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Connecticut Today
Dec 24, 2014 08:49 AM
Love Target’s Prices? How About Big Box
Stores' Property Tax Appeals?
BY CHRISTOPHER HOFFMAN
Several years ago, Newington Assessor S. Steven Juda become concerned about the growing flood
of property tax appeals swamping his and other towns.
Juda, widely recognized by his peers as one of the state’s ablest assessors, began doing what he
does best: collecting and analyzing data.
The results were sobering. Connecticut municipalities are hemorrhaging at least $20 million of tax
revenue a year from unjustified tax appeals, an amount equal to the annual budgets of the many
medium-sized towns, Juda found.
“The number is probably greater than that,” Juda says. “It’s getting worse. Every time I go to (tax)
court, I see assessors from other towns.”
Manchester Assessor John Rainaldi, president of the Connecticut Association of Assessing
Officers, calls Juda’s figure accurate. He added at least another $200,000 a year is spent statewide
fighting unwarranted tax appeals.
“It comes up all the time at our meetings,” Rainaldi says. “What can be done about it? It’s a major
concern and a major issue.”
“It’s an Industry”
Once primarily the province of anti-tax ideologues and skinflints, local tax appeals have become big
business in Connecticut and nationwide. In Connecticut alone, tax representatives—companies that
specialize in bringing tax appeals—and lawyers earn millions of dollars a year challenging local
assessments.
The state law firm of Pullman & Comley, for example, whose clients include Target and Walgreens,
employs four attorneys in a separate tax appeal division. Joseph C. Sansone Company, a
Missouri-based tax representative that operates nationwide, does so much business in Connecticut
that it has a satellite office in Hartford.
“It’s absolutely an industry nationwide,” West Hartford Assessor Joseph Dakers Sr. says.
Both law firms and tax representatives openly recruit clients. Pullman & Comley sends emails to
prospective customers already known to the firm. Sansone routinely uses the Freedom of
Information Act to obtain a list of commercial property owners in towns undergoing revaluation,
assessors say. It then blitzes taxpayers with letters and sometimes phone calls offering to reduce
their taxes.
The offers are hard to resist because Sansone and other tax representatives charge taxpayers
nothing up front, assessors say. The client only pays if the tax representative wins a reduction, the
fee typically being a third to half of any savings.
By working on contingency, tax representatives can swamp a town with questionable tax appeals at
very little cost to them and none to their clients, assessors complain. Unable to litigate so many
cases, assessors say they have no choice but to settle, even if appeals are meritless.
“Tax representatives can be very, very frustrating for assessors,” says Colchester assessor John
Chaponis, who tries to resist them. “My feeling is that they don’t care about fair market value at all,
but rather what kind of reduction they can get for doing as little work as possible so they can charge
a fee.”
Joseph C. Sansone Company did not respond to requests for comment for this article. Extax
Consulting Group, LLC, of Massachusetts, another tax representative active in the state, also
declined comment.
Big Tax Breaks for Big Corporations, None for Homeowners
Tax representatives aren’t the only problem, assessors say. Many large corporations, including
Target and Walgreens, routinely appeal assessments, a practice viewed as a tax avoidance strategy
instead of a dispute over value. Stop & Shop, Lowe’s and Home Depot also frequently sue to lower
property values, court records show.
Assessors say that even before values are set, they can predict with 80 or 90 percent accuracy what
businesses will appeal.
“An assessor is never always right,” Juda says. “But having said that, an assessor isn’t always
wrong either. And the presumption by all these appeals is that the assessors in all these
communities are always wrong.”
Target, for example, has appealed the assessments on 13 of its 20 Connecticut stores since 2007,
winning reductions that have slashed its yearly local tax bill by hundreds of thousands of dollars.
Asked to comment on its tax appeal policies, Target spokesman Evan Lapiska said in a written
statement that the Minnesota-based company “pays its fair share of taxes and utilizes available
appeal procedures, when necessary, to ensure our properties are assessed at fair market value.”
Facing deep-pocketed corporations, big potential legal bills, years of delay and pressure from the
courts to avoid trials, assessors say they have no choice but to settle in all but the most egregious
cases. Juda estimates that 95 percent of appeals result in reductions, justified or not.
That’s an argument that attorney Elliott Pollack of Pullman and Comley, whose firm has saved
Target, Walgreens and others hundreds of thousands of dollars through tax appeals, does not buy.
His clients’ appeals are backed by data and have merit, he claims. He says assessors should go to
trial if they believe reductions are unjustified.
“If they feel their numbers are correct, why do they settle?” Pollack says. “Value is an art as well as
science. Tax appeals begin where the science ends.”
While tax representatives and lawyers may be saving corporate America millions of dollars every
year, don’t expect them to knock on the door of your house any time soon. Appealing home
assessments typically costs more than the potential savings, making them unattractive to tax-appeal
specialists.
Meanwhile, homeowners and businesses get left holding the bag for successful appeals.
“For every stipulated judgment granting a reduction, a tax increase gets passed on to every other
taxpayer in my town,” Chaponis says.
“We Feel that the Deck is Stacked Against Us”
Assessors’ biggest complaint is the failure of the Tax and Administrative Appeals Court in the New
Britain Superior Court to make taxpayers provide documentation that municipal values are wrong.
During early pretrial conferences, judges do not require plaintiffs to present formal appraisals or
detailed rebuttals of assessments. Instead, they let them submit rudimentary, often deeply flawed
“analyses” supported by little or no data and prepared by un- or under-qualified consultants,
according to assessors.
Judges give these often questionable values the same credence as the town’s carefully calculated
and voluminously documented assessments and then try to get the parties to meet in the middle.
That effectively flips the burden of proof from the taxpayer, where the law puts it, to the town, say
assessors.
“We feel that the deck is stacked against us,” Bethel assessor Ann Marie Heering says. “Mine should
be considered right until it’s proven wrong, and that’s what the law says it should be.”
Assessors say the court will order taxpayers to provide appraisals, but only when initial talks fail and
cases appear headed to trial.
Judges also let out-of-state appraisers unlicensed in Connecticut and brought in for the day by
Sansone and other tax representatives render opinions on value. That’s a possible violation of state
law because appraisers must be licensed in Connecticut to do appraisals here. The practice also
raises ethical issues because appraisers are prohibited from working on contingency, the basis of
many tax representatives’ business.
Juda and other assessors add that tax court judges are otherwise knowledgeable, fair and do a good
job. But some assessors and lawyers who defend towns in tax appeals avoid the New Britain tax
court, saying local courts are quicker to compel taxpayers to present hard evidence.
“New Britain is a problem for us,” says Milford assessor Dan Thomas, who tries to keep his cases in
the Ansonia-Milford district.
New London attorney Jeffrey Londregan, who defends towns in tax appeal cases, also avoids the
New Britain tax court. He has won relatively quick dismissals of three tax appeals since 2013 when
Sam’s Food Stores failed to respond to local judges’ orders to present documentation that municipal
assessments were wrong. Chaponis got a Sam’s appeal in Colchester tossed using the same
approach.
The appeals were among 61 affecting at least 67 properties that Sam’s, through attorney Michael D.
Reiner, one of the state’s most prolific tax appeal filers, has brought since 2012.
“My client didn’t respond in the time required by the court,” says Reiner, who works for tax
representatives and himself and defended his client’s many appeals as based on solid evidence. “It
was an oversight and as a result the court dismissed the cases.”
Reiner, who declines to say whether he is working for a tax representative in the Sam’s cases, has
won the Wethersfield-based chain reductions in 32 of the cases so far, lowering its taxes by tens of
thousands of dollars a year, court records show.
Asked for comment on assessors’ concerns, Chief Court Administrator Patrick L. Carroll III calls the
New Britain tax court “a success.”
“Much of the feedback has been positive, as parties are able to have their matter addressed quickly,”
Carroll said in a prepared statement. “I should note that if the parties choose not to settle, they
always have the option of going to trial.”
Solutions
Assessors suggest much could be done to discourage abusive tax appeals: outlaw tax appeals on
contingency; require taxpayers to provide appraisals or in-depth rebuttals before pretrial
conferences; and enforce rules governing appraisers.
Other proposals include a separate court system for tax appeals at which judges would have
independent real estate appraisers at their disposal.
“Both parties would go into a situation where the court is staffed with real estate appraisal
professionals who are knowledgeable in all areas and could lend credibility to one side or the other,”
says Juda.
Absent change, however, the steady erosion of local tax revenue will likely continue, assessors
warn.
