230 Wis. 23 | Wis. | 1939
As appears from the preceding statement the case involves an inheritance tax which was computed on the market value of stock transferred by the will of the testator at the time of the testator’s death as determined by the court and without deducting the amount of the federal estate tax imposed on the same transfer of the stock. The contention of the appellants is that the tax should have been computed on the value of the property actually received by the beneficiaries, because one cannot be taxed on anything he does not receive. On this hypothesis, the appellants rest two propositions, — that the beneficiaries of the stock transfer cannot be taxed on the amount of the federal tax because they never received it, and that to hold otherwise would render the inheritance tax statute void as depriving the beneficiaries of property without due process and denying them equality before the law.
It was held in 1919 in Estate of Week, 169 Wis. 316, 172 N. W. 732, that the valuation to be taken as the basis of computation of the inheritance tax is the clear market value of the inheritance as of the instant of the decedent’s death. That ruling has been adhered to ever since, and was reiterated in Will of Kootz, 228 Wis. 306, 280 N. W. 672. In the Kootz Case the question was carefully reconsidered. We will not go over any of the matters discussed in the opinions in either of those cases. There is now raised the question of the constitutionality of the statute which we declined to consider directly in the Kootz Case because it was not raised by the appellants therein, although it was urged by counsel for the appellants herein in a brief hied as amici curice. We will here pass upon the question of constitutionality.
The constitutional argument of appellants’ counsel may be briefly stated as follows: No executor or administrator can pay any other debt until the debts due the United States out of the estate are paid; U. S. Code, title 31, ch. 6, secs. 191 and 192; the estate tax must be paid before the estate is distributed; title 26, sec. 426 (b) ; the word “debts” includes taxes; Price v. United States, 269 U. S. 492, 46 Sup. Ct. 180, 70 L. Ed. 373, and because the federal estate-tax law is constitutional and therefore the supreme law of the land the taxes thereby imposed take precedence over the taxing power of the state. Florida v. Mellon, 273 U. S. 12, 17, 47 Sup. Ct. 265, 71 L. Ed. 511. Being a debt the federal tax must be deducted just as any other debt of the decedent is
It is quite true that, generally speaking, as illustrated in bankruptcy or receivership proceedings, a tax due from the bankrupt or debtor to the United States is a debt, and so in the federal estate-tax proceedings is an income tax or other species of unpaid tax imposed on a decedent by the United States prior to' his death. But the federal estate-tax statute, title 26, sec. 413 (b), provides that a state inheritance tax actually paid by a resident of a state may be deducted from the federal estate tax on the inheritance. In the face of this it can hardly be contended that the ruling of Florida v. Mellon, supra, if as stated, so applies as to compel a state to defer the payment of such a tax until after the federal estate tax is paid, or in any way to give precedence to the federal over the state tax. It is true that if the state inheritance tax were a tax on property received there would be discrimination violative of the Fourteenth amendment as illustrated by the following supposititious case: Each of two persons actually receives from different testators the same sum of money. A’s testator leaves an estate of $1,000,000, on which the federal estate tax is $183,000. A’s bequest is the residue of the estate which after payment of the other bequests and the federal tax yields him $40,000. B’s testator leaves an estate of $40,000 and leaves it all to B. B’s tax on the $40,000 received is $1,300. A’s tax is on the $183,000 federal tax plus the $40,000 received and is $16,700. If a property tax this would of course be discriminatory. But the state inheritance tax is not a tax on property received. It is a transfer tax, a tax on the right to receive property by inheritance, as pointed out in the Week and Roots Cases, supra, and many other cases in this court, and it may be irn-
“While the federal tax is called an estate tax, and the state tax is called a transfer tax, both are imposed as excises on the transfer of property from a decedent and both take effect at the instant of transfer. Thus both are laid on the same subject, and neither has priority in time over the other. Subject to exceptions not material here, the power of taxation granted to the United States does not curtail or interfere with the taxing power of the several states. This power in the two governments is generally so far concurrent as to render it admissible for both, each under its own laws and for its own. purposes, to tax the same subject at the same time. A few citations will make this plain. In Gibbons v. Ogden, 9 Wheat. 1, 199, Chief Justice Marshall, speaking for this court, said: ‘Congress is authorized to lay and collect taxes, etc., to pay the debts, and provide for the common defense and general welfare of the United States. This does not interfere with the power of the states to tax for the support of their own governments; nor is the exercise of this power by the states an exercise of any portion of the power that is granted to1 the United States. In imposing taxes for state purposes, they are not doing what congress is empowered to do. Congress is not empowered to tax for those purposes which are within the exclusive province of the states. When, then, each government exercises the power of taxation, neither is exercising- the power of the other.’ . . .
