Burr, J.:
Thomas R. Ball died December 21, 1911, leaving a last will, proved before the Surrogate’s Court of Suffolk county on January 6, 1912. By this will he gave to his two sons all of his interest in the assets of the firm of “ Best & Co.,” including merchandise, accounts, bills receivable* patents, trade marks, good will, leases, leasehold interests, and all other property, upon conditions not here important. He also made these sons his residuary devisees and legatees. In assessing the value of the taxable transfers under said will, the Surrogate’s Court was called upon to determine the value of said good will. The tax appraiser reported its value to be $251,174.88. The Surrogate’s Court reduced this to $92,219.28. The correctness of this decision is now before us for review.
In determining its value, the learned surrogate computed the sum of the average net profits of the firm of Best & Co. for three years preceding the death of 'Thomas R. Ball, deducted therefrom a sum estimated to be equal to the value of the personal services of said Thomas R. .Ball at the rate of $30,000 a year for said period, and multiplied the remainder by two. He claims to have found authority for this method of -computation in the decision of this court in the case of Matter of Silkman (121 App. Div. 202). Mr. Justice Story says: “ Good-will may be properly enough described to be the advantage or benefit which is acquired by an establishment beyond the mere value of the capital, stock, funds, or property employed therein, - in consequence of the general public patronage and encouragement which it receives from constant or [81]*81habitual customers, on account of its local position or common celebrity, or reputation for skill or affluence, or punctuality, or from other accidental circumstances or necessities, or even from ancient partialities or prejudices.” (Story Partnership [7th ed.], § 99; Boon v. Moss, 70 N. Y. 465, 473.)
That many of the elements referred to exist in the case at bar may not be denied. At the time of testator’s death the firm was composed of himself and his two sons, T. Arthur Ball and Ancell H. Ball, but the will contains a recital that the latter had “no interest whatsoever in the assets of said business, but only in the profit thereof.” For a long time there had been no one interested therein bearing the name of Best, and yet this name had been maintained as a thing of value. The reputation of the firm, particularly as a dealer in children’s clothing and supplies, was extensive. Among its trade marks were the words “ Lilliputian Bazaar,” and a very large portion of its business was of the character known as “mailorder” business; that is, patronage from persons who did not actually visit its shops, but, by reason of its reputation, were accustomed to trade with it through the medium of written communications sent through the mail. Decedent manifestly considered this good will of value, for in the articles of copartnership into which he entered with his two sons in March, 19'04, and which were renewed in October, 1907, and again in December, 1910, among other things he contributed to the capital of said copartnership the use.of the “trade marks, furniture, fixtures, good will,” etc., owned by him in the conduct of the existing business of Best & Co., and there was contained in the copartnership articles an express covenant that no interest or title of any nature, kind or description passed to either of the sons in the “ trade marks, good will,” etc., but only the use thereof so long as the firm continued; and in his will, executed on November 16, 1906, and republished with a codicil thereto on October 4, 1909, he bequeaths these to his two sons. This good will is property, and although intangible, the transfer thereof is taxable under the law relating to taxable transfers. (Tax Law [Consol. Laws, chap. 60; Laws of 1909, chap. 62], §§ 220, [82]*82243, as amd. by Laws of 1910, chap. 706, and Laws of 1911, chap. 732; Godley v. Crandall & Godley Co., 153 App. Div. 697, 713; Matter of Dun, 40 Misc. Rep. 509; Matter of Hellman, 174 N. Y. 254; Matter of Vivanti, 138 App. Div. 281; appeal dismissed, 200 N. Y. 513.) The determination of the value of this intangible property is always difficult, and any rule adopted with respect to the same must of necessity be more or less arbitrary. In Allan on the Law of Goodwill (p. 85) the rule is thus stated: “ The usual basis of valuation is the average net profits made during the few years preceding the sale.” In Mellersh v. Keen (28 Beav. 453) Sir John Bomilly, Master of the Bolls, determined that “ the average of three years’ annual profits ” was a fair