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Walgreens and CVS declare war on property taxes
March 05, 2015
(Bloomberg) — Walgreens boasts convenient locations, a wide array of products, and a killer tax strategy.
When it works, local tax officials warn, kids and homeowners suffer.
In the fall of 2012, county tax officials across Kentucky began preparing for a clash with the pharmacy chain,
which operates thousands of stores in the U.S. and has a market value of more than $90 billion. Walgreens was
challenging its tax assessments at stores across the state. If the company won, the assessors feared, other
national retailers would follow suit, threatening the budgets of already struggling school districts.
“If you start losing the tax assessments on all of these leases, the cost is going to be hundreds of millions of
dollars,” said David O’Neill, the property valuation administrator in Fayette County.
CHIPPING IN
The tax people rallied. Workers in the state's largest counties compiled a report on Walgreens' strategy and
circulated it to smaller tax offices. When the Deerfield-based chain asked a state court to halve the taxes on a
drugstore in Lexington, the assessors passed the hat. Kentucky school districts, which receive about two-thirds
of property tax revenue, chipped in $26,000 so the county could afford to hire expert witnesses.
Last month, a Kentucky circuit court judge ruled in favor of Fayette County, which includes Lexington,
concluding the latest skirmish in a long-running battle between national drugstore chains and tax assessors.
Walgreens declined to say if the company would appeal the ruling.
Walgreens, CVS, and other big drugstore chains have been challenging property tax assessments in courts
around the country for the past decade, with little national notice. They argue, sometimes successfully, that the
rent they pay their commercial landlords doesn't accurately reflect property values. When they win, they get
their tax bill slashed.
HERE'S HOW IT WORKS
Most national retailers would rather rent their stores than tie up billions of dollars in real estate. Walgreens
leased 80 percent of its 8,300 stores as of August 2014, according to company filings. CVS owned just 5
percent of its 7,800 stores as of the end of last year.
The basic idea is to rent stores under contracts, called net leases, that make the tenants—the
drugstores—responsible for property taxes and other expenses. To compensate the investors who sink cash
into the real estate, Walgreens and other retailers pay rents that include a premium above the cost of building
the store. Once the stores are occupied, net leases often trade between investors.
It's a hefty market. About $45 billion in net leases for U.S. properties changed hands in 2014, according to Will
Pike, a senior vice president at commercial real estate firm CBRE.
In tax board and judicial appeals that have sought to cut levies by more than 50 percent, Walgreens and CVS
have argued that the price investors will pay to own a drugstore lease is the wrong tool for determining the tax.
Instead, they argue, the assessments should hinge on the amount the landlord could get if the drugstore moved
out and another retailer moved in. That would lower the assessment because the pharmacy chains have proved
willing to pay higher rents than other tenants.
So the same premium that entices investors to buy the net leases gives the drugstores leverage in their tax
arguments.
ONLY FAIR?
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4/28/2016
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The chains say it's only fair. They complain that counties are taxing corporate debt instead of sticks, bricks, and
mud—assessors' slang for land and buildings.
"We’ve become more concerned in recent years with the use of valuation methodologies based on the value of
our long-term leases in addition to the value of the real estate itself," said Phil Caruso, a spokesman for
Walgreens.
“CVS Health is committed to being a good corporate citizen in the communities we serve and to paying our fair
share of property tax,” said Mike DeAngelis, director of public relations for the company.
The strategy has met with mixed results. In Florida and New York, where Rite Aid has challenged its
assessments, courts have rejected the net lease argument. Wisconsin has ruled in favor of pharmacies. Tax
assessors scored in the Ohio courts but saw their points erased when the state's legislature revised the tax law
in the pharmacies' favor.
A LOT AT STAKE
Commercial property taxes fund public schools, roads, and other infrastructure in many states. Big box stores
and other national retailers have tried out the drugstores' argument, said Tim Wilmath, a tax assessor in
Hillsborough County, Fla., whose office won a state court case against CVS in 2013. But the pharmacy chains
have the most at stake. That's because of the premium they're willing to pay for stores in busy locations, and
because they lease a lot of stores, relative to other retailers.
"If they can sell the argument, they reap tremendous reward," Wilmath said.
KENTUCKY CASE
In 2005, Walgreens made a deal with a local developer to lease a drugstore on the site of a former Howard
Johnson hotel on Nicholasville Road, a seven-lane thoroughfare that carries commuters past the University of
Kentucky Medical Center and into the city's downtown. Two years later, the developer sold the lease—which
required the pharmacy to pay $33,500 a month for at least 25 years—to an investor for $6.3 million.
O’Neill, the tax assessor, used that price to value the store at $5.1 million in 2012. That figure was based on an
agreement between Walgreens and a previous assessor to value stores below the sale price of the lease in
order to avoid a formal appeal, O'Neill said.
But Walgreens argued that number was too high, because it included a return on investment for the developer.
“Walgreens pays rent that is in excess of market because this business arrangement is, in essence, a financing
mechanism,” the company argued in a legal brief.
Amid the disagreement, lawyers on both sides have sought the higher moral ground.
“In Kentucky, the school districts are hungry for money, big time,” said Robert Hill, a Maplewood, Minn.-based
lawyer who has represented both Walgreens and CVS in property tax cases. “The assessors want to make it so
if you’re a national chain, you subsidize everyone else.”
'OUTRAGED'
Amy Seibel, a Mequon, Wis., lawyer who has represented tax assessors against the pharmacy chains, says
homeowners can expect their tax assessments to rise as counties try to make up for lost revenue.
“The average homeowner is outraged when you tell them what’s happening,” she said.
The chains will keep fighting. Walgreens spent five years battling the tax assessment on a Madison, Wisc.,
drugstore before winning a state Supreme Court judgment in 2008. In Fayette County, even if the recent ruling
stands, the county probably won't be done grappling with the pharmacy chains.
As Wilmath, the Florida assessor, puts it: “Walgreens and CVS are very, very aggressive in their property tax
appeals.”
http://www.chicagobusiness.com/article/20150305/NEWS07/150309863?template=printart
4/28/2016
DECEMBER 10, 2015
Ozaukee
Still undefeated
Grafton girls make their
presence known in game
against Messmer High School.
~,,,.
Page B I
County
Coming Ttiesday
The Cedarburg American
Legion Post and the Auxiliary
host their annual Christmas
party for Clement J. Zablocki
VA veterans.
A 'dark' tax strategy
Tax strategies get big
box stores tax breaks
up to 50 percent
By Melanie Boyung
News Graphic Staff
GRAFTON - If "dark store"
assessing spreads to Grafton, it
could cost the village hundreds of
thousands of dollars in taxes.
So the Village Board Monday
formally asked the state and Gov.
Scott Walker to close the loopholes
within tax law that allow for some
national chain retailers and pharmacies cutting their tax bills,
sometimes in half.
"There's always somebody trying to work through a loophole,"
said Jim Brunnquell, village
board president.
The factors used in assessing
property taxes are set by state law,
and for commercial properties in
Wisconsin include purchase value
of the land, construction cost of
facilities, recent comparable land
sales and the income generated by
the business, among others.
Large-scale retailers are arguing
that income should not be a factor
- that the assessment on an operating business should be equal to
that of a similar, but vacant,
building: the dark store.
"Some of these national, commercial retailers are asking the
assessor not to use income, which
is typically the key basis for that
property (assessment)," said
Village Administrator Darrell
Hofland.
Hofland prepared a report for
the board's resolution using infor- ·
mation from the League of
Wisconsin Municipalities. The
report said retailers are arguing
File photo
that their assessment should The Grafton Meijer store opened in June; the company has used the "dark
equal that of dark stores because
their properties would never sell store" tax strategy in other states, including its base-state, Michigan.
for their actual construction costs competitors after they are gone.
The village of Pleasant Prairie
on the open market; many retail"We did receive a visit from in Kenosha County made a settleers have facilities built specifical- corporate staff at Meijer within a ment agreement with Target in
ly for their stores' needs that oth- week or two of them opening their September, based on the dark
ers would not require, or place store, wanting the village to store theory: Pleasant Prairie
deed restrictions on the property adhere to this dark store theory,"
that it cannot be sold to direct Hofland said.
See LOOPHOLE, Page A4
IIIUI.OUO:J,
L...o'VVVIII.._,.._..,
..&..'-''
_ _ .....__
Loophole: Court orders
Oshkosh to pay Walgreens
$69,549 tax refund
ally, and CVS about 95 percent of theirs. The companies
contract with developAdministrator
Mike
Pollocoff published an arti- ers to have stores built to
cle on the matter in the vil- highly specific standards
lage newsletter; it was also and then lease for an
reprinted in the LWM publi- amount including rent, concation "Municipality" this struction · costs, property
taxes and operating costs.
month.