“With this understanding- of the power in virtue of which the two taxes are imposed, we are of opinion that neither the United States nor the state is under any constitutional obligation in determining the amount of its tax to make any deduction on account of the tax of the other. With both*32 the matter of making such a deduction rests in legislative discretion. In their present statutes both direct that such a deduction be not made. It is not as if the tax of one, unless and until paid, presented an obstacle to the exertion of the power of the other. Here both had power to tax, and both exercised it as of the same moment. Neither encroached on the sphere or power of the other. The estate out of which each required that its tax be paid is much more than ample for the payment of both taxes. No question of supremacy can arise in such a situation. Whether, if the estate were not sufficient to pay both taxes, that of the United States should be preferred (see Lane County v. Oregon, 7 Wall. 71, 77), need not be considered. That question is not here involved.”
This is the last word of the United States supreme court that we find bearing upon the constitutionality of the construction given to- our statute by the Week and Kootz decisions. Counsel suggests that if there is any “doubt” that one construction of a statute is unconstitutional and another construction is constitutional the latter should be given. This may be conceded. But the Frick Case seems to us to remove all possible doubt of the constitutionality of the construction twenty years ago given to- the instant statutes. To the same effect as the Frick Case is Stebbins v. Riley, 268 U. S. 137, 45 Sup. Ct. 424, 69 L. Ed. 884.
The above seems to- us to- cover sufficiently the contention of the appellants as to the unconstitutionality of our inheritance tax statute as we have construed it for twenty years. If including the federal estate tax which the beneficiaries did not in fact receive in the base of computation of the state tax does not render the administration of the statute unconstitutional, neither does the fact that the beneficiaries did not actually receive the difference between the $4,500 per share of the stock fixed by the court in the tax proceedings and the $3,500 per share actually received by them render its administration unconstitutional.
(1) We consider it sufficient to say upon this point that the finding of Judge McDonald was not res judicata because the state or its taxing authorities were not parties to the hearing before him.
(2) The sale of the stock did not conclusively fix its value because of the circumstances under which it was made. The only offer considered or sought was that of the Journal Company and Miss McBeath. Mrs. Nieman’s will gave the residue of her estate to Harvard University, her will had been held valid when the hearing was had, and the university and Miss McBeath were the only ones appearing at the hearing of the petition for approval of the sale who' had any interest in the price received. Both of these assented to the sale at $3,500 per share and so did Harvard University. Mr. Grant, manager of the Journal Company, and the owner of four hundred of the nine hundred outstanding shares of the stock of the Journal Company, and the owners of the other five hundred shares of stock desired that the $3,500 offer of the
It is of moment in this respect that the appellants’ counsel in their opening statement on the trial below stated:
“Now, of course, it is not our claim that that sale established the market value nor that that judgment established the market value, but it is our claim that that establishes the fair and proper sale made under the terms of that will and at a proper price made under the terms of that will.”
(3 ) Careful consideration of the court’s findings and written opinion taken together seems to us to indicate quite clearly that the main factors, in the court’s evaluation of the stock was its great earnings and the testimony of Mr. Chapman, an accountant of the Tax Commission who the court stated in its opinion “made a very good impression upon the court, giving facts and figures and experiences that he had and instances that he knew of in the sale of other papers” who fixed the value at $4,700 per share. The Journal Company’s earnings for the ten years next prior to the sale were over $9,250,000, an annual average of nearly $928,000. These annual earnings average 32.67 per cent of the capital invested and during the period never fell below 20.85 per cent in any year. It appears by the testimony of Mr. Chapman that his methods of estimating value were based upon an article in the “Editor & Publisher” a ■ “newspaper for newspapermen,” according to the testimony of Mr. Brown, its “principal owner and president” (who testified as an ex
One of the accepted methods of evaluating a business is the “going concern” method. That method has been accepted by this court: Wisconsin Gas & Electric Co. v. Tax Comm. 221 Wis. 487, 495, 498, 266 N. W. 186, 268 N. W.
