Big-box assessments leave counties in the dark

State tax tribunal appeals in favor of big box stores have cost counties $75 million since 2013

Counties stand to lose millions of dollars if the “dark-store” method of assessing big-box stores continues to spread.

Chains such as Lowe’s, Target and Home Depot are challenging their tax assessments — and winning — resulting in a loss of revenue to counties.

The dark-store method values big stores that are open for business as though they were vacant and closed. Big retail chains argue that their stores should be assessed based on comparable sales. They say their stores were built for a specific purpose and, once closed, are difficult to sell for anything near what it cost to build them, diminishing their value. In addition, big-box stores often have deed restrictions on their properties that prevent them from being used by another retailer.

“I see it as really having a contagion factor,” said Brad Slagh, Ottawa County, Mich. treasurer and current president of the Michigan Association of County Treasurers (MACT). What began with big-box stores is spreading to “medium-box” retailers such as drugstore chain properties, he added.

In 2014, Meijer — a regional chain with stores in Marion County, Ind. — appealed a local store’s assessments covering a 10-year period. The state’s tax review board ordered the county to refund $2.4 million. 

Michigan, Indiana and Alabama are among states on the front lines of the issue. In Michigan, big box retailers have been appealing their tax assessments to the state’s tax tribunal, appointed by the governor, which has been siding with the stores’ owners. Since 2013, stores assessments have been reduced by $75 million due to tribunal decisions, according to MACT.

Why these states? It’s not just them, according to Tim Wilmath, director of valuation for Hillsborough County, Fla.’s property appraiser’s office; these assessment challenges are occurring daily, including in his county. But he said the big-box stores may be targeting smaller jurisdictions with part-time assessors who have less experience with the issue. Willmath recently co-authored an extensive article for the International Association of Assessing Officers’ magazine, Fair & Equitable.

Marquette County Board Chairman Gerald Corkin said that Marquette Township, city and county have been “hit hard” by the dark store issue.

Over the past two years, they’ve lost “approaching $1 million” that’s had to be returned to Home Depot and a number of other big-box stores within the county after their tax bills were reduced.

“For example, the Home Depot gets built for $10 million, and the tax tribunal compared it to a blighted store that’s out of business in Detroit,” he said. “The assessment went from $65 per square foot to $25 per square foot,” he explained. “The national average for these stores is $65 per square foot, so they reduced the valuation here in our county by 50 to 60 percent.

“It’s a serious issue here in Marquette County. We had a youth home that we had for decades to work with troubled children which we had to close, basically because of the loss of revenue from the big box stores,” Corkin said.

A trio of Upper Peninsula counties — Marquette, Delta and Dickinson — has been advocating “strongly” for a legislative fix, he added. His county has retained a private attorney, Jack Van Coevering, who formerly headed the tax tribunal, to seek legislation from the state’s General Assembly. A bill passed in 2015 fell short of the mark.

Scott Erbisch, Marquette’s county manager, called dark-store valuation an “emerging issue” for other states, and it’s being applied to additional types of structures. “They’ve gone to commercial-residential,” he said. “Auto dealerships have tried it and they’ve gotten some reductions.”

As in Michigan, counties in Alabama are also looking for legislative help, according to Sonny Brasfield, executive director of Association of County Commissions of Alabama (ACCA), who called dark store-based assessments a “scary concept in ad valorem tax.”

“One of the Lowe’s under litigation cost almost $9.5 million to construct; it’s being insured for more than $10 million, and Lowe’s argues that it’s worth about $2.5 million.”

Lowe’s is challenging the assessments of 31 of its stores spread throughout the state’s 67 counties, he added. “We’re very, very uneasy in Alabama about what happens if we lose this case to Lowe’s.”

Prior to the state association’s stepping in to play a coordinating role, individual counties were taking differing approaches to their dark-store assessment appeals.

Brasfield said that when the issue came to ACCA’s attention last August, one county was preparing to go to trial in about three weeks. “He was going to go to trial by himself; [Lowe’s] would have had a dozen attorneys.”

Under current law, county district attorneys are required to defend all tax assessment challenges — not a field in which they specialize.

ACCA is currently supporting a bill at the Legislature that would allow counties to hire outside lawyers in tax dispute cases — and expert witnesses. The state Senate passed the measure on March 3; it’s now being considered by the House.