Let there be light
Bill would close tax loophole for big box stores

By Melanie Boyung - News Graphic Staff

March 28, 2017

OZAUKEE COUNTY — The state Legislature is expected to come forward soon to close a tax loophole that big box stores have been using to slash their tax bills. The legislation is being prepared by Sen. Duey Stroebel, R-Cedarburg, and Rep. Rob Brooks, R-Saukville. The bill is expected to come out in the next few weeks, according to Stroebel. “We have something that’s almost ready,” he said.

Dark store theory is a tax argument being used by a variety of big box store chains to argue their stores are over-assessed for tax purposes. Under the argument, the operating business within a building should not factor into assessment; the assessment that decides a store’s property taxes should be determined by recent sales of comparable, vacant properties.

In 2008, a Wisconsin Supreme Court case Walgreens v. city of Madison, sided with Walgreens, saying

that the store’s taxes should be based not on the store’s lease agreement, but on what the landlord could get if the drugstore moved out of the buildings, which are generally developed and built to the store’s particular specifications.

Information from the League of Wisconsin Municipalities shows more than 80 percent of Walgreens locations and more than 95 percent of CVS stores operate on lease agreements.

While slightly different than dark store theory, because most of those properties are leased, box store chains followed with the argument that their market value should be based not on the value of a new and operational business, but on the value of abandoned stores and the sales thereof.

Such stores, often built for specific companies and specific needs, sell for considerably less after abandoned than the value they hold while functioning because such buildings hold limited use to other users, according to Stroebel and LWM information.

“The courts have really kind of hijacked the assessment process,” Stroebel said.

Stroebel, who has experience and education in real estate and assessment, said the revenue of a property has always been part of assessing it for tax purposes.

“That’s (revenue) really the essence of how property is assessed … Due to this court decision, you can’t consider the cash flow,” said Stroebel, owner of Terrace Realty in Cedarburg.

“To profess to be able to determine the market value blind to that factor is just not realistic,” he added.

Court records show communities across Wisconsin have had lawsuits filed against them by box stores such as Lowe’s, Target and Shopko, among others, contesting their taxes. In many cases, the businesses have either won and had taxes slashed or refunded, or the municipalities came to a settlement to avoid expensive legal battles, according to the LWM.

League information states that assessors have estimated some communities could experience residential tax bills increasing by hundreds of dollars, as residential taxes go up by 5 percent to 17 percent to compensate for the drop in commercial properties’ taxes.

Stroebel said the legislation is straightforward. The loophole will be closed as the bill specifies that the revenue a property’s generates is a factor in its assessment.

Email: mboyung@conleynet.com

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