basis of value. In Page v. Ratliffe (75 L. T. Rep. [N. S.] 371) Mr. Justice Stirling, of the High Court of Justice, said: “It is assessed at so many years’ purchase,” and in fixing the value of the good will of a brewery, he added: “It seems to me that competition and a desire to exclude rivals in trade would lead a brewer to give not less than three years’ profit.” In Von Au v. Magenheimer (115 App. Div. 84) this court said, speaking through Mr. Justice Bich, that as a general rule “ the value of good will may be fairly arrived at by multiplying the average net profits by a number of years, such number being suitable and proper, having reference to the nature and character of the particular business under consideration,” and that the proper number of years is not a question of law, but one of fact. In the same case, on a second appeal (126 App. Div. 257), it was held not to be error to refuse to charge that in estimating good will by the net profits the number of years cannot exceed five. In Matter of Keahon (60 Misc. Rep. 508) the value of the good will was determined by multiplying the average net profits for a series of years by three. In Matter of Silkman (supra) the average net profits for the three years immediately preceding. the testator’s death was ascertained, and this sum, multiplied by two, was held, under the circumstances there disclosed, to be a fair basis Of computation. But that it was not thereby intended to establish this as an inflexible rule of computation is clear from the fact that the writer of the opinion, the present presiding justice of this court, quotes with approval [83]*83the language of Mr. Justice Rich in Von Au v. Magenheimer (supra).
It appears in the case at har from the balance sheet in liquidation that the value of the entire assets of Best & Co., exclusive of good will, was $178,405.12, of which $137,710.96, or about seventy per cent thereof, was in the ownership of Thomas R. Ball. The net profits for the years immediately preceding his death were, in 1907, $210,911.66; in 1908, $142,845.94; in 1909, $165,033.80; in 1910, $130,915.46. In the year 1911 there was a loss amounting to $67,620.32. In that year the firm of Best & Co. moved from 62 West Twenty-third street, where it had been located, for many years, to the northwest corner of Fifth avenue and Thirty-fifth street, where it is now located. The effect of this change was not to diminish the yearly gross sales of the concern; on the contrary, they exceeded those of the previous year by about $156,000, and the- average for the preceding years from 1907 down, by a still greater sum. The expense account for 1911 was, however, greatly increased.
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Burr, J.:
Thomas R. Ball died December 21, 1911, leaving a last will, proved before the Surrogate’s Court of Suffolk county on January 6, 1912. By this will he gave to his two sons all of his interest in the assets of the firm of “ Best & Co.,” including merchandise, accounts, bills receivable* patents, trade marks, good will, leases, leasehold interests, and all other property, upon conditions not here important. He also made these sons his residuary devisees and legatees. In assessing the value of the taxable transfers under said will, the Surrogate’s Court was called upon to determine the value of said good will. The tax appraiser reported its value to be $251,174.88. The Surrogate’s Court reduced this to $92,219.28. The correctness of this decision is now before us for review.
In determining its value, the learned surrogate computed the sum of the average net profits of the firm of Best & Co. for three years preceding the death of 'Thomas R. Ball, deducted therefrom a sum estimated to be equal to the value of the personal services of said Thomas R. .Ball at the rate of $30,000 a year for said period, and multiplied the remainder by two. He claims to have found authority for this method of -computation in the decision of this court in the case of Matter of Silkman (121 App. Div. 202). Mr. Justice Story says: “ Good-will may be properly enough described to be the advantage or benefit which is acquired by an establishment beyond the mere value of the capital, stock, funds, or property employed therein, - in consequence of the general public patronage and encouragement which it receives from constant or [81]*81habitual customers, on account of its local position or common celebrity, or reputation for skill or affluence, or punctuality, or from other accidental circumstances or necessities, or even from ancient partialities or prejudices.” (Story Partnership [7th ed.], § 99; Boon v. Moss, 70 N. Y. 465, 473.)
