representing a sum approaching the reasonable worth of the property sold. Ohio Turnpike Commission v. Ellis, 164 Ohio St. 377, 384, 131 N.E.2d 397.

It is urged here, on behalf of the estate, that, since the dumping of 8,100 shares of stock on the market at once would depress the market for that stock, the mean selling price as of the date of death may not be used as the basis of its market value, and that, therefore, some discounted valuation must be accepted in determining the succession tax.

Let us look at just one consequence of the acceptance of such a rule. A and B, both residents of the same county, die on the same day. By his will, A bequeaths his 8,100 shares of stock in a particular corporation to X. B, by his will, bequeathes 100 shares of stock in the same corporation to Z. Because dumping 8,100 shares on the market at one time would depress the...