Pleasant Prairie agreed They have argued that the
to give the Target there - properties' value for tax reajust one store - a $118,946.56 sons should not be based on
refund based on three years' what investors will pay to
worth of valuation. Whereas own a drugstore lease, but
the village had valued the what landlords could get if
business at between $12 mil- the drugstore left and
lion and $14 million from another business moved in,
2012 and 2014, Target argued because other retailers genit should be valued at $6.6 erally pay much less.
The Winnebago Circuit
million, based on the assessments of similar but aban- Court recently ruled in
doned
properties
in favor of an Oshkosh
Walgreens, ordering the
Kenosha County.
Pollocoffs said Pleasant city of Oshkosh to pay the
Walgreens a $69,549 tax
Prairie settled at a valua- refund,
according
to
tion of about $10.78 million Hofland's report.
to avoid rising litigation
For many communities,
costs.
property taxes are the main
While these tax argu- revenue source for commuments are relatively new in nity services and programWisconsin,
they
have ming. If municipalities are
already taken hold in other forced to honor these tax
states.
The
Michigan strategies that cause drastic
Association of County decreases in commercial
Treasures estimated that property taxes, that would
court rulings upholding the equate to tax burden shifts
lower assessments have cost to residential properties
communities across the and decreased municipal
state nearly $75 million in budgets.
taxes.
Legislation has been
"Some
communities introduced in Michigan that
have actually been engaged would close the loopholes;
in litigation with these the Republican-controlled
national chains, as the com- Indiana Legislature recentmercial property owners as ly passed a new law with
for significant discounts," strong bipartisan support
Hofland said.
prohibiting assessors from
The other assessment valuing new or operating
technique being used, triple box stores the same as nearnet
lease,
has
been by abandoned stores. ·The
employed with success in Grafton resolution asks
Wisconsin. Walgreens and Wisconsin lawmakers to folCVS stores across the state low that lead.
have argued that their tax
"The thought is that our
bill should be only half of state legislature needs to
what they are paying address this issue sooner
because they rent buildings than later, in light of the
rather than own them, and lawsuits that are already
the rent they pay does not out there in communities
Wisconsin,"
accurately reflect property around
Hofland told the board.
values.
Statistics in Hofland's
(Melanie Boyung can be
report
showed
that
Walgreens leased about 80 reached at mboyung@conpercent of its stores nation- leynet.com.)
Continued from Page A1
Big box stores ringing up property tax
discounts
By Paul Egan, Detroit Free Press 11:17 p.m. EDT April 11, 2015
A dispute playing out not just in
Michigan but across the country
centers around how big box stores
are valued for property tax purposes.
LANSING – Local governments in Michigan
say they are losing millions of dollars in
property taxes and facing cuts in services to
residents because of a series of tax tribunal
and state court decisions in which "big box" stores such as Lowe's and Home Depot are
getting their assessments slashed, sometimes by 50% or more.
In Mason County, a Meijer, a Home Depot and a Lowe's have each successfully
appealed their assessments and reduced their combined assessments from $12.6
million to $5.9 million, resulting in lost tax revenue of nearly $300,000, according to
county records.
In Ottawa County, big box appeals have resulted in $14.8 million in lost assessment
since 2010 and an additional $15.8 million in assessment is at risk, said Michael
Galligan, director of the equalization department. So far, the revenue lost to all taxing
authorities is about $745,000 and another $612,000 in tax revenue is at risk, Galligan
said.
Such disputes — which are playing out not just in Michigan but across the country —
center on how the owner-occupied stores are valued for tax purposes.
Michigan has three accepted methods of determining a property's "true cash value," or
fair market value: comparable sales, the cost of construction less depreciation, and how
much income a property produces.
Townships, cities and counties generally want to value big box stores based on
construction costs.
The store owners generally want to use comparable sales. And since they wouldn't sell
their stores to other retailers, they say assessors should look at sales of stores that
have gone out of business and are vacant, since that's the only way they would ever
come on the market. It's known as the "dark store" approach to valuing the stores.
"The problem with the situation is it feels like large retail stores are being assessed as if
they're failures ... and it's not so," said Howard Feyen, assessor for Holland Township in
western Michigan.
"A brand-new Walmart is worth the same as a boarded-up Kmart?" asked Deena
Bosworth, director of governmental affairs for the Michigan Association of Counties. "I
don't think so."
Successful big box stores, of which there are many, rarely, if ever, come on the market,
so local assessors say they don't have comparable sales to use when pegging them
with a "true cash value" for assessment purposes. That's why they say they've
historically used the cost approach.
But attorney Michael Shapiro, a partner in the Honigman law firm in Detroit who has
tried or argued dozens of such cases before the Michigan Tax Tribunal and the
Michigan Court of Appeals and has settled hundreds of others on behalf of the property
owners, said assessors shouldn't confuse the value of a business with the value of a
building.
"The case law," right up to the U.S. Supreme Court, "says that the true cash value of a
property is unaffected by who owns or who uses the property," Shapiro told the Free
Press.
But in Marquette Township in the Upper Peninsula — which spent millions over several
years extending services to a commercial area where several big box stores are located
— officials feel blindsided by the decisions, which have severely reduced the property
tax revenues that were going to pay for those services, said Randell Girard, the
township manager.
The township has lost $205,000 a year in property taxes and paid $280,000 in legal
fees fighting the decisions, Girard said. Reduced millage revenues have already forced
the library to reduce its hours and more cuts can be expected in recreation, senior
services, and other areas, he said.
"Residents won't see the large impact for probably two to three years when this all
catches up and fund balances have been drained," Girard said.
The situation is complicated by deed restrictions often placed on big box stores when
retailers close one outlet to open a larger one nearby, but restrict how the old store can
be used so the buyer doesn't compete with its new, larger outlet.
That's what Target did in October 2012 when it closed one store on Baldwin Street in
Grandville, the same day it opened a larger, 135,000-square-foot store in the same city,
on 44th Street SW.
It also happened in Muskegon in 2007, when Target closed its outlet in the city and
opened a larger, 127,000-square-foot outlet less than 4 miles away in suburban Norton
Shores. The old Target, which has deed restrictions attached to its sale, "has been
sitting vacant" ever since, said Donna VanderVries, an attorney and appraiser who is
equalization director for Muskegon County.
In Madison Heights in 2005, Sam's Club closed its outlet on 14 Mile Road and moved to
a larger store at 13 Mile and John R. The shuttered Sam's Club, which had deed
restrictions, sat vacant for years and was the proposed site for a go-kart track before it
went to industrial use — Shannon Precision Fastener opened there in 2012.
The deed restrictions placed on vacant big box stores reduce their value and those
sales shouldn't be used as comparisons when determining the value of similar stores
still in business, local officials say.
Shapiro said deed-restricted sales are sometimes included in the sales comparisons big
box stores use to get their assessments reduced, but the deed restrictions in those
cases did not adversely affect the selling price because they "were formulated to satisfy
the buyer's use of the property."
There's no legal definition of a big box store. But it's generally agreed the term applies
to owner-occupied retail stores that are about 76,000 square feet or bigger.
Jack Van Coevering, a Grand Rapids attorney who represents local governments, said
both the tax tribunal and the Michigan Court of Appeals have historically upheld the cost
approach to determining the stores' values. But he said that has been changing in
recent years at the level of the Michigan Tax Tribunal — an administrative court made
up of attorneys, accountants, assessors and appraisers, appointed by the governor to
hear assessment appeals.
Last year, the Michigan Court of Appeals upheld a case in favor of retailers Lowe's and
Home Depot after Marquette and Breitung townships appealed Michigan Tax Tribunal
decisions in favor of the big box outlets. In December, the Michigan Supreme Court
refused to hear an appeal from the local governments.
The tribunal had slashed the 2012 taxable value — which is calculated as half of the
market value — of the Lowe's store by about 63%, to $1.9 million, from the $5.2 million
assessed by Marquette Township.
The tribunal reduced the 2011 taxable value of the Home Depot by 59%, to $1.2 million,
from the $2.9 million assessed by Breitung Township.
"Valuing the subject properties as vacant and available for sale, as opposed to
occupied, constituted a proper valuation," said the Court of Appeals panel composed of
Judges Donald Owens, Christopher Murray and Michael Riordan.
"Whether the businesses operating on the properties were successful and had no
intention of closing their doors is not relevant to determining the TCV (true cash value)
of the property."