That many of the elements referred to exist in the case at bar may not be denied. At the time of testator’s death the firm was composed of himself and his two sons, T. Arthur Ball and Ancell H. Ball, but the will contains a recital that the latter had “no interest whatsoever in the assets of said business, but only in the profit thereof.” For a long time there had been no one interested therein bearing the name of Best, and yet this name had been maintained as a thing of value. The reputation of the firm, particularly as a dealer in children’s clothing and supplies, was extensive. Among its trade marks were the words “ Lilliputian Bazaar,” and a very large portion of its business was of the character known as “mailorder” business; that is, patronage from persons who did not actually visit its shops, but, by reason of its reputation, were accustomed to trade with it through the medium of written communications sent through the mail. Decedent manifestly considered this good will of value, for in the articles of copartnership into which he entered with his two sons in March, 19'04, and which were renewed in October, 1907, and again in December, 1910, among other things he contributed to the capital of said copartnership the use.of the “trade marks, furniture, fixtures, good will,” etc., owned by him in the conduct of the existing business of Best & Co., and there was contained in the copartnership articles an express covenant that no interest or title of any nature, kind or description passed to either of the sons in the “ trade marks, good will,” etc., but only the use thereof so long as the firm continued; and in his will, executed on November 16, 1906, and republished with a codicil thereto on October 4, 1909, he bequeaths these to his two sons. This good will is property, and although intangible, the transfer thereof is taxable under the law relating to taxable transfers. (Tax Law [Consol. Laws, chap. 60; Laws of 1909, chap. 62], §§ 220, [82]*82243, as amd. by Laws of 1910, chap. 706, and Laws of 1911, chap. 732; Godley v. Crandall & Godley Co., 153 App. Div. 697, 713; Matter of Dun, 40 Misc. Rep. 509; Matter of Hellman, 174 N. Y. 254; Matter of Vivanti, 138 App. Div. 281; appeal dismissed, 200 N. Y. 513.) The determination of the value of this intangible property is always difficult, and any rule adopted with respect to the same must of necessity be more or less arbitrary. In Allan on the Law of Goodwill (p. 85) the rule is thus stated: “ The usual basis of valuation is the average net profits made during the few years preceding the sale.” In Mellersh v. Keen (28 Beav. 453) Sir John Bomilly, Master of the Bolls, determined that “ the average of three years’ annual profits ” was a fair basis of value. In Page v. Ratliffe (75 L. T. Rep. [N. S.] 371) Mr. Justice Stirling, of the High Court of Justice, said: “It is assessed at so many years’ purchase,” and in fixing the value of the good will of a brewery, he added: “It seems to me that competition and a desire to exclude rivals in trade would lead a brewer to give not less than three years’ profit.” In Von Au v. Magenheimer (115 App. Div. 84) this court said, speaking through Mr. Justice Bich, that as a general rule “ the value of good will may be fairly arrived at by multiplying the average net profits by a number of years, such number being suitable and proper, having reference to the nature and character of the particular business under consideration,” and that the proper number of years is not a question of law, but one of fact. In the same case, on a second appeal (126 App. Div. 257), it was held not to be error to refuse to charge that in estimating good will by the net profits the number of years cannot exceed five. In Matter of Keahon (60 Misc. Rep. 508) the value of the good will was determined by multiplying the average net profits for a series of years by three. In Matter of Silkman (supra) the average net profits for the three years immediately preceding. the testator’s death was ascertained, and this sum, multiplied by two, was held, under the circumstances there disclosed, to be a fair basis Of computation. But that it was not thereby intended to establish this as an inflexible rule of computation is clear from the fact that the writer of the opinion, the present presiding justice of this court, quotes with approval [83]*83the language of Mr. Justice Rich in Von Au v. Magenheimer (supra).
