Court: New Jersey Superior Court Appellate Division; November 15, 1951; New Jersey; State Appellate Court
The executrix appeals the inheritance tax assessment concerning the shares of common stock owned by the decedent in West Side Lumber Company, which comprises 600 out of 15,000 outstanding shares. Due to the absence of stock sales to determine market value, the Acting Director of the Division of Taxation relied on information provided by the executrix for appraisal. The company, which sells timber cut from its own lands, faces an impending cessation of business once its timber supply is depleted.
The taxpayer argues that the director underestimated the impact of the company's wasting nature on stock value. However, the court finds the director's assessment appropriate. The decedent passed away on December 11, 1949. For the three fiscal years ending February 28, 1950, average annual dividends were $33 per share, yielding a 7% return on a $470 investment. The average annual net profit per share was $49, which, when capitalized at rates between 10% and 15%, suggested a share value between $326 and $490. The book value per share as of February 28, 1950, was $172.28, excluding goodwill.
The balance sheet indicated that standing timber, plant, and equipment, after accounting for depletion and depreciation, was valued at $603,391, down from $998,713 three years prior, reflecting an average annual amortization of $130,000. The Tax Division deemed the capitalized value based on dividends or net profits too high, given the company's depleting assets, and accepted the book value of $172.28 as the accurate stock value. The Division concluded that any liquidation losses would be counterbalanced by remaining excess earnings. The director's appraisal was deemed justified, and the assessment was affirmed with costs.
