Nordstrom wins $1.1M tax refund from Marin

The county, in response to an appeal, also lowered the property tax assessment of the retailer’s Corte Madera store by more than $8.7 million.

Following an appeal by Nordstrom, Marin County has lowered the property tax assessment of the retailer’s Corte Madera store by more than $8.7 million and refunded $1.11 million in property taxes, plus over $84,000 in interest payments.

The county assessor’s office signed a stipulated agreement with Nordstrom on Oct. 24, 2024, granting the reduced assessment, and the county’s Assessment Appeal Board voted 3-0 to approve the pact the next day.

Shelly Scott, the county assessor-recorder-clerk, said the agreement didn’t become effective until after the appeal board approved it.

“The board, after they review it, if it doesn’t make sense to them, they can say no,” Scott said. “It has happened, but it hasn’t happened very often.”

The refunds cover 11 years from 2013 to 2023. Nordstrom filed the appeal after Marin County’s previous assessor, Richard Benson, increased the assessed value of the property by about $21.2 million to about $46.8 million following a $68 million expansion and renovation of the store in 2014.

The agreement reduced the assessed value of Nordstrom’s property to about $38 million. The store pays about 1% of the assessed value annually in property tax. In its appeal, Nordstrom was seeking to reduce the assessed value by about $26.6 million to about $20.2 million.

“We said no way,” said Deputy Assessor Andrea Balf, who oversaw the appeal from start to finish. “We knew that was not anywhere close to the value for our Marin County location.”

Balf said that during an appeal board hearing, a Nordstrom construction manager indicated that the Corte Madera store is the company’s No. 1 location in California for repeat customers.

Nordstrom did not respond to a request for comment.

At the time Nordstrom filed this assessment appeal, it had filed 12 previous appeals since opening its store at the Village shopping center in Corte Madera in 1985. In all but one case, Nordstrom prevailed and the assessed valuation of its property was reduced.

Nordstrom’s appeals of its property tax assessments are not unique to Marin County. It has filed similar appeals in counties throughout the country.

“So does Macy’s and Sears,” Balf said. “Most of the commercial properties, if they are a national brand, or if they are a large property owner, file what we call protective appeals.”

She said many file every year “regardless of whether they think the value is high.”

One contentious issue in Nordstrom’s appeal was how much of the $68 million the company spent constituted repair and remodeling and how much should be classified as new construction. The distinction was crucial because new construction is assessable; repair, replacement and maintenance work is not.

As a result of the construction work, the square footage of Nordstrom’s Corte Madera store increased from 109,919 square feet to 127,350 square feet. Nordstrom asserted that only the 17,381-square-foot addition was assessable new construction.

The assessor, however, presented evidence that Nordstrom replaced 90% of the heating, ventilation and air conditioning system; 90% of the plumbing; 90% of the electrical wiring, floor finishes and ceiling surfaces; and 61% of the roof. The assessor presented evidence that 41% of the building’s structural framework, exterior walls and sidewalks were demolished and replaced. The assessor also provided evidence that the interior partitions, column covers, finish flooring, restrooms, elevators, escalators, stairs, offices, stock and incidental rooms were demolished and replaced.

In a ruling issued in October 2019, the appeals board wrote that after reviewing the evidence it found “that the improvements were a major renovation and therefore converted the entire property to the substantial equivalent of new.”

Nordstrom missed a deadline to file for an exclusion that would have reduced the amount of new construction that is subject to tax.

A large percentage of its building had to be replaced due to required seismic work. California law excludes seismic construction and reconstruction from assessment. The company, however, failed to apply for the exclusion within 30 days of completion of the project, as required.

Asked if that fact influenced the final agreement, Balf said, “It certainly was something that was on our mind.”

After settling the new construction issue, the next step was for the assessor and Nordstrom’s to decide on a method to value the building.

Corina Rollins, one of the three members of the appeals board, said she didn’t recall any of the details of the case. She added, however, that typically, “they’re going to look at the income approach, they’re going to look at the cost approach and they’re going to look at the market approach.”

A cost approach to valuation looks at what it would cost to build a similar building. An income approach, which was Nordstrom’s first choice, is based on the present value of the expected future cash flows generated by an asset. A market approach uses recent sales prices of comparable properties.

Balf said her office spent a considerable amount of time trying to value the property using the market approach, by researching what similar anchor tenant properties sold for when the businesses left the shopping centers they were located in.

Balf said there was a problem with this approach, however. Mall owners typically provide anchor tenants with lucrative subsidies.

“Sometimes we can discover what those subsidies are, and sometimes we can’t,” she said.

These subsidies also make it difficult to use the market approach, Balf said.

Plus, she said, “Most of the time, they’re going to sell back to the mall owner. It doesn’t usually get sold out on the open market like a house would.”

As a result, the assessor relied mainly on a cost approach to valuation and even that was imperfect.

“Many of the cost value guides are from outside the area,” Balf said. “They don’t always reflect what construction costs are for the area.”

Regarding why the assessed value ultimately agreed upon, $30 million, is less than half of the $68 million that Nordstrom spent on the renovation/expansion project, Balf wrote in an email that “costs do not always equal value.”

She said Nordstrom incurred substantial expense because it did the construction in phases to keep the store open the entire time. This resulted in additional costs for overtime and security. There was also additional seismic retrofitting required because the east side of the building had sunk.

Ultimately, Balf said, “We felt very comfortable that the number we stipulated to reflects the fair market value of the building.”