It appears in the case at har from the balance sheet in liquidation that the value of the entire assets of Best & Co., exclusive of good will, was $178,405.12, of which $137,710.96, or about seventy per cent thereof, was in the ownership of Thomas R. Ball. The net profits for the years immediately preceding his death were, in 1907, $210,911.66; in 1908, $142,845.94; in 1909, $165,033.80; in 1910, $130,915.46. In the year 1911 there was a loss amounting to $67,620.32. In that year the firm of Best & Co. moved from 62 West Twenty-third street, where it had been located, for many years, to the northwest corner of Fifth avenue and Thirty-fifth street, where it is now located. The effect of this change was not to diminish the yearly gross sales of the concern; on the contrary, they exceeded those of the previous year by about $156,000, and the- average for the preceding years from 1907 down, by a still greater sum. The expense account for 1911 was, however, greatly increased. But one very large item therein was the rent of the Twenty-third street store, which was substantially unoccupied, and the lease for which had a year still to run, and which rent, over and above the amount received from sub-tenants, was $42,247.50. In addition, there was some outlay for actual moving expenses, amounting to about $2,000, and a charge for fixtures in connection with fitting up the new store on Fifth avenue, relatively much greater than would have been the case if the firm had remained in West Twenty-third street, judging from similar expenditures made in preceding years. The conditions for the year 1911 were so unusual that to obtain a fair average of net profits we feel justified in computing the same from the year 1907, so that the bad year at one extreme is offset by a good year at the other, with three intervening years showing approximately similar net profits. So computed, the average yearly net profits for the period were $116,417.31, of which Thomas R. Ball’s share was $81,492.12. Three factors may be said to enter into net profits: First, interest on the capital; second, personal services of the party; and third, the reputation or good will of .the concern. By the partnership agreement Thomas R. Ball [84]*84was to receive six per cent upon the capital invested by him. This amounts to $6,985.02. There is some evidence that the personal services of Thomas R. Ball were of the value of $30,000 per year. If we deduct from his share of average annual profits these two amounts, we have as the annual value of the good will, all of which belonged to him, the sum of $44,507.09. Strictly speaking, it might be a little more than this, since this is estimating its value upon the amount of decedent’s share of the net profits only, and not upon those of his copartners also, although the entire good will was his property, and of this good will, as well as of his personal services, his copartners had the benefit during his life. If we deem the gross value equal to three years’ purchase, we have as a result the sum of $133,521.27. Substantially similar results would .follow if from the average annual profits we deduct six per cent interest on the entire capital invested at the time of the devolution, to wit, $178,405, and salaries for all three parties, stated to be $60,000, and deduct the same from the entire net profits. The annual value of the good will thus computed would be $45,713.01, and three years’purchase of this would be $137,139.03. Therefore, we deem the former figure, to wit, the sum of $133,521.27, as a conservative estimate of the value of such good will, and we accordingly find this to be the value thereof, and reverse the finding of fact of the Surrogate’s Court that such value was only $92,219.28.
The second question determined by the said Surrogate’s Court related to ownership of stock in the Ball Realty Company. The Ball Realty Company was incorporated in the year 1906, with a capital stock of $100,000. It was a close corporation, having but four stockholders, Thomas R. Ball, his son Ancell H. Ball, his son T. Arthur Ball and Charles H. C. Duncan, who was superintendent of Best & Co. and the “ confidential man ” of the concern. Apparently it was formed chiefly to be a holding company for the real property acquired, either in fee or upon lease, at the corner of Fifth avenue and Thirty-fifth street, now occupied by the firm. Its present assets over liabilities are of the conceded value of $508,265.59. Although organized in 1906, no stock was actually issued until the following year. On August 15, 1907, six certificates were [85]*85issued, as follows: No. 1 to Thomas R Ball for 500 shares; No. 2 to Thomas R. Ball for 490 shares; No. 3 to Charles H. C. Duncan for 1 share; No. 4 to T. Arthur Ball for 1 share; No. 5 to Ancell H. Ball for 1 share, and No. 6 to Thomas R. Ball for 7 shares. No other certificates of stock have since been issued to any person. According to the affidavit of Charles H. C. Duncan, submitted to the appraiser in June, 1912, upon the succeeding day the stock transfer upon the back of three of "these certificates was signed by Thomas R. Ball, hut the blanks' thereon have never been filled up, nor has any transfer of the stock been made upon the stock hook of the corporation. The affidavit states that certificates 1, 2 and 5 were thus indorsed. Certificate No. 5, for 1 share, had been issued to Ancell H. Ball and not to Thomas R. Ball. As the same affidavit states, however, that these certificates were for 500, 490 and 7 shares respectively, it may he that it was certificate No. 6 that was so indorsed by him. It also appears that at some time not specified the other certificates were also indorsed by the persons to whom they had been issued. On August 19, 1907, in the presence of said Duncan, according to his affidavit, Thomas R. Ball took certificate No. 1, for 500 shares, and put it in an envelope which had written upon it the words “T. Arthur Ball. Aug. 19, 1907. 