Talk of big box retailers benefiting from CBRM’s recently announced 5% tax cut got me to googling and I discovered that these corporations have been getting quite creative in their attempts to reduce their assessments south of the border.
I will preface this by saying that my “research” (which I’ve already admitted amounted to “googling”) didn’t turn up any Canadian cases of the phenomenon I’m about to discuss and I haven’t had time to investigate this — it could be that Canadian property tax laws make this gambit more difficult, I’m not sure. But I’m writing about it because it’s interesting and because it provides some timely insight into the true nature of these corporations.
So, dear readers, meet “the dark store” theory.
Walmart in Laredo, Texas, 2004. (Photo by Jared C. Benedict, CC BY-SA 3.0 via Wikimedia Commons)
‘Near-worthless’
Back in 2018, Bloomberg CityLab reporter Laura Bliss wrote that as “big-box retailers shutter, many companies have found a way to turn vacant properties into lower taxes on open stores nearby.” It’s all down to the “dark store theory”:
That’s the ominous-sounding term that administrators have given to a head-spinning legal argument taking cities across the U.S. by storm. Big-box retailers such as Walmart, Target, Meijer, Menards, and others are trimming their expenses in a forum where few residents are looking: the property tax assessment process. With one property tax appeal after another, they are compelling small-town assessors and high-court judges to accept the novel argument that their bustling big boxes should be valued like vacant “dark” stores—i.e., the near-worthless properties now peppering America’s shopping plazas.
Bliss reported at the time that the strategy was being used in more than 20 states and four years later, it still seems popular. I focused on Walmart and found numerous recent cases of the retailer trying to slash its property taxes, including this February 27 article from The Maine Monitor about Walmart using the dark store theory to reduce the assessment of a store in Thomaston, Maine.
Mike Mozart from Funny YouTube, USA, CC BY 2.0, via Wikimedia Commons
Retailers like Walmart, writes the Monitor:
…argue that the stores are so specially designed that they are functionally obsolete nearly as soon as they are built, and will lose much of their value as soon as the retailer leaves. Corporate attorneys are deploying the strategy in an effort to slash property taxes, often by hundreds of thousands of dollars, in communities around the country.
While the Monitor agrees that defunct Walmarts often sell for less than their assessed value, the paper points out that this is often because of deed restrictions put in place by Walmart. It uses the example of a former Walmart in Rockland, Maine, which closed when the Thomaston store opened “down the street.” Valued at $10.1 million when it was open, the Rockland store sold for $3.13 million. But deed restrictions meant the new owner could not use it as “a grocery store, a discount department store, a wholesale club, a pharmacy or a recreational facility.”
As Henry Grabar, writing about the phenomenon for Slate in 2019, put it:
It’s a bit like if I hired the Kool-Aid Man School of Door Frame Design to design my house with cookie-cutter apertures of my own body between rooms—then forbid the sale to anyone my height. Even though I had spent a bunch of money on those kooky doorways, the low resale value could be used to justify a low tax bill on all my me-shaped projects.
The Monitor‘s data shows that since 2015, large retailers — including Home Depot, Walmart and Best Buy — have succeeded in lowering the valuation of their properties by more than $16 million in “communities from Biddeford to Bangor” in Maine. They’ve been successful not so much because their argument is so convincing, but because it costs municipalities thousands of dollars in legal fees to deal with the requests. After Thomaston denied Walmart’s initial request:
Walmart’s attorneys pressed on. The company took the matter to the State Board of Property Tax Review, which nearly four years later has yet to hear the case. Every year since, Walmart has filed nearly identical abatement requests, costing the town tens of thousands of dollars in staff time and legal fees. All are pending review by the state board.
Complicating matters further, Maine’s State Board of Property Tax Review is “disfunctional” and has not heard a case in “at least two years.”
Retail Apocalypse?
Other recent cases I turned up included one in Lansing, Michigan where, in 2019, the Michigan Tax Tribunal bought Walmart’s dark store arguments and ordered cash-strapped Lansing to repay the retailer $1.8 million in property taxes.
In October 2021, The Journal Times reported that Walmart was suing the City of Burlington, Wisconsin, hoping to slash the assessed value of its store there from $8.6 million to $4.5 million. Writes the Journal:
Wisconsin state tax law allows big-box retail stores to pay taxes on active properties at the same rate that they pay on vacant properties, or “dark stores.”
If Walmart succeeds and its property tax bill declines, Burlington could lose $80,000 a year in tax revenue that either would have to be trimmed from city services or would be made up by homeowners and others paying higher taxes.
Ambrosia LaFluer, CC BY 2.0 , via Wikimedia Commons
In June 2021, Colorado Politics reported that Walmart had lost its attempt to slash its property tax assessment in Adams County by arguing — in a variation on the “dark store” theme — that its “equipment” had been over-valued by the county assessor:
Walmart based its appeal on the idea that increased online commerce is forcing traditional stores to close down, saturating the market with secondhand store property — shelving, display racks, tools, forklifts, refrigeration units and the like. These items, known as business personal property, therefore face “economic obsolescence” in addition to physical wear and tear, given that a glut in the aftermarket lowers its price.
“With the surge of e-commerce, traditional brick-and-mortar retailers are struggling to stay alive,” Brian Huebsch, an attorney for Walmart, argued in court filings. “Commentators identify this as the ‘Retail Apocalypse.'”
The three-member Court of Appeal disagreed, saying the assessor had, correctly, evaluated the equipment “when installed and in use by the three stores — rather than based on future or hypothetical sale of the used equipment.” It also pointed out that Walmart had “not been affected by this [retail] apocalypse at all here in Colorado or Adams County.”
In fact, as the Burlington Journal Times noted, the Arkansas-based retailer reported $13.7 billion in profits on sales totaling $559 billion in 2020.
In January 2022, the Kansas Supreme Court agreed to take up a “dark store” theory case involving Johnson County and Walmart. The county is appealing a ruling by the Kansas Board of Tax Appeals which, as the Shawnee Mission Post reported, “sided with Walmart in its argument that the value of the retail giant’s properties for taxing purposes should be lower than what Johnson County considered to be fair.”
But I am pleased to report that Walmart doesn’t always win. In January 2022, WLBT 3, an NBC affiliate in Rankin, Mississippi, reported that lawsuits filed by Walmart and Sam’s Club against the Rankin County tax assessor and board of supervisors had been dismissed with prejudice in favor of the county. The big-box retailer had been seeking a 50% cut in its property taxes which would have meant a $500,000 loss to the county. The attorney for the board of supervisors told WLBT that Walmart was getting a good deal:
They get our police and fire protection and benefit from our lower insurance rates. They benefit greatly from Rankin County. We hope they stop suing us.
Featured image: A Walmart in Hamilton County, Tennessee that was closed to open a new store less than a mile away. Photo by Brave New Films from United States, CC BY 2.0, via Wikimedia Commons
