Court Opinion

ID: 9652957
Source: CourtListenerOpinion
Date Created: 2023-08-23 17:36:05.695621+00
Date Added: 2024-06-11T18:12:55.426194
License: Public Domain

BINGHAM, Circuit Judge
(dissenting).
I agree that the first and third questions considered in the opinion of the court are properly decided. My only doubt is as to the second question — the value of the patents and licenses. As to that I doubt very much whether this court is authorized in finding that the conclusion of the Board of Tax Appeals was arbitrary and warrants .the setting aside of its order or decision.
The evidence shows that the cost of the patents and licenses to the taxpayer, including legal expenses, etc., was about $100,-000. E. B. Freeman, vice president and general manager of the Sturtevant Company, who had been with that company since 1903, was called as a witness by it and, although in his opinion the value of the patents and licenses “was approximately $1,300,000 or somewhat in excess of a million dollars,” he testified that “the average net income of the company for a period of five years prior to March 1, 1913, was slightly in excess of $200,000 per year”; that “the net tangible assets were worth between three and four million dollars”; that “one would generally expect to make 10 per cent net on the tangible assets”; and that “ten per cent would be a fair return on the net tangible assets in this type of business.” (Record, p. 108.) And Exhibit 7, introduced by the Sturtevant Company and found on page 275 of the record, shows that for the four years preceding 1913 the average capital of the company was $2,517,631.86 and the average net earnings or profits were $257,041.09, or, as Mr. Freeman testified, slightly in excess of $200,000; and, pursuing the formula outlined by Mr. Freeman and assigning 10 per cent, of the profits to the tangible assets, or $251,763.19, you would have left as the net profits assignable to the intangibles, the patents and licenses, the sum of $5,277.90. This sum capitalized at 6 per cent, would produce a value for the patents and licenses of $87,965, and capitalized at 5 per cent, would produce a value for them of about $105,558.
If any reliance can be placed on this schedule of the Sturtevant Company, it shows the average yearly profits just pref ceding 1913, or the year in which it is sought to determine the value of the patents and licenses; and if any reliance can be placed on the testimony of its vice president and general manager, the average yearly profits assignable to the patents and licenses would produce a value for them nearer $90,000 than $100,000, if capitalized at 6 per cent., and that they were not worth more than the Commissioner and the Board of Tax Appeals found, if they were that. And it seems to me that we would be going a good ways to find that the Board, in its finding that the patents and licenses were not worth more than $100,000, acted arbitrarily and without any legal basis because they declined to give any substantial weight to opinion evidence of witnesses called by the company and based on doubtful premises, as were the figures used as a basis for their opinions.