Local governments say the financial impact of such decisions is enormous. Van
Coevering said the appeals, and settlements local governments are making rather than
fighting appeals, are easily costing local treasuries and school districts tens of millions
of dollars a year statewide.
In Marquette County, administrator Scott Erbisch estimates a $1.1-million hit would be
felt if all 20 "big box" stores in the county successfully took a similar approach, reducing
taxable value from $39.3 million to $13.4 million.
The valuation of big box stores is also a live issue in other states. Van Coevering says
some states are backing the cost approach to establishing values favored by local
governments, but Shapiro said the relevant laws vary from state to state so what
happens elsewhere isn't directly relevant to Michigan.
In neighboring Indiana, the Board of Tax Review, after hearing similar arguments, ruled
that an Indianapolis Meijer store should have been assessed in 2012 at about $30 per
square foot, less than half the value assigned to it by local officials.
Ft. Wayne attorney Mark GiaQuinta told the Associated Press that if the decision there
is allowed to stand, other large operations "will be valued as a flea market."
Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter
@paulegan4.
For Cities, Big-Box Stores Are Becoming
Even More of a Terrible Deal
Olivia LaVecchia , Jun 16, 2015
Big-box retailers’ new tactic to
slash their taxes is the latest
example of why cities are better
off saying no to the boxes and
cultivating Main Streets instead.
In February, the library in Marquette, Mich.,
announced that it was cutting its hours.
It wasn’t that its Sunday programming was
any less popular, or that it had gotten the
short end of the stick in next year’s budget
planning. Instead, thanks to a new method that big-box stores are using to game the tax system,
Marquette Township owed a $755,828.71 tax refund to the home improvement chain Lowe’s.
Essential services like the library, the school district, and the fire department were on the hook to
pay for it.
The Peter White Public Library would now be closed on Sundays.
Marquette has been hit hard by a tactic that the country’s biggest retailers are using to slash their
property taxes. Known as the “dark store” method, it exemplifies the systematic way that these
chains extract money from local governments. It’s also the latest example of the way that, even
as local governments across the country continue to bend over backwards to attract and
accommodate big-box development, these stores are consistently a terrible deal for the towns and
cities where they locate.
Marquette is one of the countless places that has bought into big-box economic development.
Over the years, the township in the Upper Peninsula of Michigan spent millions extending water
mains, law enforcement, and other infrastructure and services to its big-box commercial corridor
along U.S. 41. When the Lowe’s opened there in 2008, local officials including the mayor turned
out for a “board-cutting” ceremony—the home improvement center version of a ribbon-cutting.
Then, less than two years later, Lowe’s flipped the script. The mega-retailer, which reports
annual net sales of about $50 billion, went to tax court to appeal its property tax assessment.
Marquette had pegged the taxable value of the store, which had just been built for $10 million, at
$5.2 million. In front of the Michigan Tax Tribunal, an administrative court whose members are
appointed by the state governor, Lowe’s won assessments that were, instead, $2.4 million in
2010, $2 million in 2011, and $1.5 million in 2012.
“We honestly thought there had been a mistake,” says Dulcee Atherton, the assessor for
Marquette Township. “We had the building permits that said it was worth $10 million. We
couldn’t believe the audacity, really.”
What was worse was the methodology that Lowe’s, and the tax tribunal, had used to arrive at the
lower figures.
Figuring out the value of a property can be a complicated business. In Michigan, town and
county assessors typically use a property’s construction costs, minus depreciation, as a primary
metric to determine its fair market value; taxable value is half that amount. Property owners
sometimes prefer, instead, to use the sale prices of comparable properties. This was the approach
that Lowe’s took—with a catch. Lowe’s looked at the definition of the word “comparable,” and
decided to stretch it. It said that, because big-box stores are designed to be functionally
obsolescent, that comparable stores are those that have been closed and are sitting empty—the
“dark stores” behind this method’s name.
“Unlike many other commercial properties,” the assessor hired by Lowe’s argued in court, “free
standing ‘big-box’ stores like the subject [property] are not constructed for the purpose of
thereafter selling or leasing the property in the marketplace.”
It’s an established part of the big-box retail model that the boxes themselves be custom-built,
cheaply constructed, and disposable. If retailers decide that they need a bigger space, it’s cheaper
for them to leave the old one behind and build a new one. When Walmart, for instance, opened
its wave of new, twice-the-size Supercenters across the country in 2007, it left hundreds of
vacant stores behind it. This means that new, successful stores like the Marquette Lowe’s are
rarely the locations that are up for sale, and that when big-box stores do come on the market, it’s
because they’ve already failed or been abandoned by the retailer that built them. In other words,
Lowe’s was saying, it had built a property that, despite generating roughly $30 million in annual
sales for the company, had very little value, and because of that, it should get a break in its
property taxes.
Lowe’s went a step further. The properties that it offered up for comparison were properties that
had been affected by another big-box retail tactic: deed restrictions. When big-box retailers are
ready to move on to a new location, they often place these restrictions on the properties they
leave behind. Designed to ensure that whoever buys the property won’t become a competitor,
these restrictions limit how the store can be used, down to lists of specific items that the new
occupant is banned from selling. In effect, they prevent most other retailers from moving into
spaces designed specifically for retail, and so depress the values of these properties even
further.*
One of the comparables used by Lowe’s, for instance, was a big-box store that, because of deed
restrictions that kept out retail, had been partially converted into a go-kart track—a much less
valuable use for that property. Marquette appealed the ruling, but the Michigan Court of Appeals
sided with the tax tribunal, and in Dec. 2014, the Michigan Supreme Court announced that it
would not hear the case.
Now, following the lead of Lowe’s, about 12 other large retail chains in Marquette have
appealed their own assessments to the Michigan Tax Tribunal. These cases don’t just affect
property tax revenue going forward, but can also force towns to rebate taxes already paid. So far,
Marquette has had to refund over $1.5 million in taxes, money that it had already collected,
allocated, and spent. The tribunal appears “likely” to rule in favor of the remaining cases, reports
WNMU Public Radio. If that happens, the public services that are funded with tax dollars would
have to refund big-box chains as much as $1.9 million in 2015. “This could spread like wildfire,”
State Rep. John Kivela told the radio station.
It already is. In Ottawa County, Mich., for instance, big-box stores have lowered their
assessments by $14.8 million. Statewide, in the last three years alone, the reduction in property
taxes as stores bring appeals based on the “dark store” method has been $47 million, according
to the Michigan Association of Counties. Once that revenue stream is lost, it’s lost for good. A
Michigan law known as Proposal A dictates that, barring major changes to a property, increases
in the taxable value of that property are capped at either 5 percent or the rate of inflation.
“That’s a staggering amount of money that’s been paid back,” says Scott Erbisch, the Marquette
County Administrator. “It’s tens of millions of dollars being lost throughout the state, and once
it’s gone it’s gone. It will take decades to get it back up to these levels.”
Dark Store Tactic Moves Beyond Michigan
Michigan assessors are now fielding calls from officials in other states concerned about the same
thing happening to them. Already, the dark store approach has struck across the border, in
Indiana.
After winning assessments in Michigan, the chain retailer Meijer brought a case at one of its
most successful Indiana locations, and argued that the thriving store should be valued based on a
shuttered Lowe’s and three abandoned Walmarts. Meijer got its store’s assessment slashed from
$83 per square foot to $30 per square foot, and litigated the case retroactively, so that it extended
back over a nine-year period. Now Marion County, where the store is located, is facing a refund
of $2.4 million to Meijer.
In this case, Meijer’s lawyer was clear that this is the first play in a broader strategy. “We
thought Marion County would be a good county to take a test case,” lawyer Stephen Paul told the
Indianapolis Business Journal. “We picked a relatively successful store. Whatever the value is
there would be the upper limit of the value across the state.”
If the dark store method becomes the norm in the state, a study commissioned by Indiana county
officials found, the value of more than 17,000 commercial properties would drop by $3.5 billion.
Their big-box retail owners would shift a tax burden of $120 million onto other types of
taxpayers, like locally owned stores and working families.
“You have disparities being created,” says Erbisch, from Marquette. “Your local entrepreneur
making a go of it, they don’t have a good way to work around their taxes. It’s setting up an unfair
market, and making it harder for them to compete.”
Big-Boxes’ Long-Running Tab of Costs
While the dark store method is just catching fire in Michigan and Indiana, it’s part of a broader
tax-cutting strategy that’s a familiar page in the big-box retail playbook.
