West Bend asks governor, legislators to close tax loopholes
City could lose revenue due to ‘dark store’ assessments

By RALPH CHAPOCO - Daily News

Nov. 2, 2016

A man walks under an overhang Wednesday afternoon outside of Menards in West Bend.
John Ehlke/Daily News

During the Oct. 17 West Bend Common Council meeting, aldermen and Mayor Kraig Sadownikow voted to approve a resolution asking Gov. Scott Walker and state legislators to protect residential property owners and independent business owners from a potential tax increase because large retailers are asking the values of their properties be reduced.

“If you decide to pass this resolution, it will let the governor and legislators know that these loopholes are not good for Wisconsin municipalities and the shift of property tax to other residential owners,” Assessor Jeff Yoder said. “Basically, like Adam (Williquette, alderman for District 7) said, there are two different issues out there. “One is with your lease-type properties — there are arguments about how to assess that correctly. The other item is the big box dark store theory where they are saying that my thriving store is only worth what a dark, vacant store is worth.”

Per the resolution, parts of which were obtained from the Wisconsin League of Municipalities, Wisconsin residents pay more than 70 percent of the total statewide tax levy and there are lawsuits in the state that compel assessors to value stores from large retailers at a lower amount than what they believe is the true market value.

The resolution references the Indiana and Michigan state legislatures that passed legislation regarding the matter, and implores Wisconsin to do the same.

The lease properties deal with the Walgreens store, but the dark store tax issue is a separate topic that could dramatically decrease the amount of property tax revenue the city collects from large retailers such as Walmart, Menards or Shopko.

Robert Lorier, the city’s commercial consultant, said locations are valued based on sales of similar properties that are sold.

“Neighborhood type of things,” Lorier said when asked what factors are considered. “Is it the same use? Is it another grocery store, another tavern — that type of thing? Is the economics the same?”

In terms of dark stores, retailers want their properties assessed using different characteristics.

“They are saying you can only use properties of dark stores, properties that are sitting vacant,” Lorier said. “Those are the ones they want to use. Our argument there is a reason they left. The location isn’t as good. It is not desirable. There is a reason it is vacant. It is not the same as it is now.”

Stores that are vacant will be assessed at a lower price because of economics — it is not worth as much if empty compared to one that is in use because there isn’t any monetary value. The store is not generating sales, and Yoder and Lorier argue it is not comparable to one in an area that is active.

West Bend officials are involved in two cases against two retailers, Menards and Shopko, who want their properties valued at the same amount as similar stores that are vacant.

The potential fallout can be significant because differences in the valuations between the opposing sides is in the millions of dollars. In total, if the retailers receive a favorable ruling, the city of West Bend could lose more than $150,000 annually.

That number potentially understates the loss because retailers want back pay and interest from when they paid taxes for the higher assessment.

In this scenario, municipalities collect less revenue but must still provide a level of service, including law enforcement and emergency calls.

“If they are not going to pay their fair share of taxes and not pay enough to cover your police and fire, and all the services that go to it, do you really want them in your community?” Lorier asked rhetorically.

Municipalities will navigate a maze of consequences and decide if large retailers are worth the revenue they generate despite the increased services they require.

Given tightening budgets, many areas must cover revenue losses in some other fashion and the burden is shifting to residential property owners. From an issue briefing published by the League, homeowners could experience an 8 percent estimated increase in their property taxes, about a $250 increase if the theory is fully implemented.

Menards spokesman Jeff Abbott asked the Daily News to send the question by email and would comment via written response if someone is willing, but no email was returned.

Emails were sent to Shopko representatives LeAnn Harley and Michelle Hansen, but there was no reply.

Wisconsin is not the only state dealing with the issue. Big box stores are large retailers that have an advantage of applying the theory to other states if it is deemed appropriate — so the trend may continue.

Joan Youngman from the Lincoln Institute of Land Policy said it is starting to affect states such as New York. It is an important issue in Indiana and Michigan.

Chris Hackbarth, director of state affairs from the Michigan Municipal League has concerns the dark store valuation method will spread to other industries.

“What we saw in Michigan were 30, 40, 50, 60 percent appeals for reductions in value,” Hackbarth said. “Then you started to see it ripple to your Target stores, to your Menard stores, Home Depots and your Lowes, and it just spread to every single one of those entities. Now our concern is what other entities start looking at that same set of arguments and making a claim to them.”

Hackbarth said there is a difficulty in estimating the potential fallout because the data is decentralized, but he said it could be anywhere from $75 million to $100 million in local property tax revenue that has been lost over three years.

Government officials had to make decisions to compensate.

“I know in some of those Upper Peninsula communities, they had library hours reduced,” Hackbarth said. “They have had services and hours reduced in cities. It is a very real impact in services, especially in some of those smaller communities where that one store may be a big chunk of the tax base.”

West Bend officials are turning to the state for assistance.

“Well the League came up with a proposal and that was for the resolution, so that is coming from the League of Wisconsin Municipalities and they are proposing the legislators pass a couple of items that will help with the dark store issue and the leasing issue,” Yoder said.

State Sen. Duey Stroebel’s Communications Director Ethan Hollenberger wrote as much in an email to the Daily News.

“As I mentioned to you, Senator Stroebel is working with stakeholders to find a legislative solution to the “dark store” tax theory,” Hollenberger wrote. “At this time, a piece of legislation is being drafted for introduction when the legislative session begins in January.”

Williquette said he deals with this issue on daily basis.

“If their assessments get dropped in half, it will shift it to the rest of the tax base,” Williquette said. “Residential properties will see it. It is a loophole. It is not a consistent — so there is an opportunity in the legislative session this year in Madison to fix it and give us a clear direction on how these assessments should happen going forward.”