(4) (a) In his written opinion filed the county judge referred to the fact that the stock had been appraised by the appraisers of the estate at $5,000 per share. Whether this was considered by him as affirmative evidence of market value or only as reason for not taking the actual sale price of the stock as conclusive evidence of value does not clearly appear. The ordinary procedure in inheritance tax proceedings is to accept appraised value as the basis of computation unless there is objection. The court’s statement is that the administrators objected to taking the appraised value as the basis and insisted that the market value should be taken as the basis. Counsel for appellants say in their brief: “It does not appear from the findings herein that any importance was attached by the court to that appraisal as evidence of value,” and that they urge the point only because the respondents by motion to review ask the court to fix the value of the stock for inheritance tax purposes at $5,000 per share, the amount fixed by the appraisers. In this situation we will postpone discussion of the admissibility of the appraisal until we take up the motion for review.
(4) (b) Mr. Annenberg made an offer of $4,250 per share for the stock. It is contended by appellants that the trial court considered this offer as evidence of market value of the stock and there should be a new trial for that reason. That the court did not accept it as establishing value is manifest from the finding made. It doubtless was considered as tending to show that the sale price was not conclusive of its value. But as the evidence of Mr. Chapman and the earnings
The market value of the stock at the time of the testator’s death is what it would have sold for at that time upon negotiations resulting in sale as between a purchaser able and desiring to buy and an owner willing to sell. Whatever has any probative force toward determining that price is receivable in evidence to determine it. It is true that this court has held in condemnation proceedings that offers to purchase property are not receivable as evidence of its market value, because they are apt not to be bona fide, but made or procured for evidentiary purposes merely rather than in an attempt to negotiate an actual sale, and the United States supreme court has so held. Atkinson v. Chicago N. W. R. Co. 93 Wis. 362, 67 N. W. 703; Watson v. Milwaukee & Madison R. Co. 57 Wis. 332, 350, 351, 15 N. W. 468; Sharp v. United States, 191 U. S. 341, 24 Sup. Ct. 114, 48
(4) (c) The appellants go so far in their criticism of the testimony of Mr. Chapman to whose opinion the court gave more weight than to that of any other witness produced, as to urge that his opinion was not receivable in evidence as an expert because he had not had any experience in buying or selling newspapers and his information as to sales concerning which he testified was based wholly on hearsay. In support of this proposition State ex rel. Park Falls L. Co. v. Stauber, 190 Wis. 310, 207 N. W. 409, is cited. It must be conceded that if everything that is said by the court in the opinion in that case is taken at its face and considered applicable to every conceivable situation, the appellants go far toward throwing Mr. Chapman and his evaluation out of the window. But we consider the broad generalities of this case were very largely circumscribed by the decision in State ex rel. Flambeau Paper Co. v. Windus, 208 Wis. 583, 243 N. W. 216. The witnesses who were held incompetent in the Park Falls Case were so held because they did not come one hundred per cent up to the general conditions of qualification, as stated at pages 315 and 316 of the opinion:
“The two witnesses, Laidlaw' and Halbert, did not possess sufficient knowledge of the subject matter, viz., the private sale value of lumber-mill equipment, to qualify them as competent witnesses. 2 Jones, Evidence (3d ed.), § 368. As stated by that learned author at section 387, the essentials are two: A knowledge of the intrinsic properties of the thing; a knowledge of the state of the markets. As stated by Wigmore (2d ed.), § 717, ‘where there is a market value, the knowledge of the witness must be of this market value.’ Berg v. Spink, 24 Minn. 138. Such knowledge must generally be acquired by personal observation, not by mere hearsay. 1 Wigmore, Evidence (2d ed.), § 719; Kost*42 v. Bender, 25 Mich. 515, 519; Detroit v. Fidelity R. Co. 213 Mich. 448, 455, 182 N. W. 140, 142.”
