Court Opinion

ID: 9572109
Source: CourtListenerOpinion
Date Created: 2023-08-21 20:38:29.325293+00
Date Added: 2024-06-11T12:31:32.491554
License: Public Domain

BAKES, Justice,
dissenting:
I cannot concur in the majority’s holding that “flower bonds” which are credited against federal estate tax liability at their par value should nevertheless be appraised for state inheritance tax purposes at their substantially lower value on the so called “open market.” The Court’s decision here is glaringly inconsistent with our decision in Estate of Morrison v. Idaho State Tax Commission, 98 Idaho 766, 572 P.2d 869 (1977). Morrison indicates that either party in a dispute over the value of property for tax purposes is free to prove that actual market forces operate to increase or decrease the value of the property in comparison to generally accepted price quotations. Alternatively, I believe that any advantage attributable to appraising the bonds at their quoted rather than par value is cancelled out when the deduction allowable for federal estate taxes is computed.
In Morrison, the estate maintained that a large block of stock should be valued for inheritance tax purposes at a per share value beneath the price quoted on the over-the-counter market. The estate argued that the reduced value was appropriate under the “blockage” rule. That rule is premised upon an assumption that very large blocks of stock must be sold at a discount because the market cannot absorb an inordinate number of shares at the going price. The question before the Court was whether a blockage rule properly could be applied to valuation of stock for inheritance tax purposes.
In answering the question presented in Morrison, we began by recognizing that I.C. § 14-402 — the same statute involved in this case — imposed a tax upon the market value of property and that the propriety of applying a blockage rule depended upon the definition of market value. We said that “[ojrdinarily market value is defined as the price at which a hypothetical seller, desiring to sell the property but being under no compulsion to do so, and a hypothetical buyer, desiring to buy the property but being under no compulsion to do so, would agree to exchange the property.” 98 Idaho at 770, 572 P.2d at 873. We pointed out that the blockage rule “assumed that there would be no ready market for larger blocks of stock, and thus the price must be discounted.” Id. However, we observed that that assumption was not invariably true, since various other market forces could operate to make large blocks of stock salable at a premium, rather than obliging the seller to discount his shares. We then stated the following rule, concurred in by all members of the Court:
“[Wjhere one party or the other has shown that there are market forces which would increase or decrease the selling price per share for large blocks of stock from that for lesser blocks of stock commonly traded, the finder of fact may take into account these market forces in arriving at market value. However, the presence of such market factors may not be presumed, and in the absence of proof of such factors the general definition of market value, which assumes both a willing seller and a willing buyer, must control.” Id. at 771, 572 P.2d at 874.
In this case, the majority’s rigid concept of market value flies in the face of our working definition of that term in Morrison. Here, the majority holds that the value of the flower bonds is “determined by the open market at the time of death; i. e., ‘the price which a buyer willing but not obliged to buy would pay a seller willing but not obligated to sell.’ ” Ante at 799. This closely resembles what we referred to *73in Morrison as “the general definition of market value.” 98 Idaho at 771, 572 P.2d at 874 (emphasis supplied). However, contrary to our teaching in Morrison that this definition should control only “in the absence of proof of [other market forces],” id., the majority makes the definition conclusive and absolute — despite the uncontroverted fact that there was a market for these flower bonds at par value. Morrison establishes that either party in a dispute over the value of property for tax purposes may prove that actual market forces operate to increase or decrease the value of the property as compared with prices quoted in trade publications or the like. The majority ignores that part of the Morrison holding.
In the case before us, it is undisputed that the federal government redeemed at par value a substantial portion of the flower bonds in the Stein estate. These bonds were worth significantly less than par value if sold on what the majority refers to as “the open market.” Ante at 798-800. The majority says that the federal government’s redemption at par value is not relevant to the value of the bonds for tax purposes because “a redemption following the death of the owner in payment of federal estate taxes is not a sale on the open market” and because “the U. S. government is not a willing buyer.” Ante at 799. Arguably, the notion of a willing buyer seeking to purchase property on the open market is a component of the hypothetical transaction that is posited by the general definition of market value. However, this is no reason to ignore the uncontested fact that a particular party is legally obliged to pay a certain sum for these bonds in the estate. A seller in the marketplace does not ignore an offer to purchase simply because the one who makes it is legally compelled to do so or because payment will take the form of a credit against the seller’s indebtedness to the buyer. Nor should our tax system be blinded to the reality of such a force in the market. This is precisely the sort of market factor that Morrison permits a party to prove.
The majority says that “[n]o rational public policy would be served by placing a different value on U. S. Treasury bonds as contrasted with other personal property.” Ante at 799. I agree. Therefore, just as the value of a large block of stock in a private corporation may be determined by evidence of market factors proven to affect the salability of the block, Estate of Morrison v. Idaho State Tax Comm’n, 98 Idaho 766, 572 P.2d 869 (1977), so too the value of the U. S. Treasury bonds involved here should be assessed in light of the federal government’s proven obligation to redeem them at par value.
While it is perhaps too late to rectify in this case, there is another reason why the result reached here is wrong. It appears that the estate is enjoying a deduction under Idaho’s inheritance tax laws of some $217,000 for federal estate taxes. However, the estate satisfied its federal estate tax liability with flower bonds that the majority has held may properly be appraised for inheritance tax purposes at the price Stein paid for them on the over-the-counter market — approximately $159,444. The result is that the estate succeeds in playing both ends toward the middle. I do not think our inheritance tax law permits this.
I.C. § 14-A02(10)(e) provides that in determining the market value of the property subject to Idaho’s inheritance tax, “[t]he amount due or paid the government of the United States as a federal inheritance or estate tax” is to be deducted from the appraisal value of the property. (Emphasis supplied.) If, at the estate’s insistence, the flower bonds are valued at their worth on the open market for purposes of appraising the property subject to Idaho’s inheritance tax, then of course they must be given exactly the same value for purposes of calculating the deduction allowed for federal estate taxes. Thus, while the amount of federal estate taxes due from Stein’s estate may have been $217,000, the amount actually paid by the estate was only about $159,-444.
Subsection 14-402(10)(e) does not say what deduction shall be allowed if the amount due and the amount paid are differ*74ent. While the Congress of the United States may have intended to create a federal estate tax loophole by providing that certain bonds be redeemed at par value in satisfaction of those taxes — presumably in order to increase the attractiveness to investors of the low interest federal bonds— there is no indication that Idaho’s legislature intended a similar loophole in this state’s inheritance tax laws, particularly since Idaho has no interest in facilitating the marketability of federal bonds. Indeed, as Justice Shepard wrote in Leonard Construction Co. v. State ex rel. State Tax Commission, 96 Idaho 893, 896, 539 P.2d 246, 249 (1975), “It has been oft stated that tax exemptions existing only by legislative grace are to be strictly construed against the party claiming the exemption.” Consequently, I would construe our statute to grant a deduction for the lesser of either the amount due or the amount ultimately paid. Hence, the result of undervaluing redeemable flower bonds would amount to a wash.