179 Wis. 210 | Wis. | 1923
The following opinion was filed November 8, 1922:
On the 16th day of July, 1916, the plaintiffs sold certain shares of the corporate stock of the Mitchell-Lewis Motor Company owned by them on and prior to January 1, 1911. If the amount realized, on the sale was greater than the fair market value of the property as of January 1, 1911, plaintiffs are required to pay an income tax upon such profit or gain under the provisions of the income tax act, sec. 71.02, Stats. The board of review held there was such a profit, and these appeals present the narrow question whether in any reasonable view the evidence furnishes a substantial basis for the conclusion of the board, as, if so, and there is nothing to show that it acted arbitrarily or dishonestly, its decision will not be set aside. State ex rel. Walthers v. Jung, 175 Wis. 58, 183 N. W. 986; State ex rel. Althen v. Klein, 157 Wis. 308, 147 N. W. 373; State ex rel. N. C. Foster L. Co. v. Williams, 123 Wis. 61, 100 N. W. 1048. There is no dispute as to the amount for which the stock was sold, leaving only to be solved the question of the fair, market value of the stock as of January 1, 1911. There is no evidence of sales of the stock at or about January 1, 1911, to which reference may be had for the purpose of establishing the market value of the stock at that time, except in three isolated- instances, which will be adverted to later.
“In the absence of a known market value, the proper method of establishing the value of corporate stock is by proof of its actual value.” Will of Porter, 178 Wis. 556,
A balance sheet of the company, prepared by Arthur Young & Company, certified public accountants, as of June 30, 1911, shows total footings of $13,378,719.44. To make this total there is included on the asset side ' $5,180,000.84 under the item of “good will.” There is included also $394,090.69 under the item “appraisal -adjustment.” This item seems to have arisen from the fact that Messrs. Coats & Burchard appraised the plant and equipment of the company as of June 30, 1911, which appraisal fell short of the book values by the amount of this item. Evidently the balance sheet shows the appraised value, and this item is inserted for the purpose of reconciliation. It is an item which in our opinion the board of review had a right to deduct from the total value of the assets of the company.
A profit-and-loss statement, prepared by the same public accountants, shows the profit during the six months prior to June 30, 1911, to have been $338,421.14. In order to ascertain the net value of the assets as of January 1, 1911, this item should be deducted. The amount of liabilities to be deducted for the purpose of ascertaining the value of the net assets is $3,203,981.50. A deduction of these items from the total listed assets leaves $4,262,225.27, the book value of the net assets of the company as of January 1, 1911. Against this there was outstanding $5,000,000 of
This determination by the board is assailed by the appellants as entirely unjustified, and we will now consider the evidence relied on to impeach its finding. G. B. Wilson, one of the plaintiffs, testified that the fair market value of the common stock January 1, 1911, for the purposes of control, and taking into account the good will and record of earnings and of future prospects of the company, was at least $40 per share. F. Lee Norton, an apparently disinterested witness, testified that in his opinion the common stock on January 1, 1911, was worth $40 per share. He stated that the value was in the voting power. It perhaps should be stated at this time that the common stock of this corporation had the exclusive voting power. While this testimony was competent (Erd v. C. & N. W. R. Co. 41 Wis. 65; Murray v. Norwood, 77 Wis. 405, 46 N. W. 499) it was by no means conclusive. It was the opinion of these men based on evidence which the board had before it and ■ concerning a matter upon which the board was a$ competent to judge as were the witnesses. Conceding that this opinion evidence was entitled to the consideration of the board, it was not conclusive on the board if not in harmony with its own judgment. Mr. Wilson further testified as follows:
' “I think the balance sheet of the company as- of January 1, 1911, did not show any book value for the common, although that is only my recollection, but nevertheless the common stock I considered at that time had a considerable value towards voting power.”
“At that time I considered the valúe the common stock had was in the control of the company. I would say the condition would be substantially the same either on January 1, 1911, or in 1916. Such value as the common stock had was the value that attached to the majority of the common stock as carrying the control.”
Mr. Fawsett, attorney for the plaintiffs, in a statement to the board said:
“There was never any asset value that could be attributed to the common stock during any portion of that period. The common stock for those reasons could never be considered as having any asset value. Certainly nothing more than a highly speculative one. The group of stockholders who owned a majority of the common stock and ydio thereby had the control of the corporation would regard it as of value, and any one purchasing the stock for the purpose of getting control, it would be of value to them for that purpose, and I should say for that purpose only. Really never was considered that the common stock had any actual value aside from the control which it carried at the time the sale was made in determining the amount the Lewises would take for their interests.”
