AAC


LEGAL CORNER Walmart, Dark Store Valuation Theory,


Lakeview School District, and what it all means for schools, counties, and cities


The logic behind the effort, widely known as “dark store theory,” is based on the idea that a fairly new and operating store should be valued as if it were “dark” or shut-down. They argue that cost and income approaches should not be considered, but rather the amount they would be able to sell the building to a buyer on the open market, insist- ing that some construction costs that make the building “unique” actually lower its value since the unique feature would not be of use to a potential buyer. With a mixed bag of success and failure across the country,


B


Walmart has avoided trying these claims in its home state — until now. In October 2018, Walmart filed a petition with the Pulaski County Court challenging the county assessor’s assessment of 10 parcels (eight Walmart stores and two Sam’s Clubs) totaling $145 million to a reduced alleged value of $93.4 million dollars. Walmart later amended its petition with the court to further reduce its claimed value to $74.3 million, roughly half of the properties’ assessed value accord- ing to the assessor. It is peculiar that Walmart incorporated its first petition’s values (which had no supporting appraisal) into its amended petition which was supported by an ap- praisal, even though there was a nearly $20 million inconsis- tency between the two petitions’ alleged true and correct val- ues. Approximately $900,000 tax dollars are at stake in this case, of which roughly three-fourths of that loss would be borne by Little Rock, North Little Rock, and Pulaski County Special school districts, with the remaining losses being split between the cities and Pulaski County. History shows that once a corporation is successful with


its dark store theory claims, it does not stop. According to a November 2018 report by CityLab, “[i]n Wisconsin, at least 230 cases have been filed across 34 counties since 2015, many of them repeat appeals for the same properties, by the top three attorneys representing retailers. In Michi- gan, more than $75 million in tax value was lost from the rolls from related appeals between 2013 and 2015. In In- diana, an estimated $3.5 billion in property value is on the line. Texas stands to lose $2.6 billion per year if successful


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enton County-based retail giant, Walmart, has led the effort across the country to slash prop- erty taxes for big box stores, joined by others, such as Target, Home Depot, and Menards.


appeals become widespread.” County assessors from across the state showed up at Walmart’s Pulaski County Court hearing held on July 17 and 18, driving home their vested interest in maintaining the integrity of the property tax system, as well as fair funding of the schools, counties, and cities. County Judge Barry Hyde presided over the hearing and asked both parties to submit post-hearing briefs before issuing his ruling. At the hearing, the petitioner has the burden of proof, by a preponderance of the evidence, that their alleged values are the true and correct values according to law. Walmart presented two expert witnesses. David Lennhoff,


LINDSEY BAILEY General Counsel


an expert on appraisal methodology, admitted that he had not reviewed Walmart’s appraisals and could not speculate as to their correctness, nor had he investigated the subject properties personally. Second, Jeff Ford, the appraiser who conducted the appraisals relied upon by Walmart, gave a full day’s testimony on how he arrived at his values. Cross-exami- nation and testimony by the Pulaski County Assessor’s Com- mercial Division Manager, Robert Clay, revealed numerous and significant flaws in Walmart’s appraisals, especially with regard to comparable properties used by Mr. Ford. As pointed out in Judge Hyde’s Aug. 14 final ruling against Walmart’s petition for a reduced assessment, some of the comparable properties relied upon in the appraisals were not similarly situated properties. Mr. Ford appraised several properties using comparable properties that were out of state, and not at all similarly situated. Additionally, some of the comparable properties that Mr. Ford used to value some of the petitioner’s properties were not arms- length transaction comparable sales at all, including sales from a Limited Liability Corporation to its very owner, which Mr. Ford admitted he had not investigated. Also peculiar was Mr. Ford’s reliance on Marshall & Swift


data for every metric utilized in his valuation under the cost approach, except depreciation, instead relying on Age and Life tables, resulting in approximately 50 percent greater deprecia- tion than Marshall & Swift on nearly every property, according to the County Assessor’s attorney, Harrison Kemp. Mr. Kemp suggested that Walmart’s appraisals were not independent ap-


COUNTY LINES, SUMMER 2019


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