The New York herald., 1922-11-26

selves methods of determining its value
in dollars and cents
Good WIZ in Franklin Simon Case.
An interesting case involving the vaiua-
ton of good will arose in the transfer tax
appraisal of the net worth of the dry goods
business of Franklin Simon Co, a
partnership. after the death in August,
1911, Of Herman F1urscheim, equal partner
with Franklin Simon. The tax appraiser
valued his interest in the firm of ap-
proximately $500, ,00O of which amount two
thirds represented the interest of the de-
ceased in the tangible assets and one-third
his interest in the good will. The State
Comptroller appealed from the order as
sessing the inheritance tax on this basis
The appeal was sustained, and Surrogate
Fowler, in remitting the report of the ap-
praiser for revision, said Franklin Simon
& Co. was established in the year 1903
with a combined capital of $4,000 Three
elements must be considered in the de-
termination of good will-net profits. cap
ital and the number of years purchase"
BY the phrase number of years pur-
chase" the courts mean simply a multiple
This multiple or number times the
average annual net profits is held to equal
the amount a purchaser would be willing
to pay solely for the advantage of con-
tinuing the business. The expression
number of years' purchase" was taken
over from the old English decisions by the
American courts when they first began to
value good will.
How a court reasons in the process of
deciding the number of years. purchase"
to be used in a particular case is illustrated
by this further quotation from the Surro-
gates opinion in the matter of Flurscheim:
The transfer tax appraiser has applied
multiple of three yars to the sum ascer-
tanned by deducting from the net profits
as found by him per cent. interest on the
capital and S10O 0O00O-representing the
value of the services of the decedent and
the surviving partner to which latter item
n n<0bjection is made and the amount ap-
pears to the court reasonable and proper
The sole reason assigned by the account
ant and adopted by the transfer tax ap-
praiser for not applying a larger multiple
is because the firm was in existence at the
death OF the decedent only twelve and one
half years. / do not think that this is
controlling factor. The record shows that
the sales have increased steadily since the
establishment of the copartnership. The
sales for the three complete fiscal years
preceding decedent's death were respec-
lively sS.9S6.S5s S5.OOS S64 and $5.91s.925.
In the year prior TO the death of decedent
S219,S5S,S2 was the sum spent for adver-
tising. The firm is extremely We'll and fa-
vorably known. II has succeeded in es-
tablishing reputation in the community
which might not be gained by other con-
Germs in business many years longer. Tn
der all the circumstances think a five
years purchase should be applied in fixing
the good Will"
Thus the value OF the interest OF the
deceased in the copartnership was deter
mined by computing the average net an
nual profits for the three complete fiscal
years preceding his death After deduct
ing therefrom per cent on the average
annual net tangible capital and surplus
employed for the same period and a total
of 100000. as the reasonable annual value
of the services of the two partners. the
difference multiplied by five or about
S1,200.000 was held by the court to be the
value Of the good viii
Starting business in 1908 with a capital
Of about 100000 this firm had acquired
twelve and one-half years later a good viii
conservatively estimated by the court to
be worth in excess of 81 00O. goo Solely by
this accumulation of good win. s1oO. 900
was added each year to the assets or the