Walmart among stores suing West Bend over assessments


Sept. 24, 2017

A woman walks back to her vehicle in the Walmart parking lot Friday morning in West Bend.
John Ehlke/Daily News

The dark store tax theory is starting to become a real concern for West Bend leaders as they address several corporate retailers who are using the courts to reduce tax assessments.

Representatives from Menards, Shopko and Walmart filed lawsuits Aug. 22 against city officials to have their property taxes reduced, claiming the assessor calculated the value of their retail locations at a higher level than what was appropriate.

The complaints were drafted similarly across all the retailers with the assessed property tax valuations as the only main difference. In the Menards case, the property was assessed at almost $10 million but company representatives believe the property is worth about $5.6 million.

In Shopko’s situation, the city believes the property should be valued at $6.9 million, but company officials estimated it at $3.9 million. Walmart’s property is worth $12.5 million, according to the assessor, but company executives figured it was at most $10.2 million.

During a closed-door session at the Sept. 11 Common Council meeting, Mayor Kraig Sadownikow and Common Council members discussed a settlement with Shopko and voted to approve it when they returned to open session.

The terms of settlement were not disclosed then, but according to the agreement, officials would refund the company about $37,000 in property taxes they received for 2015 and 2017.

They have been affected by the issue, surrendering hundreds of thousands of dollars in property tax revenue when larger retailers challenged their assessments.

Walgreens representatives work with contractors when purchasing properties in locations throughout the country, including in West Bend.

Officials from Walgreens then develop the location to specific standards and offer lease agreements that accounts for property taxes and other expenses, including the rent, operations and development.

They argued that payments received from those lease agreements should not be counted toward the locations valuations when property taxes are calculated. Company representatives filed a lawsuit challenging that and won their case in Madison.

As a result, West Bend officials had to lower the valuations of two Walgreens locations, one at $6.75 million while the other was at $5.7 million, to about $2.4 million. Forcing the city to relinquish almost $200,000 in tax revenue they received.

Large retailers such as Meijer, Walmart and Shopko are disputing the property tax assessments along another front, claiming their locations should be assessed when they are vacant and not when they are operating — a line of thought known as the dark store tax theory.

Robert Lorier, the city’s commercial consultant, said during an earlier interview that 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 unused compared to one that does because there isn’t any monetary value. The store is not generating sales and West Bend Assessor Jeff Yoder and Lorier argue it is not comparable to one in an area that is active.

In an earlier email, Yoder estimated that if the large retailers win their cases, city representatives and other taxing entities could lose more than $400,000.

That is significant because the cost of service those locations remain, even increase over time. First responders such as firefighters and police officers must respond in cases of emergencies, roads that lead to the stores must be maintained and utility infrastructure must be preserved.

The money must be recovered in some fashion, and city officials are worried the tax burden will shift to residential property owners.

Robert Hill, a property tax lawyer representing the large retailers, argued differently. He claims the value of a location should only be based on the tangible materials that comprise the location. That is the brick, the wood and the mortar for the development — the income-generating portion of the business should not factor.

Hill gave an example of two hypothetical individuals living in a neighborhood whose homes are roughly equal in value, but living in one of them is an entrepreneur who generates an additional $10 million each year from the property transacting business deals.

The assessor would not value the home differently because the entrepreneur generates income. If the entrepreneur’s neighbor sells the property for $250,000, that entrepreneur should expect to sell the home for roughly the same price, not 10 times more simply because money is generated from the location.

In his view, the locations are not stores at all but warehouses, and taxes should be assessed based on the characteristics of the building, which can be determined based on the sales price of the location.

“The bottom line is that the reason Walmart is appealing is because they have sold … 125 stores nationwide, and the average sale price is approximately $22 per square foot,” Hill said.

He claimed that retailers with a large footprint sell for lower rates because of supply and demand issues.

“Who needs these things?” Hill said. “These things are so darn big. Secondly, I have to repurpose it, which means I have to dump money into moving the restrooms, in some cases moving the cafeteria, stripping the brand name out and putting mine in. In other words, I can’t pay you more than $20 to $30 (per square foot) for the building because I am going to have to spend another $20 to $30 to repurpose it.”