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May Triumphs Over AZ Tax
by Ron Davis

May Department Stores Co. has saved itself a sizable amount of money by identifying 19 of its stores in the Phoenix, AZ, area as inherent parts of shopping centers.

The need for such identification arose when the county tax assessor determined that May should pay property taxes on the full cash values of those 19 stores. All 19 are anchor stores in Phoenix-area shopping malls.

May has argued, however, that the stores qualify for special assessment under Arizona law. That law gives a tax break to owners of retail operations that are located in certified shopping centers.

Arizona law also defines the minimum standards for qualification as a shopping center: It must contain three or more commercial establishments. It must primarily engage in retail sales. It must have a gross leasable area of at least 27,000 square feet. It must be owned or managed as a unit. And at least one of the establishments must have a gross leasable area of at least 10,000 square feet, plus either be owner-occupied or subject to a lease that has a term of at least 15 years.

The Arizona Department of Revenue has further dealt with how to determine if a property qualifies as a shopping center: The collective holdings of several owners can qualify as a shopping center if the holdings are managed and operated as a unit. Moreover, “management of the unit must be evidenced by a contract that addresses common advertising, operating hours, building maintenance, parking lot maintenance, common insurance and central facilities management.”

The May stores are all located in shopping centers that qualify in every way with the dictates of the law, as well as with Department of Revenue standards. But the shopping center properties where May stores are located are not all commonly owned by the center’s owners-developers. Therefore, the tax authorities argued that they were justified in assessing the May stores as if they were individual operations and not part of shopping centers.

The Tax Court of Arizona, in ruling in favor of May, explained, “For the shopping center law to be given meaning, it would have to be applicable to individual owners/taxpayers within the shopping center just as it would be available to the mall owner if it were the sole taxpayer, provided the elements of the law are satisfied. It would also render the law meaningless if it was applicable only to situations in which the mall owner were to contest the tax assessment on behalf of all the tenants and anchor store owners. Therefore, this court concludes that the subject properties are entitled to valuation as ‘shopping centers’ under Arizona law.” (The May Department Stores Co. v. Maricopa County, 72 P.3d 842)

Decision: July 2003
Published: September 2003



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