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Counties in at least 12 states are confronting valuation and assessment issues, including valuation appeals, due to the “dark store” method of assessing big-box stores.


DARK STORES. Counties in at least 12 states are confronting valuation and assessment issues, including valuation appeals, due to the “dark store” method of assessing big-box stores. This method values currently operating retail store locations for tax purposes as if they were vacant and closed; proponents argue that this real estate could not be sold near the cost of construction, since these stores were built out for particular purposes. Since the assessment of a closed location is far lower than that of an operational facility, property tax revenue generated from operating big box store is significantly diminished with this valuation method.


Owners of this type of commercial real estate have achieved varying degrees of success litigating this matter in court, often by arguing the valuation method conflicts with statutory law. In October 2016, the U.S. Supreme Court refused Rite Aid Corp.’s petition for certiorari challenging property valuations of two N.Y. retail locations; the towns valued the locations based on the drugstore leases rather than using a dark store method.24


In May 2016, the Michigan Court of Appeals reversed a ruling


by a tax tribunal held in favor of retailer Menard. The court held that the tax tribunal had “made an error of law and its decision was not supported by competent, material and substantial evidence” in allowing the dark store valuation method to apply.25


The state of Michigan is considered to be a “founding father” of dark store cases. Since 2013, Mich. counties have refunded approximately $78 million in property taxes related to dark store valuations. In Oakland County, Mich., a Target store once valued at $80 per square foot had its assessed value reduced to $30 after the county lost the assessment appeal. In Midland County, Mich., another Target’s assessed value was slashed from $66 per square foot to just $30 as well. Although various pieces of legislation have been introduced, none yet appear viable.


Counties often lack the human resources needed to challenge these valuations in court, even if financially possible. For instance, until October of 2016, Ala. state law required the local district attorney to handle all ad valorem tax cases within their respective district. Recently passed state legislation permits county boards to retain outside counsel in property tax appeals. Funding is derived from the county’s reappraisal budget.26


Counties can also take measures to prevent “dark store” appeals. For example, some counties in Ga. issued ordinances prohibiting deed restrictions and requiring big box stores to demolish the building upon discontinuation of retail use.27


One item on Wisconsin’s county legislative agenda for 2017-2018 in the


taxation and finance arena is “Amend property tax assessment to close the ‘dark store’ loophole.” Counties recognize that this loss in property tax revenue results in a higher tax burden for the other property owners in the county, reduced services or both.


These are just of the challenges facing counties given technological, behavioral and economic shifts. Marijuana legalization is far from a national norm, and the costs have not been fully assessed. Tax revenues from oil, natural gas and coal production are particularly volatile due to market pricing and also potential regulatory impediments. Integrating the sharing economy into the tax system is still in an incipient form. The “dark store” valuation appeals are on the rise and spreading throughout the country. Counties are alert at rising issues and active in providing solutions.


NATIONAL ASSOCIATION of COUNTIES | NOVEMBER 2016 COUNTY LINES, SPRING 2017 69


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