Nordstrom, Inc. v. Maricopa County

• Decision Date: 29 April 2004
• Docket Number: No. 1 CA-TX 02-0021.,1 CA-TX 02-0021.
• Citation: 88 P.3d 1165,207 Ariz. 553
• Parties: NORDSTROM, INC., a corporation; Scottsdale Fashion Square Partnership, a partnership, Plaintiffs-Appellants, Cross-Appellees, v. MARICOPA COUNTY, Defendant-Appellee, Cross-Appellant.
• Court: Arizona Court of Appeals

88 P.3d 1165

207 Ariz. 553

NORDSTROM, INC., a corporation; Scottsdale Fashion Square Partnership, a partnership, Plaintiffs-Appellants, Cross-Appellees, v. MARICOPA COUNTY, Defendant-Appellee, Cross-Appellant.

No. -0021.

Court of Appeals of Arizona, Division 1, Department T.

April 29, 2004.

Fennemore Craig, P.C. By Paul J. Mooney, Paul Moore, Phoenix, Attorneys for Plaintiffs-Appellants.

Helm & Kyle, Ltd. by Roberta S. Livesay, Tempe, Special Counsel for Defendant-Appellee.

OPINION

GEMMILL, Judge.

¶ 1 Nordstrom, Inc. and Scottsdale Fashion Square Partnership ("SFSP") (collectively "Taxpayers") appeal the property tax valuations for the Nordstrom department store (the "Store") in Scottsdale Fashion Square for the 1999 and 2000 tax years. We hold that the Store is not a "shopping center" as defined in Arizona Revised Statutes ("A.R.S.") section 42-13201 (1999) for property tax valuation purposes. In addition, Maricopa County cross-appeals the omission of entrepreneurial profit from the tax court's calculation under the cost approach. We affirm the judgment of the Arizona Tax Court in its entirety.

FACTS AND PROCEDURAL BACKGROUND

¶ 2 The Maricopa County Assessor valued parcel number XXX-XX-XXXL containing the Store¹ at a full cash value of $24,442,406 for the 1999 and 2000 tax years. SFSP holds title to the parcel and has a long-term lease with Nordstrom for the use of it. Nordstrom constructed the store building as an improvement to the parcel and owns the building. The parcel and building are valued as an economic unit for property tax purposes.

¶ 3 After appealing the valuations to the Board of Equalization, Taxpayers received a reduced valuation for the 2000 tax year of $21,632,324. Still unsatisfied, they filed notices of appeal and complaints with the Arizona Tax Court for each tax year, and the cases were consolidated.

¶ 4 Both sides hired appraisal experts to value the Store. The County hired Ralph J. Brekan, and Taxpayers hired Maxwell O. Ramsland.

¶ 5 Taxpayers advised the County that their expert, Ramsland, intended to use the straight-line building residual income valuation method under "A.R.S." § 42-13203(D) (the "statutory income approach"). Judge Jeffrey S. Cates, then presiding judge of the Arizona Tax Court, issued a discovery ruling limiting the documents that Taxpayers were obligated to produce to the County pertaining to valuation of the Store under the statutory income approach.

¶ 6 Brekan valued the Store under the cost approach and the sales comparison approach. Ramsland performed appraisals using these methods, as well as the income capitalization approach and the statutory income approach. Ramsland's recommended valuation of the Store was several million dollars below Brekan's valuation.

¶ 7 The County filed a motion in limine to exclude opinion testimony by Ramsland based on the statutory income approach. Judge Paul A. Katz, who succeeded Judge Cates as presiding judge of the Arizona Tax Court, granted the motion because he decided that Nordstrom did not meet the statutory definition of "shopping center" under A.R.S. § 42-13201 (1999).

¶ 8 Following an eleven-day bench trial, the tax court valued the Store at $22,406,040 for the 1999 tax year and at $22,206,040 for the 2000 tax year. The tax court ordered the County to pay Taxpayers $30,000 in attorneys' fees, $10,300 in expert witness fees, and $4,055.15 in taxable costs. This appeal and cross-appeal followed.

THE APPEAL

The Tax Court Correctly Concluded that the Statutory Income Approach Did Not Apply Because The Store Is Not a "Shopping Center"

¶ 9 Arizona taxes property at full cash value. Crystal Point Joint Venture v. Ariz. Dep't of Revenue, 188 Ariz. 96, 101, 932 P.2d 1367, 1372 (App.1997) (quoting Recreation Ctrs. of Sun City, Inc. v. Maricopa County, 162 Ariz. 281, 289, 782 P.2d 1174, 1182 (1989)). Full cash value is determined by a statutory method of valuation or, if no statutory method is prescribed, by one of the standard appraisal methods. A.R.S. § 42-11001(5) (2002). A threshold issue in this appeal is whether the Store qualifies as a "shopping center" and must therefore be valued according to the statutory method prescribed for such properties. Our review is de novo when the interpretation and application of a statute controls the result. Energy Squared Inc. v. Ariz. Dep't of Revenue, 203 Ariz. 507, 509, ¶ 15, 56 P.3d 686, 688 (App.2002). ¶ 10 The relevant statute defines a "shopping center" as:

[A]n area that is comprised of three or more commercial establishments, the purpose of which is primarily retail sales, that has a combined gross leasable area of at least twenty-seven thousand square feet, that is owned or managed as a unit with at least one of the establishments having a gross leasable area of at least ten thousand square feet and that is either owner-occupied or subject to a lease that has a term of at least fifteen years.

