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0726, 04 May 17

Legislature Moves on “Dark Store” Theory


Communities around Wisconsin have expressed frustration to state lawmakers over the 2008 Wisconsin Supreme Court property assessment decision that includes the “dark store” theory. Some large retail chains have been fighting and winning tax reassessment cases that deal with the level of property taxes they pay on properties that formerly housed their businesses which are now “dark” or vacant.

In a news conference Wednesday in Madison, Rep. Rob Brooks (RSaukville), Sen. Roger Roth (R-Appleton) and Sen. Duey Stroebel (R-Cedarburg) unveiled legislation regarding the “dark store theory.” The 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 their 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 vs. city of Madison, sided with Walgreens, saying 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.

“The court overstepped its bounds and we need to bring it back to where it always was prior to 2008,” Stroebel said. “Our taxation system is based on fair-market value. The Constitution has a uniformity clause which says all property has to be assessed the same and that is by fair-market value. In 2008, the courts hijacked the valuation process or real estate as it pertains to a certain — generally what they call the Walgreens or other similar kinds of stores.

I admit that I waffle with this a bit. On the one hand, I agree with Walgreens and the big box stores to an extent. We base our property taxes on the fair market value of the property. That value is generally what the owner could reasonably sell the property for in the open market and would fluctuate with market conditions. That is how we do it for residential properties. The tax assessors look at a residential property, its neighborhood, its general condition and specifications, and then make an educated guess on what the home would sell for in the current market. We could argue over how accurate those assessments are, but the intent is certainly to peg the value of the home at, or near, what the owner could sell it for. Why should we do it any different for businesses?

On the other hand, businesses are different than residential homes. The buildings are often purpose-built and have a drastically reduced value for any other businesses. This is why we see so many big box locations sit empty for years when the business closes. The value of the business is irreparably conjoined with the value of the property in which it resides. This is not true with all businesses – or even most. But with some, like Walgreens, it is undeniably true. So why shouldn’t those businesses pay taxes based more on what the property is worth to them instead of what it might be worth to somebody else?

In the end, I support the proposed law because wherever one falls in this argument, I don’t think it is a matter for the courts. It is a matter for the local taxing authority. If West Bend wants to assess property taxes based on the “dark store” theory to attract businesses and the residents are willing to pick up the slack in the property tax levy, then so be it. If they don’t, then that’s fine too. The point is that it should be up to the local taxing authority to make that determination. As long as it is fair and uniform, then the courts should not be involved.


0726, 04 May 2017


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