Court Opinion

ID: 9712361
Source: CourtListenerOpinion
Date Created: 2023-08-26 04:52:21.038862+00
Date Added: 2024-06-11T09:09:00.540123
License: Public Domain

Dissenting Opinion by
Me. Justice Eagen :
I do not agree with the conclusion reached by the Majority. The question is not so much the applicability of the “blockage factor” in calculating the “aggregate actual value” of the stock owned by the appellees as the weight to be given to the closing stock market price of a listed stock in determining value. Should the closing stock market price be used as the sole criterion in fixing value?
The norm of valuation set forth in the Act of June 17, 1913, P. L. 507, §4.1, 72 P.S. §4843.1 is “the aggregate actual value of each part of the different classes of property made taxable by this act. . . .”
Deitch Company v. Bd. of Property Assessment, 417 Pa. 213, 209 A. 2d 397 (1965), is helpful in supplying a definition of “actual value.” In that real estate assessment case, the court said: “The term actual value *560means the market value and market value has been defined as a price which a purchaser, willing but not obliged to buy, would pay an owner willing, but not obliged to sell. . . .” Id. at 217, 209 A. 2d at 400.
As to the stress to be placed on stock market prices in determining value, Clabby’s Estate, 308 Pa. 287, 162 A. 207 (1932) (a state inheritance tax case), addressed itself to this very question. There, the court said that “while market quotations on the day of death are evidence of value of stock, they are not conclusive of the actual value of the stock at that time. In fixing value, other evidence having a tendency either to decrease or increase the value as of the day of death is competent and should be considered.” Id. at 292, 162 A. at 208. The court, though it did not find the “blockage factor” applicable under the facts of the case, did give sanction to its use as an aid in determining the value of large blocks of stock for State inheritance tax purposes.
The theory of “blockage” is explained in Lowndes & Kramer, Federal Estate and Gift Taw (2nd ed. §18.26, 1962), as follows: “Taxpayers have frequently contended where a large block of stock was to be valued that actual sales at or around the valuation date did not fairly reflect the fair market value of the stock, because they failed to discount the depressing effect which the sale of such a large number of shares would have on the market. This is called blockage. In a blockage situation, the unit of value is still the fair market price of a single share of stock; blockage requires that the price per share be lowered to reflect the effect of marketing such a large number of shares. ”
“The argument in favor of it may be substantially-reduced to the contention that the law of supply and demand necessarily affects the value of any commodity and that stocks are no exception to this well-established economic rule. It would be inaccurate to intimate, *561however, that the rule impugns either the usefulness or the authenticity of market quotations. It is more fitting to state that it does project the question whether such quotations constitute demonstrable proof of the true taxable value of such large blocks of stock.” Annot., 23 A.L.R. 2d 775, 776 (1952).
I agree with the majority opinion that the term “aggregate actual value” should be given its usual, customary and plain meaning, yet I am unable to make the leap of faith necessary to conclude that this invariably means “the closing market price, when dealing with shares of stock listed on the stock exchange.” Market quotations are, at best, evidence of actual value. They are not, nor have they ever been held to be, the legal equivalent of actual value. The legislature could easily have provided for such a “short-step” evaluation in order to facilitate computation of the tax but it did not elect to do so. Instead, it levied the tax on the true value, the aggregate actual value of the stock. In my view, a proper evaluation of two such large blocks of stock as are involved in this case must consider the “blockage factor.”
The majority opinion points to the numerous factors which would have to he considered if evaluations based on the “blockage factor” were employed. This multitude of factors can be reduced to just one: the need for expert testimony in determining value. Of course, expert testimony is and should be admissible to prove the value of property not otherwise susceptible to a fixed and precise evaluation. Jarvis v. Bell, 296 Pa. 568, 146 A. 153 (1929). “It was therefore competent to show what in the opinion of the experts the value of the stock thus sold [by dumping a large block of stock on the market at one time] would be under actual conditions in business. Such evidence is substantial when grounded on actual experience, and cannot be classed as defective unless all expert evidence *562is to be so considered.” Clabby’s Estate, supra, at 293, 162 A. at 208. Here, where the closing market price is not an accurate reflection of the actual value of two such large blocks of stock, then expert testimony should be consulted to assess those factors which determine their value.