As one example, take Walmart, the largest among them, which looks for tax loopholes wherever
it can find them. “For every kind of tax that a retail company would normally pay or remit to
support public services, Walmart has engineered an aggressive scheme to pay less and keep
more,” found a 2011 report by the non-profit research organization Good Jobs First. These
include using its fleet of lawyers to systematically challenge its property tax assessments, and
gimmicks such as deducting rent payments made to itself through captive real estate investment
trusts. Good Jobs First calculated that these tactics cost state and local governments more than
$400 million a year in lost revenue, and concluded, “Walmart may be more of a fiscal burden
than a benefit to many of the communities in which it operates.”
There’s also the other side of a local government’s ledger. Big-box retail is expensive to
maintain. Because these stores are located outside of town centers and designed for car culture,
they require local governments to extend and bolster public services and infrastructure like
sewers, roads, and police forces. They also rely on these services heavily. When eight
communities in central Ohio looked at the fiscal impacts of big-box retail, they found that the
stores actually demanded more public services than they generated in revenue, and created a
drain on municipal budgets to the tune of a net annual loss of $0.44 per square foot, or about
$80,000 for a typical Walmart supercenter.
Higher demand for police departments is one example. In Port Richey, Fla., nearly half of the
town’s crime emanates from the area Walmart. “The taxes that come from Walmart are not even
enough to cover two police officers’ salaries,” Police Chief Robert Lovering told Vice. In an
Indianapolis suburb, the number of police calls to Walmart have led the mayor to declare the
store a public nuisance. “They’re draining our resources every single day,” he told the
Indianapolis Star. These are not one-off examples. A 2014 study found that when Walmart
located in a community, its reduction in crime slowed. And once these stores are vacant, they
continue as magnets for crime and vandalism, lowering nearby property values.
Despite all of this, cities and towns continue to buy into the myth, sold to them by the megaretailers themselves, that big-box stores spark economic development. In service of this myth,
local and state governments across the country have granted at least $2.6 billion in subsidies to
just six large retailers, including $160 million to Walmart and $138 million to Lowe’s, according
to another study from Good Jobs First. That’s without factoring in the cost of services, which as
Marquette, Mich., saw, can pile up.
The Locally Owned Alternative
If towns and cities looked beyond the conventional wisdom that the big corporations have
peddled, they’d see that there’s an alternative to big-box retail. It’s a familiar option: Instead of
courting chain stores that lack a stake in their communities, cities and towns can cultivate locally
owned, independent business.
Locally owned retailers provide value to a community in many ways, but one of them is to the
municipal accounting books. In a study that found that big-box retail generates a net deficit for
taxpayers in a Massachusetts town, the researchers also discovered that specialty retail, like Main
Street businesses, are the ones with a positive impact on public coffers, generating more revenue
than they require to service.
Then there are the buildings that these businesses occupy. Unlike the massive, windowless
buildings preferred by big-box retailers, locally owned businesses tend to locate in walkable
downtowns, inside of dense and often mixed-use buildings that have a history of being adapted
for many different purposes.
These buildings are the opposite of short-lived and single-use, and they’re also the ones that
create far more public wealth. One consultant, Joe Minicozzi, has looked at the “per-acre” value
of land, and found that, though low-density development is often hailed as the major municipal
revenue generator, it’s high-density development that holds the potential for far greater wealth.
Take Asheville, N.C. Minicozzi’s calculated that the city realized a per-acre return on
downtown, mixed-use development that’s 800 percent greater than it sees on a large, single-use
Walmart. “The result is that the community loses, both in terms of the property tax it collects and
the long-term legacy of cheap single-use buildings,” Minicozzi has written. “In basic terms,
we’ve created tax breaks to construct disposable buildings, and there’s nothing smart about that
kind of growth.”
Back in Michigan and Indiana, communities are catching on. In Marquette, some residents have
organized a boycott of the Lowe’s, and two state legislators from the area are working on a bill
that will address the issue. Indiana has gone a step further. After the Meijer store ruling, state
legislators quickly authored a bill to head off other cases.
“Using empty stores might fit the letter of the law, but to a reasonable person, that’s not what’s
intended by a comparable sale,” says state Sen. Pete Miller, one of the bill’s authors. The policy,
which was signed into law in May 2015, sets firmer guidelines for how to value big-box
properties. New properties, or those less than 10 years old, should be valued using the cost
approach, the bill says. Further, in cases where comparable sales are used, the comparables
cannot be properties that have been sitting vacant for more than one year, or properties with deed
restrictions on them, among other measures. “We’re trying to get the balance right,” says Sen.
Miller.
Policies like this are essential for protecting towns and cities from the tax-gaming strategies of
big-box retailers. Yet, the harrowing stories out of Michigan and Indiana also serve as a reminder
of the deeper problems with big-box retail, and of how much smarter it is for communities to
build durable places and stake their future on businesses that are owned locally.
—
* In Cottage Grove, Minn., for instance, a Home Depot that’s already been shuttered for seven
years will only sell its space to the city if the city agrees to keep any competition out of the
surrounding mall for another 15 years. The ban has left local officials fuming, reports the St.
Paul Pioneer Press, which described the sale conditions as “crippling city development for the
next 15 years.”
Photo by frankieleon
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URL:
http://www.gazettextra.com/20160313/dark_stores_argument_allows_big_businesses_to_skimp_on_property_taxes
'Dark stores' argument allows big businesses to
skimp on property taxes
By Elliot Hughes
March 13, 2016
JANESVILLE—In late February, Janesville City Council members were asked to consider settling three claims of
excessive property assessments levied by U.S. Bank.
They practically sighed before doing so.
The choices at hand were to either settle and fork over about $28,100 in property tax refunds or continue a costly
courtroom battle.
Council members Douglas Marklein, Carol Tidwell, Richard Gruber and Jim Farrell all felt it necessary to clarify
that settling was the best possible choice. Sam Liebert was the lone member who said he couldn't vote for that.
“There is a concerted effort by corporate America, especially in Wisconsin, to contest municipal assessments at
every possible turn ... so that they don't have to pay as much in property taxes,” Liebert said. “When we're giving
them $30,000, it's 30,000 more dollars out of the pockets of all the taxpayers in Janesville."
U.S. Bank declined to comment.
Therein is the difficult position that Janesville and many other municipalities in Wisconsin find themselves.
Lawsuits over property valuations are rising here and elsewhere, thanks to a catchy litigation tactic that was once
pushed only by big box stores but now has caught on with other businesses as an easy way to cut back on taxes.
It's call the “dark store theory” and it's the reason why the city has had to pay out $132,280 in refunds to some
commercial properties since 2011. And when that kind of thing happens, it places a higher tax burden on small
businesses and residential properties.
“What ends up happening is that you and I end up paying for it," said Jef Muelver, Janesville's assessor.
THE STRATEGY
Dark store litigation has been around since the 1990s, but in Wisconsin it appears to have gained traction in the
mid- to late-2000s, officials said.
When these arguments are made, the commercial property owners basically say their properties, when being
assessed for its value, should be compared to a property with a similar but vacant building--a dark store.
Businesses argue that their buildings are so specific and unique to their needs that if the business ever left, the
property would never sell because nobody could use the leftover structure. It's also common for deed restrictions
to prohibit the sale of buildings to competitors anyway, according to experts.
So, they conclude, their property value should be lowered.
But that's not the way property assessments should work, municipalities argue.
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"In order to be comparable, not only do properties have to be physically comparable, but they have to be
economically comparable in their ability to produce income,” said Amie Trupke, an attorney for Madison-based
Stafford Rosenbaum, who assists the city of Janesville in its property assessment lawsuits. “An empty dark store
that's been vacant for a number of years does not have the same potential to produce income like an operating
retail property."
That's a defense that sometimes works and sometimes doesn't. Janesville has faced at least 20 dark store lawsuits
since 2011, Trupke said, and ended up giving a refund and lowering a property's value in seven of them.
The judge, the geography, the business market at play and the property type all are variables that account for the
variance, Trupke said.
But for property owners, often--if not always--these types of lawsuits do not include a way for them to lose.
Muelver, who has worked as an assessor for more than 20 years in about a half-dozen Wisconsin counties, said
tax lawyers will cold-call businesses and offer their services for free, unless they win in court.
“Companies are like, 'No cost to me? And you might lower my assessed value? Why not?'” said City Manager
Mark Freitag in a city meeting on the subject in January. “It's become a cottage industry.”
But there's always an expense for the city. Legal fees might run over $100,000 to defend one case, Muelver said.
Tax lawyers are so proactive that sometimes, Muelver said, they will call him on behalf of a property before even
contacting the owner, trying to feel him out and gauge the situation.