Actual sales were shown as follows: On April 10, 1910, W. T. Lewis sold to Eliza A. Wallace 450 shares of the preferred stock of the company for 450 shares of the common stock. It was a part of the agreement of this sale that if during the actual lifetime of Eliza Wallace the annual dividend declared by such corporation on its common stock shall exceed seven per cent., then and in that case the excess of said dividend over and above seven per cent, shall be paid to said- Eliza Wallace. In view of the fact that this sale was made April 10, 1910; at a time when the net assets of the company were even less than they were on January 1, 1911, and in view of the fact that no one has at any time contended that the common stock was worth par, or was of equal value with the preferred, the board of
Here we have evidence of three stock transactions. In one the common stock sold for $10 a share, in the other for $40 a share, and the third transaction amounted to an even trade of common for preferred stock. These transactions, as a whole, do not constitute very substantial evidence of the market value of the stock as of January 1, 1911, and were entitled to very little if any weight in arriving at a determination of that question.
Probably the strongest argument made by appellants to indicate an erroneous determination by the board of review lies in the fact that on July 16, 1916, at a time when the net physical assets of the company were $3,790,551, an actual sale of all of the stock of the company was made for $5,250,000. This would represent par for the preferred stock and $5 per share for the common, being the amount at which the board of review valued the stock as of January 1, 1911. It is .said that this sale shows the actual value of the stock July 16, 1916, and that if the common stock was worth $5 per share on that date it must have been worth
The board might well have concluded that even though the physical assets of the concern were less in 1916 than in 1911, nevertheless the actual value of the stock, all elements of value considered, was just as great in 1916 as in 1911. The record before the board of review disclosed with practical unanimity that the value attaching to the common stock was merely the value resulting from the control of the corporation. There is no reason to perceive why that value was not just as great in 1916 as in 1911. The sale price of 1916 would indicate that it was $5 per share. The board of review concluded that that also was its value in 1911, and we discover nothing in the way of a mathematical demonstration that it was any different. The fact is that the value of the common stock at all times rested in the sound judgment of men. Mr. Gillen, testifying in behalf of the plaintiffs, said that “no two men would agree on the price'of the stock at any given time.” To overturn the finding of the board of review it must be held that in no reasonable view of the evidence has it any support. This, in our judgment, has not been established.
Plaintiffs, owing to their majority control, were enabled to secure more than their due proportion of the sale price of the entire stock. They secured par for their preferred^ and something in excess of $20 per share for their common, stock. It is 'said that this incident in and of itself shows that their common stock was worth more than the stock generally. While this may be true as a practical proposition, we cannot«indorse it as a legal proposition. The market value of the common stock of this company January 1, 1911, is the basis upon which plaintiffs’ income tax is to be ■assessed, and that market value is to be determined from the value of that stock generally and not from the special value which accrued to plaintiffs by reason of their majority control. Neither can we say 'that the fact that plaintiffs
While in view of the conclusion already reached it does not affect the result, there remains a question of practice to be considered. The respondent, at the trial, claimed the right to introduce evidence supplementing the evidence preserved in the record made before the board of review in further support of the findings of the board. The court excluded such evidence and ruled that the sole question was whether the board of review acted within its jurisdiction, which, under the circumstances, presented the question whether there was any evidence to support its findings. This action is brought under sec. 74.73, Stats., formerly known as sec. 1164. This section confers a right of action for the recovery of an unlawful tax. The trial court took the position that whether this was an unlawful tax depended upon whether there was evidence to support the findings of the board of review, and that question was to be determined by an examination of the record made before the board of review. This was no doubt correct so far as a determination of the question whether the tax was unlawful was concerned. The section authorizing this action, however, provides: “No action shall be maintained under the provisions of this section unless it shall appear
In the case of Day v. Pelican, 94 Wis. 503, 69 N. W. 368, plaintiffs made a return to the assessor disclosing their ownership of certain saw-logs, but not stating the quantity, valued at $8,250, as being all of their personal property liable to' taxation in the defendant town. This valuation was raised by the assessor or board of review to $30,750, without notice to the plaintiffs, upon which amount a tax was levied. Plaintiffs paid the tax under protest and brought an action under sec. 1164,' Stats., to recover the alleged illegal portion thereof. The town replied that, as a matter of fact, the plaintiffs owned property to the amount of the assessment and that they had paid no more than their just share of taxes in the town. The court held that the statute “applies the rule in equity in respect to relief on account of illegality in the assessment and collection of taxes, denying all relief unless it is made to appear that the tax proceedings are not only illegal and void, but that they are inequitable.” As the evidence showed that plaintiffs’ assessment was not inequitable, though it was illegal, recovery was denied.
It is clear that in the instant case respondent should have been permitted to show, if it could, that even though the board of review did not have sufficient evidence before it to justify its conclusions, nevertheless the plaintiffs had paid no more than their equitable share of taxes. The evidence should have been received, but in view of the fact that the record made before the board of review discloses
By the Court. — Judgments affirmed.
A motion for a rehearing was denied, with $25 costs, on January 9, 1923.