A.R.S. § 42-13201. When determining the meaning of a statute, "[w]e look first to the plain language of the statute as the most reliable indicator of its meaning." State v. Mitchell, 204 Ariz. 216, 218, ¶ 12, 62 P.3d 616, 618 (App.2003) (citation omitted). "If the statute's language is clear and unambiguous, we give effect to that language and do not apply any other rule of statutory construction." In re Maricopa County Superior Court No. MH XXXX-XXXXXX, 203 Ariz. 351, 353, ¶ 12, 54 P.3d 380, 382 (App.2002). Because the Store is not "comprised of three or more commercial establishments," it does not satisfy this definition. The Store is a single commercial establishment attached to a shopping center. Based on the plain language of § 42-13201, the Store is not, in and of itself, a shopping center.

¶ 11 Notwithstanding the language of the statute, Taxpayers cite several sources of support for their argument that the Store qualifies as a shopping center: (1) the discovery ruling by Judge Cates; (2) the lease agreement between the Store and SFSP (the "Lease Agreement"); and (3) a recently-published opinion of the tax court, The May Department Stores Co. v. Maricopa County, 205 Ariz. 442, 72 P.3d 842 (Tax Ct.2003).² We are not persuaded, however, that Taxpayers' arguments overcome the plain language of § 42-13201.

¶ 12 First, we do not agree that Judge Cates's pre-trial discovery ruling precluded Judge Katz's later ruling that the statutory income approach was inapplicable. Judge Cates did not make a final determination of the applicability of the statutory income approach.

¶ 13 Second, Taxpayers point to the Lease Agreement as evidence that the Store has the characteristics required for a shopping center designation. They argue that the contractual relationship between Nordstrom and the mall owner satisfies the guidelines for determining whether an area "is owned or managed as a unit" as set forth in the Arizona Department of Revenue Assessment Procedures Manual. The Lease Agreement provides for common advertising, operating hours, maintenance, and insurance, and also allocates responsibilities for maintenance and imposes various joint and reciprocal obligations. These provisions may support a conclusion that the Store is part of an area "that is owned or managed as a unit." The Lease Agreement, however, also states that SFSP "shall use its diligent efforts to have the Demised Land and the Tenant's Improvements, including Tenant's Building, separately assessed." The Store itself is not an "area" "comprised of three or more commercial establishments" and therefore does not satisfy the definition of a shopping center in § 42-13201. Although Taxpayers contend that the Store should be valued as a "shopping center" because it is part of an "area" that is a shopping center, we are unable to agree that the language of § 42-13201 permits the conclusion that the Store itself is a "shopping center."

¶ 14 Finally, during oral argument Taxpayers urged us to follow the lead of the tax court in The May Department Stores Co. In that case Judge Katz ruled that the owners of anchor department stores in several malls were entitled to have their properties valued as "shopping centers" under § 42-13201. 205 Ariz. at 443-44, 72 P.3d at 843-44. To do otherwise, the court reasoned, would render the statute meaningless except when the mall owner contested a tax assessment on behalf of all the tenants and anchor store owners. Id. at 444, 72 P.3d at 844. Opinions of the tax court are due our respect, but we are not bound by the tax court's interpretation of a statute, Circle K Stores, Inc. v. Apache County, 199 Ariz. 402, 405, ¶ 7, 18 P.3d 713, 716 (App.2001), and we independently review the tax court's statutory interpretations. Maricopa County v. Kinko's Inc., 203 Ariz. 496, 498, ¶ 4, 56 P.3d 70, 72 (App.2002). Although we acknowledge the concern expressed by the tax court in The May Department Stores Co., we are nonetheless compelled to conclude that, under the plain language of § 42-13201, the Nordstrom Store does not constitute a "shopping center."

¶ 15 The choice of appropriate statutory language rests with the legislature, and therefore, it is up to the legislature, if it so desires, to amend or clarify the meaning of § 42-13201. "[W]hen we allow ourselves to be guided by intuition that [the legislature] didn't really mean what it said, we are no longer interpreting laws, we are making them." State v. Weinstein, 182 Ariz. 564, 568, 898 P.2d 513, 517 (App.1991) (quoting United States v. Phelps, 895 F.2d 1281, 1283 (9th Cir.1990) (Kozinski, J., dissenting from the denial of rehearing en banc)). We have applied the language of the statute, as written, to the facts of this dispute.

The Tax Court Permissibly Applied the Cost Approach for Appraising the Store

¶ 16 Because we agree with the tax court that the statutory income approach to valuation is not applicable, we must now review whether the tax court applied a correct appraisal technique. The available appraisal methods include the...