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.
somebody trying to work through a loophole,” said Jim Brunnquell,
village board president.
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.
prepared a report for the board’s resolution using information from
the League of Wisconsin Municipalities. The report said retailers
are arguing that their assessment should equal that of dark stores
because their properties would never sell for their actual
construction costs on the open market; many retailers have
facilities built specifically for their stores’ needs that others
would not require, or place deed restrictions on the property that
it cannot be sold to direct competitors after they are gone.
“We did receive
a visit from corporate staff at Meijer within a week or two of them
opening their store, wanting the village to adhere to this dark
store theory,” Hofland said.
The village of
Pleasant Prairie in Kenosha County made a settlement agreement with
Target in September, based on the dark store theory. Pleasant
Administrator Mike Pollocoff published an article on the matter in
the village newsletter; it was also reprinted in the
“Municipality” this month.
agreed to give the Target there – just one store – a $118,946.56
refund based on three years’ worth of valuation. Whereas the village
had valued the business at between $12 million and $14 million from
2012 and 2014, Target argued it should be valued at $6.6 million,
based on the assessments of similar but abandoned properties in
Pleasant Prairie settled at a valuation of about $10.78 million to
avoid rising litigation costs.
While these tax
arguments are relatively new in Wisconsin, they have already taken
hold in other states. The Michigan Association of County Treasures
estimated that court rulings upholding the lower assessments have
cost communities across the state nearly $75 million in taxes.
communities have actually been engaged in litigation with these
national chains, as the commercial property owners as for
significant discounts,” Hofland said.
assessment technique being used, triple net lease, has been employed
with success in Wisconsin. Walgreens and CVS stores across the state
have argued that their tax bill should be only half of what they are
paying because they rent buildings rather than own them, and the
rent they pay does not accurately reflect property values.
Hofland’s report showed that Walgreens leased about 80 percent of
its stores nationally, and CVS about 95 percent of theirs. The
companies contract with developers to have stores built to highly
specific standards and then lease for an amount including rent,
construction costs, property taxes and operating costs. They have
argued that the properties’ value for tax reasons should not be
based on what investors will pay to own a drugstore lease, but what
landlords could get if the drugstore left and another business moved
in, because other retailers generally pay much less.
Circuit Court recently ruled in favor of an Oshkosh Walgreens,
ordering the city of Oshkosh to pay the Walgreens a $69,549 tax
refund, according to Hofland’s report.
communities, property taxes are the main revenue source for
community services and programming. If municipalities are forced to
honor these tax strategies that cause drastic decreases in
commercial property taxes, that would equate to tax burden shifts to
residential properties and decreased municipal budgets.
been introduced in Michigan that would close the loopholes; the
Republican-controlled Indiana Legislature recently passed a new law
with strong bipartisan support prohibiting assessors from valuing
new or operating box stores the same as nearby abandoned stores. The
Grafton resolution asks Wisconsin lawmakers to follow that lead.
“The thought is
that our state legislature needs to address this issue sooner than
later, in light of the lawsuits that are already out there in
communities around Wisconsin,” Hofland told the board.
Melanie Boyung can be reached at