City’s Strategy: Settle for a Cheaper Loss

Just imagine the outrage San Francisco taxpayers would direct at city leaders if they believed the city handed off a couple hundred thousand dollars to Macy’s Department Stores. There’d be picketing, long rants at the next Board of Supervisors hearing, maybe even calls for impeachment.

Well, Macy’s is likely to get a nice six-figure payment from the city sometime soon, a move that will finally end a long-running dispute over taxes the retailer paid in the late 1990s. Depending on how you read it, that payment is either a slick move by city lawyers to avoid losing millions or a failure to fight for every last dollar.

After getting a $13 million judgment overturned on Wednesday, the San Francisco city attorney’s office wasn’t going to quibble over a few hundred thousand dollars.

Macy’s had won a $13 million judgment because it may have been overcharged by a business tax that was later repealed, but the First District Court of Appeal shot that down.

Macy’s claim “went from a multimillion-dollar case to something that’s worth a couple hundred thousand dollars,” said Julie Van Nostern, the city’s chief tax attorney.

But there’s reason to believe the case could have been reduced to nothing. The appellate court noted that Macy’s didn’t claim it had actually paid excess taxes. And Van Nostern said the city’s expert economist could have made the case that Macy’s wasn’t owed a cent.

“Arguably, we could have done that,” she said. But she said she wasn’t sure the judges would have agreed to a remedy that left nothing in Macy’s pocket. So the result of that fight could’ve been an even bigger bill for the city.

James Kleier, a Reed Smith partner, represented the city in oral arguments at the First District. Bewley, Lassleben & Miller’s Jeffrey Baird was Macy’s lead counsel on appeal.

Matthew Hirsch

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