Macy’s Abandons Plea to Overturn Prop. 13’s Legality : Taxes: The firm says it feared a favorable Supreme Court ruling would adversely affect homeowners. A boycott had been threatened against the store.
R. H. Macy & Co. on Friday abruptly dropped its milestone legal challenge to Proposition 13, California’s property tax-cutting initiative, saying it feared that the Supreme Court ruling it sought on commercial property could have a broad, undesired impact on homeowners.
The company’s decision, announced by Macy’s Chairman Edward S. Finkelstein in New York, came just four days after the high court had agreed to hear the appeal--considered a key test of the constitutionality of the 1978 initiative.
In those four days, however, leading business organizations in California attacked Macy’s assault on Proposition 13, saying it had the potential to force a massive increase in tax bills. A taxpayers group called for a boycott of Macy’s-owned stores, which include Bullock’s and I. Magnin in Southern California.
“It has become clear to us . . . that there is no way to guarantee that pursuing this through the courts may not ultimately have some effect on homeowners,” Finkelstein said in a written statement.
“Therefore, we have decided to withdraw our petition and leave it to elected officials to decide how best to deal with the inequality of the current tax system for situations like ours.”
In Sacramento, the son of deceased Proposition 13 co-sponsor Paul Gann declared victory and called off the fledgling boycott.
“I think I’ve developed a strong new feeling for Macy’s,” said Richard Gann, head of the taxpayers group named for his father.
“We’re a little surprised but very pleased that Macy’s has come around to their senses,” said Joel Fox, president of the Howard Jarvis Taxpayers Assn. Jarvis, the other co-sponsor of Proposition 13, died in 1986.
Macy’s action Friday was called mystifying by critics who say Proposition 13 has created a two-tier tax system, with homeowners who seldom move paying artificially low property taxes and people who move picking up the tab. Some homeowners would have seen their tax bills rise, while other bills would have dropped, had Proposition 13 been ruled invalid.
“It’s mind-boggling,” said state Sen. Quentin L. Kopp (I-San Francisco), who said Macy’s should have foreseen the potential legal and publicity fallout from its appeal.
Kopp speculated that Macy’s bowed to pressure from business groups such as the California Chamber of Commerce and the California Taxpayers Assn. Fred Main, vice president for legislative affairs at the chamber of commerce, denied that his organization pressured Macy’s, but expressed pleasure at the decision.
“We think it’s a great move, but it’s far from the end of the issue,” Main said.
A separate appeal by a Los Angeles homeowner complaining that Proposition 13 forces her to pay higher taxes than her neighbors is also before the Supreme Court, which has not yet accepted or rejected the case for review.
The Macy’s appeal dealt only with commercial property, but there were indications that the Supreme Court would deal with both commercial and residential property in any ruling on Proposition 13’s constitutionality.
Ann E. Carlson, the attorney for homeowner Stephanie Nordlinger of Baldwin Hills, said they were disappointed with Macy’s action.
“If Macy’s can’t withstand the pressure, elected officials certainly won’t,” said Carlson. “It’s an issue that needs to be settled. We’re there and we’re not going to withdraw.”
Macy’s spokesman James N. Fingeroth said it was a purely legal decision. When company lawyers could not give “absolute assurance” that homeowners would not be affected, Macy’s “didn’t want to be involved in this process any further,” he said.
Macy’s appeal arose from a 1989 lawsuit centering on a Proposition 13 formula that imposes different tax bills on identical properties. The resulting unequal tax amount comes from a provision that allows homes and businesses to be reassessed for tax purposes only when the property changes hands.
The company sued Contra Costa County over the property tax levy on its department store in the Sun Valley Mall. Macy’s said the store is taxed at a rate 2 1/2 times higher than the nearby Sears and J.C. Penney stores.
Proposition 13 capped property taxes at 1% of the real estate’s assessed value as of March 1, 1975. So long as the property does not change hands, the 1975 assessment can be raised just 2% a year if market values rise.
The Macy’s store became subject to the higher rate after a 1986 corporate reorganization that was considered a change of ownership under California law. That caused the Concord-area store to be reassessed as though it had just been acquired at then-current market values. The annual assessment rose from $4.4 million to $11.7 million.
“It has never been our intention, nor do we see it as an appropriate role for a department store, to become the agent for change on this important public policy issue,” Finkelstein said in the Macy’s statement. “Macy’s simply desires the same tax treatment for its stores as its competitors.
“For that reason, our petition was narrowly drawn, challenging only those aspects of Proposition 13 that resulted in unfair tax treatment for certain commercial real estate. Under no circumstances would we wish to be involved in anything that affects homeowners.”
Nordlinger agreed with others who expressed surprise that Macy’s would change its mind after just a few days of publicity.
“The reaction was predictable,” said Nordlinger. “If they were going to enter a suit in the first place why not stay with it? They had to spend a fortune.”
Nordlinger, a Los Angeles appellate lawyer in solo practice, said she will pursue her appeal and does not fear a backlash for her stand.
“I’ve known many of my clients for years, and if they were going to leave they would have already,” she said.
She said she has fielded phone calls about the suit, many from other homeowners who feel the current system is unfair and “a few from people who think I’m crazy.”
But she contends that Proposition 13 should be struck down. The current law lets people evade taxes on the real value of their property by staying put, while placing the burden of higher taxes on people who choose or are forced to move, she said.
“It doesn’t seem to me the rich need to be subsidized, certainly not at the expense of the poor,” said Nordlinger, a former Los Angeles County public defender.
Another lawsuit over residential taxes is also rising through the appeals courts. Northwest Financial Co., a Nevada firm that invested in San Diego area real estate, sued the state and county over its tax bill on a house in the wealthy La Jolla Farms neighborhood.
The home had been assessed for taxes at $175,000 but was reassessed at the sale price of $730,000 when the Nevada company bought it. Northwest Financial sued over the $8,897 in additional taxes paid over two years.
The suit was dismissed by lower courts and is bound for the California Supreme Court, which has rejected appeals by Macy’s and Nordlinger.
Johnson reported from Washington and Roderick from Los Angeles. Times staff writer Stuart Silverstein also contributed to this story.