Let us consider whether or how near Mr. Chapman measured up to the qualifications there stated. As to knowledge of the “subject matter,” he certainly made great and painstaking effort to' qualify himself in this respect, — as much as Mr. Luhman or Mr. Mack, upon whose evaluation of $3,500 the appellants confidently rely, both in “knowledge of the intrinsic properties of the thing sold” and a “knowledge of the markets” so far as newspapers can be said to have a market. “Where there is a market value, the knowledge of the witness must be of this market value.” There was no market value of the stock of the Journal Company in the sense that 'market value is used in the above quotation. “Such knowledge must generally be acquired by personal observation, not by mere hearsay.” Again, Mr. Chapman’s knowledge was acquired by hearsay just as was that of Mr. Luhman and Mr. Mack. And the quotation last above does not imply that it must always be acquired by personal observation, but only generally. The implication is that it may under some circumstances be acquired through hearsay. The knowledge of the opinion witness in the Flambeau Paper Co. Case, supra, as to sales, sales prices, etc., was so1 acquired. We consider that the evaluation of Mr. Chapman was competent, and the court was entitled to give it such weight as it considered it to be entitled to. Appellants also urge that it should be wholly rejected because he considered the fact that the stock sold constituted a majority of the stock of the corporation and carried with it control of the corporation, and that he did not consider that the value of the stock depended largely on whether the purchaser could secure continuance of the services of Mr. Grant as manager of the corporation, which counsel for appellants urge as the controlling factor in evaluating the stock. This, however, goes only to the weight to be given to his opinion, to the
Appellants also make the broad contention that the court was bound to give the testimony of their expert witnesses more weight than that of Mr. Chapman, and cite in support
“Testimony of an officer of a corporation who was a minority stockholder and who sold his stock at the same price paid another minority stockholder who claimed to have been defrauded, coupled with the testimony of the investment bankers who had particularly considered the reorganization of the business, as^to the value of the stock, is held to be controlling as against evidence of sales of a small block of the stock by underwriters, seventy-five per cent of the stock having been withheld from the market, and evidence of values based on the bull market of 1929.”
We consider that in the instant case the trial judge was not obliged to forego the exercise of his own judgment as to
Appellants also cite art. 10 (c), Regulations 80 (1937 ed.), Estate Tax, relating to the evaluation of corporate stock for federal estate-tax purposes as follows: “The size of holdings of any security to be included in the gross estate is not a relevant factor and will not be considered in such determination.” We cannot give to this regulation the effect of throwing out of the instant case the testimony of Mr. Chapman to the effect that in evaluating the instant block of stock he considered the fact that it constituted a majority of the corporate stock.
The respondents by motion to review ask us to direct modification of the judgment below by substituting $5,000 per share as the value of the stock and entering the amount of the taxes imposed on that basis. We see no reason for so doing. The only perceivable basis for fixing $5,000’ as the market value of the stock would be that the appraisers fixed that value. The appellants claim that the appraisal is not evidence. The respondents claim that it is, and suggest that it is entitled to controlling weight because in an accounting proceeding a referee’s determination of value based upon an appraisal of value made in county court in probate proceedings was properly held by the referee to be entitled to greater weight than the book value of the property involved which the court had held to be of the greater weight. Ott v. Boring, 139 Wis. 403, 121 N. W. 126, is cited in support. In that case the appraisers were examined before the referee to verify their findings. Here they were not. What weight their appraisal would be entitled to if they had been we need not determine. At most an appraisal value, even where statutory provision exists for its receipt, is only presumptive evidence of value. We know of no statute in this state giving an appraisal that effect, although an assessment entered on
We consider that the above sufficiently covers the matters raised by the appeal. The printed case consists of four hundred twenty-eight pages, the briefs of three hundred seventy-four. Detailed evaluation of items of evidence or further discussion of the contentions of counsel would unduly extend the opinion and would serve no useful purpose.
By the Court. — The judgment of the county court is affirmed.