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Nordstrom’s Defining Moment
by Ron Davis

Nordstrom, Inc., has failed in its attempt to qualify one of its Arizona stores as a shopping center. The huge department store chain had hoped that a shopping center designation for the store would result in a lower property tax rate.

The store at issue is located in Scottsdale as the anchor of Scottsdale Fashion Square. Although the owners of Scottsdale Fashion Square hold title to the shopping center and have a long-term lease with Nordstrom for the center’s use, Nordstrom constructed and owns the store building it occupies

After local tax assessors valued that store at $24,442,406, Nordstrom appealed, resulting in a reduction of the store valuation to $21,632,324. But Nordstrom still wasn’t satisfied and appealed a second time, hoping to convince the courts that the store qualifies as a shopping center.

Under Arizona law, “shopping center” is defined as an area that includes all of the following features:

1. It must have three or more commercial establishments, the purpose of which is primarily retail sales.

2. It must have a combined gross leasable area of at least 27,000 square feet.

3. It must be owned or managed as a unit with at least one of the establishments having a gross leasable area of at least 10,000 square feet.

4. It must be either owner-occupied or subject to a lease that has a term of at least 15 years.

Nordstrom argued that its Scottsdale Fashion Square store satisfies the definition of a shopping center because the lease provides for common advertising, operating hours, maintenance, and insurance.

An Arizona appellate court, in rejecting Nordstrom’s argument, explained, “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. Although Nordstrom and the owners of Scottsdale Fashion Square 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 the law permits the conclusion that the store itself is a shopping center.” (2004 WL 906251 [Ariz.App. Div.1])

Decision: April 2004
Published: June 2004



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