Questions and Answers
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Was it always like this?
No. In the past, Michigan has determined a property’s “true cash value,” or fair market value, through an individualized determination of all of the factors relevant to that building, including the “cost approach.” This cost approach means the cost of construction less depreciation and the use of true comparable sales data that takes the area’s economy into account.
How and when did this all start happening?
The Dark Stores loophole was created in a 2013 decision by bureaucrats and political appointees to the largely obscure Michigan Tax Tribunal in Lansing. The large, national retailers convinced the Tax Tribunal to rely on the “sales approach” to evaluation regardless of market context. This tactic has become known as the “Dark Store” theory.
What’s the impact of this?
Huge. As an example, an appeal involving a Lowe’s store in Marquette Township left the community on the hook to repay the company more than $755,000 in property taxes it was found to have overcharged the retailer. The state Court of Appeals in 2014 upheld the Tax Tribunal’s ruling that the Marquette Lowe’s store had a taxable value (half of true cash value) of $1.5 million in 2012, rejecting the township’s assessment of $5.2 million. The store was built in 2008 at a cost of $10 million. As a result of Lowe’s successful appeal, the community has been forced to cut numerous services, such as public library hours, to its residents. These unfair tax reductions are having a ripple effect throughout communities around the state as schools, libraries, community colleges, local governments and public safety are all forced to refund money to these retailers and reduce the services they offer or increase taxes and fees on every other taxpayer in that community. Ottawa County alone has lost $14.8 million in assessments, and $745,000 in tax revenue since 2010, through big box store appeals, the Detroit Free Press reported.
Won’t the problem with Big Box value reductions eventually change as the state’s economy improves and property values recover from the recession?
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. The issue isn’t limited to Big Box stores either. Now that Big Box stores have received these tax breaks, others are also starting to use the Dark Stores theory to seek lower assessments, including drug stores, auto supply businesses, and even industrial facilities.
Is this just a Michigan issue?
Yes and No. The tactics being used by these retailers are virtually unique to Michigan. In other states where these same arguments are being attempted, courts and legislatures have moved quickly to rebuff these appeals. Indiana had been the only other state where this theory had been used and their legislature passed a bill in May of 2015 to block the dark store claims. Lawmakers in Wisconsin are also considering action. Michigan’s commercial property tax values are now a fraction of what they are in surrounding states. Lenawee County Equalization Director Martin Marshall is president of the International Association of Assessing Officers. In this international role, he travels throughout the U.S. and Canada for various meetings and events and said his peers in other states and countries now routinely ask him “what the heck is happening in Michigan with your Big Box stores?” Marshall testified on this issue in Lansing on Nov. 4, 2015.
Could this be an issue of local assessors “over-assessing” property? That’s what the Big Box store officials like to say. Quoting from Big Box store propaganda, the retailers claim, “Local governments are now encouraging assessors to overstep their boundaries and assess business property at a higher rate in order to pay for their government operations and benefits without ‘harming communities.’” This statement is quite frankly insulting, inflammatory and simply not true. The claim is false and, like the Dark Store theory itself, is entirely unsubstantiated when comparing data from similar stores in other states. The concern raised by local government is not about raising taxes on any one industry, or raising taxes at all. It is about maintaining a fair and equitable system of taxation for all taxpayers in a community.
Why aren’t homeowners doing this?
Homeowners have the same rights as businesses to appeal their tax assessments on the local and state level. But homes are much different than big box stores because of the use of comparable structures in determining the taxable value. There are ample amounts of like-homes or comparable homes for assessors to use when calculating the property valuation for your house. But finding comparable structures for big box stores isn’t as easy because these buildings are rarer. Plus, there’s a catch.
There’s a catch, what catch?
Two words: Deed restrictions. It is common for retailers to put deed restrictions on their properties before, during and after the building/property is used. These restrictions severely limit how the building can be used once it’s vacant. These deed restrictions serve two purposes:
- They limit who can move into those buildings and potentially compete with the big box’s other stores in the area;
- They limit potential buyers for those buildings, driving down the sales prices of those buildings that they turn around and use as an excuse to lower their taxes on their open and operating sites.
This has resulted in buildings being kept empty and adding to the blight problem in a community. Now the trend is that more and more retailers are starting to use deed restrictions to appeal their assessments. They claim that these self-imposed deed restrictions have lowered the value of their property.
Sample Deed Restrictions
Walmart – Frenchtown Township, MI
Geesh, what’s being done to fix all this?
The legislation being worked on would hopefully address most of these issues. The League supports a legislative fix that assesses all properties, including big box stores, at their highest and best use; would prevent the use of anti-competitive deed restrictions in determining a property’s true cash value; and the Michigan Tax Tribunal be required to consider all three methods of assessing – cost minus depreciation, sales comparison and income when determining a property’s true cash value.
Is the Michigan Municipal League alone in this fight?
No. To tackle this issue the League is part of a diverse coalition of organizations. The group includes Michigan Townships Association, Michigan Association of Counties, Michigan Sheriffs’ Association, Michigan Association of School Boards, Michigan Association of School Administrators, Michigan Public Transit Association, Michigan Association of Intermedia School Administrators, Michigan Assessors Association, Michigan Community College Association, Middle Cities Education Association, and the Michigan Library Association. Read the joint letter and joint press release members of the coalition sent to the House Tax Policy committee.
What’s happened so far in Lansing and what’s next?
The issue has gotten the attention of the House Tax Policy committee and its chairman, Jeff Farrington, R-Utica. The committee held information hearings on the issue Nov. 4 and Dec. 9. The Tax Policy committee also has formed a workgroup to study the issue. Representatives from all sides on the issue, including the League, are members of this workgroup.
How can I help?
Contact your state Representative and State Senator today and ask them if they are aware of this Dark Stores issue and what they are doing about it. Tell your lawmakers that the “dark store” theory must end. If your community has been affected, tell your legislators how the lost tax dollars will impact local services and your residents. Legislators need to hear from you that their action on this issue is vital. Your efforts could mean the difference between stopping the epidemic and allowing it to spread even further. Go to the League’s Action Center to find the contact information for your state lawmakers.