I must also disagree with the Majority when it seeks to differentiate State personal property tax evaluations from State inheritance tax evaluations and Federal estate and gift tax evaluations. In the death and gift tax areas the courts have recognized the “blockage factor” to such an extent [Helvering v. Estate of Maytag, 125 F. 2d 55 (8th Cir. 1942), cert. denied, 316 U.S. 689, 62 S. Ct. 1280 (1942); Helvering v. Safe Deposit & Trust Co. of Baltimore, 95 F. 2d 806 (4th Cir. 1938); Jenkins v. Smith, 21 F. Supp. 251 (D. Conn. 1937)] that it has received the implied sanction of the Internal Revenue Service as a proper means of computing the value of large blocks of stock. Treas. Reg. §20.2031-2(e) (1958).
The “spectre of required sale” is noticeably absent in several Federal estate tax cases which have allowed the “blockage factor” to be considered. Helvering v. Estate of Maytag, supra; Jenkins v. Smith, supra. In Maytag, the argument that no forced sale was carried out or even anticipated was expressly raised by the Internal Revenue Commissioner and rejected by the court which allowed blockage considerations nonetheless.
Moreover, the “blockage factor” has been recognized in the Federal gift tax area where forced sale considerations are not even present. Helvering v. Estate of Maytag, supra; Havemeyer v. United States, 103 Ct. Cl. 564, 59 F. Supp. 537 (1945), cert. denied, 326 U.S. 759, 66 S. Ct. 138, 139 (1945).
In these areas no more than in the personal property tax area, it is a hypothetical value that is to be *563determined. The criterion is not whether there is any real necessity to sell the block of stock, or whether in fact the block has been sold, but rather, what would be the actual value, the market value, if it were sold. (The closing stock market price is just as much a hypothetical determination of value as is the blockage factor evaluation.)
I do not feel that allowing the blockage factor to be considered in State personal property tax evaluations offends the uniformity requirement of Article VIII, Section 1 of our Constitution. Of course, absolute uniformity in taxation is not required. It is sufficient if substantial uniformity is achieved. Sablosky v. Messner, 372 Pa. 47, 92 A. 2d 411 (1952).
It would appear that when the “aggregate actual value” of a large block of stock of one owner is determined and the “aggregate actual value” of a few shares of another owner is also determined upon a consideration of those factors which tend to establish value, including the amount which each might realize upon a sale thereof, then there is no substantial inequality as between the two taxpayers and there has been full compliance with Article VIII, Section 1 of our Constitution.
As was said by Mr. Justice (now Chief Justice) Bell: “A difference in the methods or yardsticks or formulas used in ascertaining and determining actual or market value does not prove lack of uniformity if there is a reasonable, practical and just basis for the application of different methods or formulas.” Hammermill Paper Co. v. Erie, 372 Pa. 85, 98, 92 A. 2d 422, 429 (1952), cert. denied, 345 U.S. 940, 73 S. Ct. 831 (1953). That basis is clear. The “blockage factor” has been shown to be an important consideration in evaluating a large block of stock. As such, it should be employed in determining actual value. Merely because it has no relevance whatsoever in valuing a small *564number of shares and would never be so employed is no reason to conclude that there is a resulting lack of substantial uniformity of taxation. In both cases, it is “aggregate actual value” that is being determined by a consideration of those factors relevant in establishing value. On this point, the language of the court in North Side Laundry Company v. Board of Assessment, Appeals and Review, 168 Pa. Superior Ct. 495, 498-99, 79 A. 2d 215, 217 (1951) is quite pertinent and warrants being quoted at length: “We are in accord with this statement of appellee’s counsel . . .: ‘The basic and fundamental fallacy in appellant’s contention is in its assumption that the application by the Board of a rate of 30 cents per square foot to appellant’s property is the application of a different standard to its property from that applied to residential property. This assumption is patently erroneous for what the Board did was not to value appellant’s land on the basis of any supposed classification or different standard, but to apply, in strict accordance with the statute and the decisions of this Court and the Supreme Court one standard, viz., actual value, to appellant’s land and find that it was worth 30 cents per square foot, while applying the identical standard, viz, actual value, to surrounding residential plots and find [if assessments by the foot front rule be translated into values based on area] that they were worth 17 to 25 cents per square foot.’ In short appellant in reality is asserting merely a difference in the method used in ascertaining value, and not lack of uniformity in standards of value in the assessment of lands of different character as to size and use. But regardless of the difference in method there was no difference in the standard of assessment of appellant’s commercial property as compared with that of residence properties in the neighborhood. The difference is merely in *565the indices accepted as indicating actual or market value for assessment purposes.”
Finally, I agree with the conclusion of the majority of the Superior Court that the testimony presented in the trial court was insufficient to sustain the order entered, and hence agree that the case should be remanded for further proceedings.
Mr. Justice Pomeroy joins in this dissenting opinion.