How Big Box Stores Shift Their Property Taxes Onto Homeowners

By Al Norman

Something called the “Dark Store Loophole” lets companies like Wal-Mart shift their property taxes to homeowners and small merchants.

This obscure [property tax dodge, which has been going on for more than two decades, has pitted Big Box retailers like Lowe’s, Home Depot, Target and Wal-Mart against taxpayers in small towns across America. Wealthy corporations who ought to be paying their fair share, have managed to escape paying millions of dollars in property taxes by arguing their stores have no more value than an abandoned building.

This past week, Wal-Mart was at it again: challenging its property tax assessment in Monona, Wisconsin. The city has assessed Wal-Mart for $646,485 in property taxes, but Wal-Mart is seeking to cut their bill by one-third, to $433,000. A complex legal decision rendered by the Wisconsin Supreme Court nine years ago in a Walgreen’s case may help Wal-Mart force Monona to settle.

Big Box stores are trying to convince cities and town—and courts in many states—that their stores should be appraised based on the value of “Dark Stores”—which are vacant big box buildings. Wal-Mart Realty has abandoned hundreds of ‘dead stores’ by the roadside, which often decay for years before being torn down. Big retailers want assessors to value a fully-functioning store similar to one that has no sales at all.

The Wisconsin Supreme Court ruled that a property tax assessment of leased retail property using the income approach must be based on “market rents," which is what a company would pay to rent the property, based on rentals of similar property. The city of Madison, Wisconsin argued before the court that retail assessments should be based on “contract rents," which is the amount that the company actually paid to rent the property.

But the League of Wisconsin Municipalities (LWM) is pushing back. The group has called this tax loophole movement “a carefully-orchestrated wave of lawsuits… forcing assessors to slash the market value of thriving national retail stores, shifting their tax burden to local mom and pop shops and to their home-owning customers.” The LWM is backing legislation at the state level that prohibits assessors from valuing thriving stores the same as abandoned ones.

The League warns, “ If the Legislature fails to close theses loopholes, we estimate that millions of dollars in property taxes will shift from large commercial properties to homeowners and other taxpayers over the next few years.” In Wisconsin, homeowners already bear 70% of the property tax burden.

Big Box stores in many states have exploited this Dark Store loophole. The battle in Wisconsin is not unique. According to Governing magazine, Michigan localities have taken a Dark Store hit, and counties in Alabama, Florida and Indiana are watching their property tax base erode. The National Association of Counties tags this as a growing challenge in Iowa, North Carolina, Ohio, Tennessee, Washington and Wisconsin.

The Dark Store bill, LRB-0373, now in the Wisconsin legislature, is modeled after similar legislation passed by Michigan and Indiana in 2016. “The bill clarifies that when assessors use sales of comparable properties for determining the value of a property they must use properties that are within the same market segment and similar to the property being assessed with regard to age, condition, use, type of construction, location, design, and economic characteristics,” the LWM says. “The bill explicitly provides that assessors may not use a dark store as a comparable for property that is not dark or vacant.”

The city of Janesville, Wisconsin, where U.S. House Speaker Paul Ryan lives, has been served with 20 Dark Store lawsuits in the past six years, and has had to refund taxes in seven of those cases. This Dark Store battle is an issue that appears to have strong bipartisan support, with Republicans leading as sponsors in the state legislature.

Last month, the Common Council of Janesville unanimously adopted a resolution similar to 46 other villages, towns, cities and counties in Wisconsin, “urging the Governor and Legislature to close loopholes that shift a greater property tax burden from commercial to residential properties.” The resolution says “lawsuits in Wisconsin are forcing assessors to reduce the market value of thriving national chain stores, shifting the tax burden to local businesses and home owners.” The resolution urges “the Governor and Legislature to protect local businesses and home owners from having more of the property tax burden shifted to them by passing legislation that allows for leases to be appropriately factored into the valuation of leased properties.”

Most communities don’t have deep enough pockets to challenge a Dark Store lawsuit. Wealthy companies like Wal-Mart show no shame in trying to push costs onto small homeowners in towns where their stores are thriving. Corporate America lives off of such loopholes.

The Dark Store loophole is just one more glimpse into the dark side of Big Box greed.

Al Norman founded Sprawl-Busters in 1993. He has been helping communities fight Big Boxes for nearly 25 years. His most recent book is Occupy Wal-Mart.

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