Supreme Court to settle tax case raised by Macy's

June 04, 1991|By Lyle Denniston | Lyle Denniston,Washington Bureau of The Sun

WASHINGTON -- The Supreme Court, acting on a major test case filed by the Macy's retail chain, agreed yesterday to rule on the power of states to charge different taxes on the same kind of commercial property, depending on when the properties were bought.

At issue in the case is the constitutionality of a major provision of California's famous "Proposition 13," a taxpayer-initiated move in 1978 to put limits on state taxation.

Because of that measure, now written into California's state constitution, R. H. Macy & Co. Inc. complained in an appeal that it has to pay $57.50 per square foot in taxes on a department store in Concord, Calif., while two competitors in the same mall -- J. C. Penney and Sears -- have to pay only $22.42 and $23.04, respectively.

Macy's taxes went up in 1986 -- from $21.43 per square foot -- when it underwent a corporate reorganization. That was treated, under California law, as a change in ownership, thus triggering Proposition 13.

Under that proposition, the state put a 1 percent "cap" on taxes on real property, keyed to the property's market value in 1975. The tax can rise by no more than 2 percent a year, to reflect inflation.

But if there is a change of ownership in a property, the market value as of the date of that change is used as the base for the tax rate. Thus, since inflation sometimes far exceeding 2 percent a year, the actual tax rate can go considerably higher than it was when based on 1975 value, even though comparable property that does not change hands remains at the lower value-based rate. That is what happened to Macy's two-story department store in the Sun Valley Mall in Concord.

California courts rejected all of Macy's constitutional claims that it was being subjected to discriminatory taxation. In its appeal to the Supreme Court, the retail chain complained that Proposition 13 treats it unequally and puts a burden on interstate businesses seeking to acquire property in California.

Urging the justices to hear its case, Macy's said that the appeal involves issues of "great national importance," primarily because California, the nation's most populous state, has set an example for commercial property taxation.

The court will decide the case of R. H. Macy vs. Contra Costa County (No. 90-1603) in its term that starts in October.

In another significant commercial law action yesterday, the court unanimously overturned a 136-year-old decision that had limited the

power of federal admiralty courts to hear contract disputes in the maritime industry.

In the 1855 decision in Minturn vs. Maynard, the court had ruled that if an agent obtains supplies on behalf of a maritime user, any dispute over the contract is outside the reach of federal admiralty courts and may be taken only to state courts.

The court, saying that the decision no longer reflects the realities of maritime commerce, overruled it in a case involving a dispute over payment for bunker fuel supplied to a Waterman Steamship Corp.-chartered motor vessel in Jidda, Saudi Arabia, in 1983.

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