Two city council members said their businesses have fielded such cold calls, or “blind mailings.” Council
President Douglas Marklein said he's received offers to help him lower property values of the apartments he owns.
Council member Richard Gruber, a vice president for the Mercy Health System, started seeing similar offers last
year.
Trupke said it wouldn't surprise her that dark store propagators would have a go at a hospital or a residential
property.
“It surprised the pants off me,” Marklein said.
THE JANESVILLE SITUATION
Trupke and Assistant City Attorney Tim Wellnitz identified eight businesses that have used the dark store tactic
against the city: Blain Supply, Farm & Fleet, Target, U.S. Bank, Menards, Sears, Rosebud Partners (for
Wildwood Theaters) and Jade Taco (for Taco John's).
Representatives from those businesses either declined comment to The Gazette or did not return a request for
comment.
Sears, Target, Jade Taco and U.S. Bank--each of which has filed at least two lawsuits since 2011--are the only
ones that have scored lower property values so far.
Sears got about $1.5 million of value knocked off its property at 2500 Milton Ave., while Target, Jade Taco and
U.S. Bank each shed less than $1 million of value off their properties at 2017 Humes Road, 2821 Milton Ave. and
2732 Milton Ave., respectively.
That accounts for $132,280 in tax refunds payed out by the city, according to city documents.
Comparatively, six other non-dark store property tax lawsuits have cost the city $48,205 in refunds since 2011,
according to city documents.
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As of March 3, there are 15 unresolved property tax lawsuits on the city's plate stretching back to 2013, according
to city records.
Eight come from businesses Trupke said use the dark store argument--three from Blain Supply, two each from
Menards and Farm & Fleet and one from Rosebud Partners.
LEGISLATIVE HELP
Municipalities have to look to state government for help, but it's unclear if it will come.
The solution would be to prohibit assessors from valuing active stores at the same rate of similar but vacant
properties, according to the League of Wisconsin Municipalities.
Janesville officials in January lobbied for legislation on the issue to State Rep. Debra Kolste, D-Janesville, and
state Sen. Janis Ringhand, D-Evansville. But they made no indication that change would come fast, if at all.
Curt Witynski, the assistant director of the League of Wisconsin Municipalities, said his organization recently
began lobbying legislators to nix the dark store tactic. He expects a continued uphill climb.
“I think it's just a difficult issue for people to get around,” he said. “There's probably not going to be a lot of
pressure on the Legislature from the general public, who probably doesn't even realize this is occurring.
“There will be incredible pressure from the other direction to maintain the current law--by the national chains,
from the commercial property owners.”
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Issue briefing:
Dark Stores
OVERVIEW
Michigan has three accepted methods of determining
a property's "true cash value," or fair market value:

Comparable sales
(Sales Approach)

The cost of construction less depreciation
(Cost Approach)

How much income a property produces
(Income Approach)
The corporations, however, have convinced the Michigan Tax Tribunal to rely on the Sales Approach. And
since they usually refuse to sell their older structures
to other retailers, and have even imposed deed restrictions on vacated property to block their use for
retailing, these corporations have argued, successfully,
that their current locations should be compared to vacant – or dark – structures.
This has become known as the “Dark Store” approach
to valuing property.
Acceptance of this practice by the MTT has created
Counties typically have valued “Big Box” stores such special taxation treatment for such retailers and shiftas Home Depot and Meijer based on Cost Approach, ed more of the burden for financing basic public serup to a few years ago.
vices onto homeowners and other businesses.
Amount refunded by locals due to Michigan
Tax Tribunal decisions since 2013:
(Michigan Association of County Treasurers survey, 2015)
$75 MILLION
EXAMPLES ACROSS MICHIGAN
Target (Novi)
IKEA (Canton Twp.)
Before: $70-80 PSF
Before: $77-102 PSF
After: $40-60 PSF
After: $29-40 PSF
Target (Benton Twp.)
Lowe’s (Marquette Twp.)
Before: $44-48 PSF
Before: $74 PSF
After: $21-28 PSF
After: $25-29 PSF
Target (Midland)
Kohl’s (Kochville Twp.)
A study of property taxes in Oakland County
showed Big Boxes are paying much less than
their smaller competitors. The average retail
rate is twice the average Big Box rate;
Before: $64-66 PSF
Before: $66-80 PSF
After: $24-30 PSF
After: $34-42 PSF
Target (Auburn Hills)
the median retail rate is 72 percent
above the median Big Box rate.
Before: $70-86 PSF
Lowe’s (Frenchtown
Twp.)
Before: $70 PSF
After: $22-29 PSF
CASE STUDY: OAKLAND COUNTY
After: $50-64 PSF
MAC thinks a fully functioning retailer’s
property value should not be determined
by the value of vacant property.
What is the purpose of Senate Bill 524 and House Bill 4909?
The purpose of SB 524 and HB 4909 is to address the Dark Store Theory, the tax minimization strategy used by national “Big Box” retailers to gain dramatic reductions in their property tax bills. HB 4909 limits the ability of these retailers
to pursue anti-competitive strategies against local business by purchasing property in a local unit’s zoned commercial
corridor and placing restrictive deeds on the property to prohibit, contrary to local economic development and planning, any commercial use of the property that might compete with the retailers’ business. SB 524 requires that assessors and taxpayers use accepted appraisal methods longstanding in Michigan and limit the use of speculative methods
or the exploitive deed-restrictive methods to gain unfair tax advantages over local businesses.
Does SB 524 and HB 4909 tax Big Box stores differently than other stores?
No, to the contrary, SB 524 eliminates the special treatment sought by national Big Box retailers ― an exclusive assessment valuation method based on sales of vacant, abandoned, deed-restricted properties. What homeowner would ask to
have its property valued based on sales only of foreclosed homes? Big Box stores of national retailers, must like any
other taxpayer, value their property using the cost approach unless the national retailers are able to produce sufficient
data or reasons to use a different approach to value. The bills require that Big Box stores be valued and taxed in the
same manner as any other Michigan storefront business and like any other taxpayer.
Is the Dark Store theory of property valuation consistent with Michigan law?
No. Not only has Michigan historically relied on the cost less depreciation approach as the primary valuation method for
assessing commercial and industrial property, the two, and only two, published and precedential Big Box cases in the
state rejected the use of distressed, vacant property sales and instead used the cost less depreciation method. Thrifty Royal Oak, Inc v City of Royal Oak, 130 Mich App 207 (1983) and Meijer, Inc v City of Midland, 240 Mich App 1 (2000).
In both cases, appraisers presented all three traditional approaches of value for the Tribunal to evaluate the facts. National Big Box retailers wish to only present distressed comparable sales.
Is changing the definition of “true cash value” unconstitutional?
No. Section 3 of Article 9 of the Michigan Constitution directs the Legislature to provide the methods to uniformally
assess property in Michigan. Michigan’s Supreme Court has held that the methods by which true cash value is determined is exclusively a legislative function. Only when the Legislature has failed to provide guidance, can courts fill the
gaps. The Legislature has amended the definition of true cash value six times since 1992.
Are assessors “over-assessing” property?
No. The claim is false and, like the Dark Store theory, is entirely unsubstantiated. Michigan is unique in that it is the
only state that has so pervasively adopted this Dark Store Theory. See Lowe’s Fighting to Reduce Local Property Taxes,
(Anniston, Ala., Star, Aug. 14, 2015). For example, Michigan assessors once assessed Lowe’s 47 Michigan stores, on
average, at $55 per square foot, which is within the range of values found in other states, and actually lower than rates
found in many states. As a result of the Dark Store theory, Lowe’s Michigan stores are now assessed at an average of
$24 per square foot, including five Lowe’s stores now assessed at or below $10 per square foot.
Won’t the problem with Big Box value reductions eventually change over time?
No. Under Proposal A, the taxable value (the amount on which taxes are calculated) may not increase more than
inflation or 5 percent, whichever is less.
EDITORIAL
Thursday, December 17, 20151 Page A7
We're gonna gel: a
break on our property taxes
and l:h~s how iPs gonna be.
Gel: me?
Dark tax strategies may
undermine TIF strategies
A friend of mine from a neighboring municipality called me up the
other day and asked, "Did you hear
about some national chain retailers
trying to pay property taxes based
upon the assumption that the buildings they operate out of should be
assessed at the same rate as comparable, but vacant, buildings in the area?"
"I read that story in the News
Graphic," I replied.
"Well, what do you think about it,"
he pressed.
"It is curious," I remarked.
"How so?" he kept on going. Clearly he wanted me to go
on the record, as it were.
