Re: Anybody Remember Valle's Steak House in Springfield?
Posted by:
Just Wondrin
()
Date: March 12, 2013 08:12PM
tax question and wiki question Wrote:
-------------------------------------------------------
> Yeah, man, great frickin job on the Wikipedia
> pages...
>
> questions:
>
> 1) Where did you get all that info,
>
> 2) how does somebody go out of business because of
> estate taxes? I certianly understand the idea that
> one might pay a sh**load in taxes in an estate
> setting, but how would one end up worse off than
> before the estate proceedings (and thus, how might
> one go out of business because of taxes?).
>
> Certainly, you're not going to pay more in taxes
> than you get fron the estate, right?
>
> So, you're not going to be in a worse position,
> maybe just not as good as you'd hoped.
Answers, best as I can:
1. Where did I get the info?
A: The info is available on the internet. A great source is "ProQuest News Archive" that contains the historical newspaper images for the Washington Post, NY Times, Wall Street Journal, Boston Globe and many other newspapers, going back 100+ years. ProQuest can be accessed for free via the internet if you have a library account. Simply log on to the library's web page with your account number and then go to the research portal.
Google News is another way to get info (make sure you use their archive capability if you need something more than year old).
2. Estate taxes.
A: In 1977, when Donald Valle died, the federal estate tax rate was 70% and the asset exclusion was only $100,000. Assuming the corporation was valued by the government at $30 million, and Valle owned 66% of the firm ($19.8m), that would leave a federal estate tax bill of $14 million (.7 x 19.8).
Likely, the estate had very little cash on hand, its primary assets being Valle's stock. Thus the only way for the estate to pay the bill would be to sell stock. We know for a fact that is exactly what happened. Richard Valle, who I imagine was the executor, sold the estates' controlling shares for $18 million which enabled the estate to pay off the feds + any state inheritance taxes that were owed. (Any remaining funds in the estate would then be distributed in accordance with Donald Valle's will).
This transaction by itself didn't necessarily doom the business, but the buyers of the stock were other corporate officials (Arthur Hanson, et al) who had to borrow money to finance the purchase. At the time (1982) the prime interest rate (if you're under the age of 40, hold on tight to your seat) was 16% !! Simple math (.16 x 17.5) gives you an annual interest bill alone of about $2.8m. In 1982 the country was in a recession, inflation was in double digits and people weren't spending much on dining out. Not surprisingly, Valle's was barely making a profit back then and that's why the new corporate chiefs starting selling the restaurants (which were valued at about $1-2m each (building and land)), because they had to pay off the bank loans. I suspect that they were hoping for an economic turnaround that would give them enough cash to pay the loans without selling off the business, but that never happened. Or perhaps their plan all along was to liquidate at favorable terms. We don’t know and we may never know. Regardless, in 1991 the last three restaurants closed and that was the end of Valle's Steak House.
Final points:
-- Last week, I ran the numbers above past the former manager of the Daytona Beach restaurant, who is now a free lance columnist and food blogger. Purely coincidental perhaps but he said the $14 million dollar tax bill to the feds was spot on.
-- If Donald Valle died today as opposed to 1977 the landscape would be vastly different. First, the top federal estate tax rate today is 40% vice 70% in 1977. Second, the first $5m in assets are now excluded, vice $100k in 1977. As a result, the estate tax if Donald Valle died today would be about $6m (19.8 - 5.0 (*.4) vice $14m in 1977. With a current prime rate of only 3.25% (vice 16%) servicing a $6m loan would be about $200k/year vice $3m/year in 1977. Even if we inflate the estate's holdings from $17.5 million to $48 million (matching the rise in the consumer price index 1977-2012) the tax would only be $17.2m which financed at a 3.25% rate would cost $560k/year in interest.
-- Some people believe that Valle's went bankrupt, but that's exactly what they didn't do. They met their obligations by liquidating buildings and real estate. Presumably, they did so hoping they would turn the corner and continue in business but that outcome didn't happen.
-- Since Richard Valle retired on Cape Cod it's reasonable to believe he and other family members (e.g., Judith Valle) walked away with a good deal of money. As well, when I worked at Valle's in the late 1970s the rumor was that Richard Valle's heart wasn't really in the business after his father died. No doubt that influenced the outcome.
Wikipedia's rules state that all entries must be notable and the references must be credible and verifiable. Since I can't verify anything above, it's not in the article. After the 1982 buy-out, there's hardly any public information about Valle's. Unless somebody interviews Judith Valle who I believe is still alive, we'll probably never know exactly what happened between 1982-1991.
Hope that answers your questions.
Sorry to everybody else on FFXU for taking up so much space and not dropping a single f-bomb.
JW