Sometimes it pays to look a gift horse in the mouth. Even a cheap gift horse.
In October of 2007, a group called Good Jobs First released a report titled Rolling Back Property Tax Payments, which charged that Walmart methodically plotted to lower its property taxes by challenging the assessments of its stores and distribution centers.
The group said Walmart "drains vitally needed funds from communities by regularly challenging the valuation put on its properties by public officials. When the company succeeds in one of these challenges, it diminishes the funds available to pay for education, police and fire protection, and other essential services provided by local governments."
Based on a national sample of Walmart stores and distribution centers as of the beginning of 2005, Walmart had filed assessment challenges at more than one-third of its facilities around the country. At many facilities there were appeals over multiple years. Good Jobs First estimated that Walmart had filed more than 2,100 property tax challenges nationwide.
"These systematic property tax challenges are part of a larger pattern of state and local tax avoidance by Wal-Mart," GJF noted. "They are consistent with the company's reported use of a real estate investment trust gimmick to dodge income taxes in many states."
The Good Jobs First report found that the Walmart had won a total of about $30 million from those appeals over a decade. Although Walmart's campaign to rollback its property tax payments has been blunted in some states, the company has won big tax cuts in certain individual communities. In 2004, for example, Walmart asked that the assessment of its distribution center in Tomah, Wisconsin be lowered from $43.6 million to $23 million. The city settled the matter by agreeing to drop the assessment to $31.4 million and refunding the retailer more than $300,000 for each of three years -- a total of $949,000 in lost revenues to the city.
This week, a report by Fox 6 News in Milwaukee, Wisconsin concluded that "local municipalities are losing millions each year, and thousands of dollars are being spent on legal fees" due to property tax abatements filed by big box stores like Walmart, Target, Nordstrom and Lowe's.
The Mayor of Wauwatosa, Wisconsin, Kathleen Ehley, went so far as to say that big box stores were bad business for local cities and towns. "It would make me very hesitant to support a big box coming in," Mayor Ehley admitted. Her community is facing no less than 12 big box property tax appeals. Wautatosa has spent $1.1 million in legal fees to fight these appeals over the last 4 years.
Wauwatosa has been sued by Target, Lowe's and Firestone, using a scam called "the dark store theory." Big box stores are pressuring local assessors to value their property the same as a closed store. "Now all of a sudden,' one assessor told Fox 6, "just for property tax purposes, we have to consider using sales of vacant or abandoned locations as evidence of value for good-thriving locations. If municipalities begin lowering values because of this dark store strategy, there will be a shift in taxes."
Lawyers for the big box stores argue that operating stores should be assessed like similar-sized stores that have closed down. In Pleasant Prairie, Wisconsin, Target built a store a decade ago for $16 million, but now the retailer wants the village to value it at $6.5 million, roughly half of what the assessors think its worth. The typical residential taxpayer in Pleasant Prairie would see their taxes rise by $900 if Target wins its case.
It is absurd for big box stores to steal from local communities by saying a store that is performing well should be taxed at the same market value as an empty store. When a Walmart shuts down and goes on the market, it will sell for a lot less. Sometimes they have to give the store away and take a tax write-off. Sometimes towns have to tear the store down at their expense. But a live store is worth much more than a dead one.
"Intuitively it doesn't make any sense," an official with the League of Wisconsin Municipalities told Fox 6. In locations where Walmart or other big boxes rent their space, the rent charged to an open store is much higher than a dead store. The landlord charges the store a flat base rent, plus a rent tied to the level of sales at the location. Higher sales, higher rent. In cases where the big box owns the building, the value of their property should include a market factor based on sales. When the store is closed, only then should their tax bill be lowered due to reduced sales output.
The city of Wauwatosa is under siege. Local officials are draining property tax revenues defending their assessments. Companies like Walmart sucker local communities into providing a candy store of incentives -- like infrastructure grants, tax incremental financing, and sales tax rebates -- and then turn around and appeal their property tax assessments.
Most Mayors in America think they've won a gift horse when Walmart rolls into town. But inside the gift horse is a tax abatement.
"People do need to be aware of this," Mayor Kathleen Ehley warns.
Al Norman is the founder of Sprawl-Busters. He has been helping communities fight big box sprawl since 1993. His latest book is Occupy Walmart.