"It contributes to an emerging dynamic that may undermine municipal fmancing and ultimately suck resources
and quality of life out of local taxpayers and transfer them
to persons who own and/or operate national retail chains,"
my V()ice rang out full and clear. "It is bad for the people and
should be squashed."
He became quiet on the other end of the line and then,
after a moment, said, "Explain that dynamic just a little bit
more, please."
"Sure," I said. "Imagine you have a nice little community with a good mix of retail, residential and manufacturing
- plus quality services like a good school system, police
force, fire and public works department. The community
doesn't really change much from year to year, and it doesn't
have a whole slew of empty buildings. It just gradually
VAN
MOBLEY
grows with population growth. New
retail, residential and manufacturing
buildings are added as needed.
Spmetimes the old, worn-out buildings get rehabilitated or torn down
and replaced, but throughout it all, all
the buildings pay taxes to help pay for
required services."
"In a community like that, everybody helps pull the freight and the
community grows gradually, like a
healthy tree," my friend said.
Clearly he had a picture of such a
community in his head. He could
"see it" as it were.
"Precisely,'' I agreed. Then I went on, "And then imagine
that some bedazzling figure moves into town and wants the
community to borrow a ton of money to pay for a bunch of
new roads and infrastructure so that he can locate a new
chain store there - where people will sell the same stuff
that can be purchased at the existing stores. Or maybe the
bedazzler wants to build a bunch of new residential units."
"Or maybe the. bedazzler wants to do a mixed-use project," my friend on the other end of the line chimed in, "and
have his development placed inside a TIF district that will,
over some set number of years, pay the municipality back
for the original infrastructure costs - hence ensuring that .
all this goodness can advance without costing the municipality anything.~·
See MOBLEY, Page AS
Page AS
I
News Graphic
Mobley: Paying the taxes
due Is the only option
Continued from Page A7
"Right," I said. "And
now comes the potential
rub. If the community is too
bedazzled, and expands too
quickly; instead of in a
healthy sort of way; there is
a good chance that the activity that originally occurred
in the old, taxed buildings,
will transfer itself into the
new buildings inside the
TIF, where the tax revenue
generated isn't used to pay
for services the community
needs, but is instead used to
pay for the infrastructure
the
new
development
required to get started~"
"And the old buildings
will be vacant and hence get
assessed at a lesser value
and hence generate less revenue to help pull the necessary community freight,"
my friend marveled. Then
he went on, in a rather sick,
disappointed
sounding
voice, "And then the bedazzler who persuaded the
community to embark upon
unwise growth in the first
place may say to the community that he should get a
tax break on his buildings
because his buildings are
olily worth what the vacant
buildings in the community
are worth- even though the
vacant buildings probably
would not be vacant if the
community had not been
lured into an unwise course
of action by the bedazzler."
"And if the courts agree
with the bedazzler, the
bedazzler gets a tax break
that increases his profits
and the community gets
less property tax revenue
from the bedazzlers and
must at that point either
reduce the quality of services or raise taxes or generate
efficiencies in the provision
of services," I agreed. "And
the bedazzler will of course
say that everybody should
be more efficient, like him."
Silence reigned on the
other end of the line for a
spell. Finally my friend
asked, "We are already pretty efficient . . . so· when we
start raising taxes and/ or
cutting services people will
start leaving for greener
pastures, hence putting us
into a downward trajectory
. . . Is there any way out of
this death spiral?"
"Don't be bedazzled, my
friend, there is never any
free lunch and anybody who
suggests otherwise is often
looking for a free lunch," I
noted the obvious. "Make
them pay and if they don't
like it tell them not to let the
door hit them on the way
out."
Then I wished my friend
a Merry Christmas and
hung up. He will be fine, I
thilik. But who knows?
Van A. Mobley is
Thiensville village president
and an associate professor of
history and economics at
Concordia
University
Wisconsin.
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October 2015
Village Board Approves Settlement Agreement with
Target Corporation Regarding Property Assessments
of Target’s Pleasant Prairie location to be $12,181,300; for
2014, the assessed value was calculated at $13,715,200.
Target Corporation had an appraisal completed that claims
the value of their Pleasant Prairie location to be $6,642,000
over the same three-year period.
Target Corporation, through their tax attorney, sought to
have their value compared to former abandoned Walmarts
in undesirable locations (including the site in Kenosha). The
Village disagrees with that method of determining value,
because it is not equitably applied to all. Target Corporation
has been disputing their assessed values statewide over the
past three years.
During a September 21 meeting, the Village Board approved
a settlement agreement with Target Corporation regarding
property assessments covering a three-year period.
According to the settlement agreement, the Village will issue
a refund to Target in the amount of $118,946.56 within 60
days of execution of the agreement.
Wisconsin law dictates what factors assessors must
consider when calculating assessed values. The State law
is intended to maintain equity and uniformity in distributing
the property tax load amongst all property owners, large
or small, throughout the State. Some of the basic factors
used to calculate the assessed value, include: the value or
purchase price of the land, actual construction costs for the
building/facility, the income generated by a property, and
any recent comparable sales.
Target Corporation operates a Target store within a 126,842
square foot building located at 9777 76th Street in the
Village of Pleasant Prairie. The building was constructed in
the Shoppes of Prairie Ridge during 2007, and the Target
store opened in this location during the fall of 2008. For
2012 and 2013, the Village calculated the assessed value
While the Village prefers not to settle claims of this nature,
accepting Target’s offer via the settlement agreement
is in the community’s best fiscal interest, as it will avoid
the burden of increasing legal expense. The settlement
agreement reached between the Village and Target
Corporation recognizes an assessed value of $10,781,000
for each year of the three-year period (2012 through 2014).
Village Administrator Michael Pollocoff explained, “As tax
attorneys solicit more large national clients to challenge
assessed values based upon the value of abandoned or
“dark” stores as opposed to sales of comparable properties
or acquisition costs, the equity in the property tax system
will erode, as it has already in Michigan. Residential
property taxpayers and small and local businesses will be at
a severe disadvantage. They will pay more of the property
tax as national chains pay less based on their ability to
financially sustain a long-term legal challenge.”
To learn more about this phenomenon, its
affect on communities, its potential effect
on Pleasant Prairie’s tax rate, and a possible
solution, please see page two. o
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News and information about the Village is available at PleasantPrairieOnline.com, on Time Warner Cable Channel 25, and on AT&T U-Verse Channel 99.
1
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The Abandoned Store or “Dark Store” Method
and Its Anticipated Impact on the
Fairness of the Property Tax System
The main intent of the Village Newsletter is to inform our residents, as opposed to expressing our own opinion. The following
article deviates from that format. In the following article, Village staff has expressed an opinion, because we believe that
this topic will have a significant impact on the fairness of how the property tax burden is distributed amongst the different
property tax payers in the Village.
Property Tax Overview
In Wisconsin, the majority of public services provided to
communities are funded through the collection of a property
tax. Property taxes in our community are used to provide:
emergency services (such as police and fire), construction
and maintenance of locally owned roads, snow and ice
removal, public education through KUSD, public access to
library materials and services, community planning and
economic development, parks, administrative support, and
more.
The assessment process in Wisconsin (and other states
that use a property tax to fund services) was established to
ensure that all property taxpayers are treated equitably and
uniformly. The goal of a local assessor is to apply a uniform
method of determining value to each taxable property in the
community to ensure that each property assumes its fair
and equitable share of the financial responsibility for the
services.
Abandoned Store or “Dark Store” Method
Throughout multiple communities in multiple states, several
of the country’s largest retailers and their tax attorneys have
begun appealing their property assessments in an effort
to pay a smaller portion of the property tax load. Large
national retailers, through their tax attorneys, have argued
that, unlike other properties, the values for their income
producing properties, for tax purposes only, should be
determined by comparing them not to comparable stores
but to abandoned (or dark) stores.
While thus far this tax avoidance method or strategy has
mainly been used by the nation’s largest big box retailers, it
is quickly gaining the attention of other large manufacturing
and industrial property tax payers. Village Administrator
Michael Pollocoff explained, “Lawsuits have recently been
brought against the Village that we believe will create an
2
Send feedback and mailing address changes to newsletter@plprairie.com.
unfair shift in the property tax burden for local businesses
and residents here in Pleasant Prairie.”
Effect on Public Services and Other Taxpayers
“For states that use a property tax to fund services, this tax
avoidance strategy is a real problem,” explained Pollocoff.
“In Michigan and elsewhere, where tax tribunals and courts
have decided in favor of this abandoned store comparison,
communities must pay tax refunds to these big box retailers
from the funds used to pay for services. With multiple large
retailers challenging assessments over multiple years, these
refunds can run into the hundreds of thousands of dollars, if
not more.”