500 shares. B. R. Co.,” and handed the envelope to T. Arthur Ball and said: “I give you half of the stock of the Ball Realty Company.” He then took certificate No. 2, for 490 shares, issued to him; certificate No. 3, for 1 share, issued to Duncan; certificate No. 4, for 1 share, issued to T. Arthur Ball; certificate No. 5, for 1 share, issued to Ancell H. Ball, and certificate No. 6, for 7 shares, issued to himself, put these in another envelope which had written upon it the words “ Ancell H. Ball. Aug. 19, 1907. 500 shares. B. R. Co,” and handed it to his son Ancell and said: “I give you one-half of the stock of the Ball Realty Company. ” He then said to Duncan: “ Now you are a witness to my delivery of the shares of the Ball Realty Company to my two sons.” One of the sons, the affiant cannot state which, then handed these envelopes to him, and he put them in a safe belonging to the firm of Best & Co., where they remained until after the death of Thomas R. Ball. They were locked up in a compartment of [86]*86this safe, of which there were three keys.' Duncan had one, H. Ball (if hy this description is intended Ancell H. Ball) had another, and there is no evidence who had the third key. It may he that if this was the whole of the transaction, and there were no circumstances tending to contradict the inferences to be drawn therefrom, a completed gift inter vivos would he established. But when we consider the entire evidence relating thereto, it scarcely admits of doubt that if the transaction was not a mere pretext to evade the payment of the transfer tax, at least the gift was one not intended to become complete in either enjoyment or possession until after the death of the donor. In such case the transfer is subject to tax. (Matter of Bullard, 76 App. Div. 207; Matter of Jones, 65 Misc. Rep. 121; Matter of Raleigh, 75 id. 55.)
Proceedings before an appraiser to determine the value of taxable transfers of a decedent’s property are quite informal. After this affidavit by Duncan had been submitted, he was produced before the appraiser for cross-examination by the Comptroller on November 26,1912. The stock book was offered in evidence, from which it appeared that the stock still stood in the names of the parties to whom it was originally issued. At that time Duncan testified that he was still the owner of one share of stock, represented by certificate No. 3, which was included in the stock purporting to have been the subject of the gift to Ancell H. Ball. At a subsequent date, December 6, 1912, the stock ■ certificates were produced by Duncan, and offered in evidence by the Comptroller, for the limited purpose of showing that no stamps had been affixed thereto. At the date of the alleged transfer, in August, 1907, the Tax Law provided as follows: “ There is hereby imposed and there shall immediately accrue and be collected a tax as herein provided, on all sales, or agreements to sell, or memoranda of sales, or deliveries, or transfers, of shares or certificates of stock, in any domestic or foreign association, company or corporation, made after the first day of June, nineteen hundred and five, whether made upon or shown by the books of the association, company or corporation, or hy any assignment in blank, or'by any delivery, or by any paper or agreement or memorandum or other evidence of transfer or sale whether entitling the [87]*87holder in any manner to the benefit of such stock, or to secure the future payment of money or the future transfer of any stock, on each [share of one]
We find, therefore, that the stock of the Ball Realty Company was not transferred by any assignment to take effect in possession or enjoyment during the lifetime of Thomas R. Ball, and that the transfer thereof is taxable, and we reverse the finding of the surrogate to the contrary.
The decree of the Surrogate’s Court of Suffolk county is reversed, with costs to the appellant payable out of the estaté, and the proceedings are remitted to said Surrogate’s Court to fix the transfer tax in accordance with this opinion.
Jenks, P. J., Thomas, Rich and Putnam:, JJ., concurred.
Decree of the Surrogate’s Court of Suffolk county reversed, with costs to the appellant payable out of the estate, and proceedings remitted to said Surrogate’s Court to fix the transfer tax in accordance with the opinion.
This part of statute was declared unconstitutional in People ex rel. Farrington v. Mensching (187 N. Y. 8).— [Rep.