‘Dark store’ tax issue continues to vex legislators

By RALPH CHAPOCO - Daily News Staff

March 7, 2018

Eric Shutes of West Bend crosses the street at the intersection of Paradise Drive and 7th Avenue on Tuesday morning near the Menards in West Bend.
John Ehlke/Daily News

West Bend officials once again express their support for legislation that would address property assessments issues concerning corporate retailers, but it occurs against a backdrop of frustration regarding the process.

Common Council members voted to approve a resolution during the Feb. 19 meeting, encouraging Gov. Scott Walker and members of the state Legislature to pass two bills introduced by State Sen. Duey Stroebel and State Rep. Robert Brooks, that will address lawsuits filed by corporations to reduce their property assessments.

“The League of Wisconsin Municipalities put this information out, this sample resolution,” Administrator Jay Shambeau said. “You guys have already passed at least two of them encouraging the legislature to adopt this legislation.”

The resolution conveys the concerns that have been introduced for at least a year as the two bills were making their way through the bicameral. It referenced the burden of property taxes on homeowners, who pay almost 70 percent of the total property tax levy, the lower market values of national chain retailers that shift the tax burden from businesses to residential properties.

At the time city officials voted on the resolution, the state was in the waning days of their session — and many state representatives, advocacy groups and municipal officials were hoping for passage of the two measures considering the increased time pressure.

“I know the mayor personally has expressed frustration with leadership within our legislature,” Shambeau said. “It appears the votes are there but are just unwilling to put it on the floor to get it to a vote.”

Advocates will have to wait longer for passage since there were not enough supporters for the two bills, each attempting to address a separate concern among municipal officials regarding the valuation of commercial properties by larger retailers.

John Soper, Stroebel’s chief of staff, said legislators were close to passage on the bills late in 2017, but they were a few votes shy of securing approval. They continued working, but it became apparent that, although close, there were not enough supporters.

With the legislature closed, advocates must wait until 2019 when the state senators and representatives convene once again to take up the issue.

Brooks’ legislation dealt with the dark store issue, the term used by many to describe attempts by retailers seeking to reduce their property tax valuations. Company representatives, including some in West Bend such as Walmart, Shopko and Menards, have challenged the valuations regarding properties they own in the area — claiming they are higher than they should be.

Assessors have valued the locations using comparable retail shops that are operating, but the retailers have argued their properties should be assessed when they are empty or “dark.” They refer to a supreme court case where the jurists sided with the retailers. Their property valuations, and consequently the property taxes that were levied by the municipalities, were lowered.

Others have sought to use that ruling to have their assessments and taxes reduced — creating a series of lawsuits that cities, towns and villages must address.

Stroebel’s bill deals with properties with lease agreements, those such as Walgreens that is also located in West Bend. In stores such as these, company representatives work with contractors to develop the properties to specific standards. They will then establish lease agreements with another party to will cover associated expenses that include operating and development costs. The retailers have argued the lease payments, the steady stream of income they receive, should not be included in the valuation. It should be the value of the location exclusively.

Stroebel’s bill attempts to incorporate those lease payments.

Parties on both sides of the debate have argued their points of view. Robert Hill is an attorney who represents the retailers in several lawsuits. He, along with Assessor Michael Wedl, have argued there is no standard or set of criteria for evaluating the values of properties.

The valuations, and therefore the property taxes that company representatives pay, are determined by assessors who have discretion for determining what the properties are worth. That can differ depending on the individual who is performing the assessment. The two displayed a graphic where one location in Milwaukee is valued at $20 per square foot while another was assessed at $120.

“Right there we have got an issue,” Wedl said. “Even if it is an old Target and a new Walmart, why is there a $100 per square foot difference between them?”

They also argued that the assessments should only reflect the materials associated with the location, such as the brick and mortar used at the site. The income generating portion of the establishment should not be counted as part of the property assessment.

As an example, if an entrepreneur works out of the home, the property is valued solely on the location and the building, not by the income the individual is generating out of the location.

“What the major retailers are saying is that, ‘We are already subsidizing everybody else, because we are already paying taxes on assessments that are three and four times what we could sell these buildings for,’” Hill said during an October interview. “But, we also have a duty to our shareholders, the public, the owners and, quite frankly to other taxpayers, not to just say, ‘assessors are free to pick whatever number they choose,’ they have to stay in line with sales prices because that is the only thing that keeps the system honest.”

Those on the opposing side reject that valuations should be conducted on vacant properties because they are not comparable as the locations they are in.

“They are saying you can only use properties of dark stores, properties that are sitting vacant,” said Robert Lorier during an earlier interview, West Bend’s commercial consultant. “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.”

It is difficult to understate the potential impact that could come from passage or failure of the two bills. Common Council members settled a lawsuit with Shopko where they had to refund company representatives almost $40,000.

The consequences can be severe. Soon, there could be a series of challenges from any corporation occupying locations within municipalities, creating a cascade of reductions that municipalities may not be able to handle.

West Bend Area Chamber Executive Director Craig Farrell is concerned about a tax shift, where more of the tax burden is borne by residential owners.

“Active stores in our community receive and depend on many services from various city departments (i.e. Police, Fire, roads, etc.), while an empty ‘dark store’ does not,” he said. “There is a cost associated with those services. Why should a so-called dark store receive the services if they are not willing to pay for them?”

Despite the setback, legislators who introduced the measure have promised to keep working.

“Despite my best efforts with Representative Rob Brooks, Senator Roger Roth and others it is clear legislation to deal with the ‘Dark Store’ issue will not pass this session,” Stroebel wrote in a statement. “I intend to reintroduce legislation next year. Over the past few months we have gained a lot of ground and educated many of my colleagues. I am hopeful we can pass meaningful reform next session.

“The heart of this controversy is the Wisconsin Constitution’s requirement of uniformity in property taxation. Uniformity means fair market valuations. These bills will result in the use of actual fair market value for all property, which is what taxpayers deserve when it is their property being assessed and taxed.”