“In addition to having to cut into service dollars to pay the
tax refund, these cases affect property tax collections going
forward. It’s incredibly difficult to correct the outcome of
these cases once they’ve been decided, and it shifts more
of the tax burden onto the other property tax payers in the
community.”
“In Pleasant Prairie, if unabated, this practice will cause
a significant tax shift to all other taxpayers. Calculations
indicate an increase in Pleasant Prairie’s tax rate of
between 12 and 18 percent.”
“When one property tax payer pays a smaller piece of the
tax levy pie, the other property tax payers in the community
pick up the slack and pay a larger piece of the pie. That
doesn’t bode well for the average homeowner and other local
businesses that cannot afford to have tax attorneys make
this same argument on their behalf. It creates a system that
favors those who can afford the expense of litigation.”
Potential Solution
Other states, such as Indiana and Michigan are taking steps
continued on page 3
VNL 102015
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continued from page 2
to address the abandoned (or dark) store method of valuing
big box properties. The Indiana Legislature recently passed
a piece of legislation requiring assessors to value big box
stores on the basis of the cost to construct the building. The
Michigan Legislature is also considering various proposals.
The League of Wisconsin Municipalities, a group comprised
of nearly all of the cities and villages throughout Wisconsin,
is recommending that the State of Wisconsin follow the
lead of the Indiana State Legislature (currently controlled
by the GOP) and pass legislation that would prohibit
valuing thriving big box stores the same as old abandoned
properties. They recommend that this take place before
even more of the tax burden is shifted to homeowners and
small local businesses.
Pollocoff stated, “We agree that action at the State level in
Wisconsin is necessary to close access to this abandoned
store method in order to maintain equity and fairness for all
property tax payers. We believe that a uniform method of
valuing property for tax purposes must be used in order to
prevent a larger property tax payer from gaining an unfair
advantage over others.”
Related Articles
For those wishing to learn more or to conduct an
independent search for information about this topic,
typing dark store method, dark store theory, or dark
store loophole into your search engine of choice (such
as Google, Bing, Yahoo, etc.) will offer a list of articles and
news stories from various sources and states relating to the
topic. Articles relating to this topic have appeared in or at:
the Indianapolis Business Journal, Connecticut Today, the
Detroit Free Press, MiBiz, the Michigan Morning Sun, Crains
Detroit, Fox 59, and others. An article written by a property
tax attorney can be found in the National Real Estate
Investor. o
Conceptual Plan Approved for Multi-Tenant Retail Building
Tenants Include Corner Baker and MOD Pizza
Certified Survey Map to subdivide the
property, located south of Highway 50 and
west of 91st Avenue in the Prairie Ridge
commercial area, into two parcels was
also approved.
On September 28, the Plan
Commission considered and approved
a Conceptual Plan for a 13,297 square
foot multi-tenant retail building. A
VNL 102015
outdoor seating. The restaurants have
been identified as Corner Bakery and
MOD Pizza; no other tenants have yet
been announced.
A developer, Dimitri Dimitropoulos, is
proposing to construct the single, multitenant, retail building on a two-acre lot
located immediately east of The Bulls-Eye
development (north of Costco). Preliminary
plans for two different multi-tenant, retail
buildings immediately to the west were
approved for The Bulls-Eye development
during July of 2015.
Access to the site will be available
from two driveway connections on
76th Street. Each of the driveway
connections will be shared with
future, adjacent, commercial lots.
The developer must now draft a
more detailed Site and Operational
Plan that will be reviewed by staff
and considered by the Village Plan
Commission in the future.
The Conceptual Plan currently calls for a
single building with five separate tenant
spaces. Two of the tenant spaces would
be built to accommodate restaurants with
Construction is expected to begin
during the spring of 2016 with
completion anticipated during the fall
of the 2016. o
Send feedback and mailing address changes to newsletter@plprairie.com. 3
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Denise Seyfer
Editor
!
"
Grafton / Cedarburg, WI
Fair Property Valuation takes center stage at Village
Board meeting
LOCAL GOVT, POLITICS / GOVERNMENT
#
DECEMBER 8, 2015
Call for local Legislatures to take up issue soon
By Kirstin Margit Roble
Grafton, Wis. — The Grafton Village Board passed a resolution Monday, regarding fair
property valuation among drugstore chains.
The current culprits are CVS and Walgreens.
Walgreens, CVS, and other big drugstore chains have been challenging property tax
assessments in courts around the country for the past decade, with little national notice,
said the March issue of Bloomberg Business by Patrick Clark, arguing sometimes
successfully, that the rent they pay to their commercial landlords doesn’t accurately reflect
property values.
When they win, the article said, their tax bills get cut dramatically to the detriment of other
taxing jurisdictions and homeowners.
National chain retailors generally rent stores rather than tie up billions of dollars, about $45
billion, in real estate, and the system of renting versus purchasing takes place all over the
country, said village information from the League of Wisconsin Municipalities.
Bloomberg Business reported statistics that showed Walgreens leased 80 percent of its
8,300 stores as of August 2014, according to company filings, while CVS owned 5 percent of
its 7,800 stores as of the end of last year.
The danger with that is how it could affect homeowners, who would be asked to pick up the
tab — it all boils down to something called “Triple Net Leases.”
Currently in Wisconsin, homeowners pay about 70 percent of the total statewide property tax
level, leaving 30 percent to be covered for commercial, manufacturing or other classes to
cover, which is where problems arise.
Due to some court rulings in favor of the practice, local governments fear other larger retail
chains could follow suit unless the local Legislature moves to close loopholes national chains
are trying to use and exploit for their own benefit.
Wisconsin is not an exception to this rule. Wisconsin courts have ruled in favor of
pharmacies.
Communities are then responsible for refunding tax revenue back to the store.
“Our state Legislature needs to address the issue sooner than later in light of the lawsuits,”
said Village Administrator Darrell Hofland.
Some of these national commercial retailers are asking the local assessor not to use income,
which is typically the key basis for property valuation and taxes, he said to Village Board
members.
What chain retail companies will due to avoid accruing excessive amounts of real estate, or
taxable property, is that they will contract with developers to buy land in high traffic areas in
their desired city.
Once that land is purchased, they will then build according to their company’s standards.
To keep their costs low, they rent out spaces that will cover the monthly bills accrued by the
space, including rent and property taxes.
Under this theory, chain stores stated assessments then should be based on the amount the
landlord could get if the store left the building and another retailer moved in rather than a
price tool that hinges on the price investors would pay to own a drugstore lease.
This would lower assessments because pharmacy chains, specifically, have paid higher
rents than other tenants.
It remains a controversial topic and continues to be so as courts at times have sided with the
stores versus the community.
Multiple instances have proved this with courts awarding these chain stores tens of
thousands of dollars in refunds.
Stores have gone one step further to argue the “Dark Store” theory, saying that their store
should be based on the abandoned or vacant stores of the same size.
The argument is that, because these stores were built with a specific store in mind, it is
incredibly difficult to sell them if the store leaves.
In essence, there is some truth to this.
Many have seen more than one boarded up Wal-Mart sit for years before another business
finally moves into the space.
In essence, a brand new Target should be valued equivalently to an abandoned one.
However, the village of Grafton does not want citizens to be faced with the additional tax
burden that other cities in the U.S. are faced with because of these cases.
Mequon attorney Amy Seibel, who has represented tax assessors against the pharmacy
chains according to the business publication, stated homeowners’ tax assessments could
increase if counties try to make up any lost revenue.
“The average homeowner is outraged when you tell them what’s happening,” she said to
Bloomberg Business.
The Republican-controlled Indiana Legislature recently passed bipartisan legislation
prohibiting assessors from valuing new big box stores the same as nearby abandoned stores
of the same size, while the Michigan legislature is currently considering a number of
proposals to remedy this property tax shift, according to the information provided to the
Village Board.
The passed resolution would follow the lead of the GOP-controlled Indiana state Legislature,
requesting Wisconsin to pass legislation closing off these tax strategies before even more of
the property tax burden is shifted to homeowners and other taxpayers.
The resolution also requests added legislation to clarify that leases are appropriately factored
into the valuation of properties and to prohibit assessors from valuing thriving big box stores
the same as similarly sized abandoned properties.
The fight will go on as Walgreens has spent five years battling the tax assessment of a
drugstore in Madison drugstore before winning a state Supreme Court judgment in 2008, the
Bloomberg article reported.
There are over 200 Walgreens located in Wisconsin’s cities and villages.
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