A plan to prevent big box stores from paying less in property taxes may be gaining steam in the Legislature after the House approved the measure, which supporters say will lead to fairer tax evaluations. Supporters say the measure is supposed to ensure property taxes are assessed more equitably for large retail stores. It passed the House by a wide margin despite opposition from big business interests such as the Michigan Chamber of Commerce and the Michigan Retailers Association. Opponents say the legislation would complicate the tax appeal process, increase the cost of appeals and violate a state constitutional requirement that property be valued uniformly.
Michigan lawmakers from both parties introduced bills this week aimed at stopping a common valuation method they say gives “unfair property tax breaks” to big box stores. According to the Detroit Free Press, local governments across the state say they are losing millions of dollars in taxes because big box stores are unfairly getting their assessments slashed by using the "dark store" theory in appeals. However, big box store owners uphold this is an appropriate valuation method, arguing that since they wouldn't sell their stores to other retailers, assessors should look at sales of stores that have gone out of business and are vacant, since that's the only way they would ever come on the market. The 'dark store' approach to determining value has been upheld by the Michigan Tax Tribunal and state courts.
A bipartisan group of Michigan lawmakers say they’ll make a major push in the fall to end special 'property tax discounts' given to big box stores. State Rep. John Kivela (D-Marquette) says when big box stores appeal their property tax assessments, the Michigan Tax Tribunal will treat the buildings as if they’re vacant in order to give the stores a big discount. Kivela says a lot of the stores are able to reduce their taxable value from from 60 to 70 dollars a square foot to 25, but the same rules aren't being applied to locally-owned businesses.
In response to recent Indiana Board of Tax Review decisions favoring Meijer and Kohl's, which will result in major value reductions during the upcoming spring assessment cycle, Sen. Brandt Hershman is trying to advance legislation that would shore up county assessors' valuations of big-box stores. In these cases, the big box stores argued their property values should be compared to properties that have been vacated and sold, referred to as the "dark store theory," rather than based on the current condition of the business. Assessors are concerned other big box retailers will follow suit and "overwhelm" them with appeals.
A recent court decision favoring Meijer over Marion County, Indiana could impact the way big box retailers are assessed statewide. According to the Indianapolis Business Journal, the Indiana Board of Tax Review ruled in December that the East 96th Street Meijer store—one of the most successful in the state—should have been assessed in 2012 at the equivalent of $30 per square foot, not the $83 per square foot assigned by Marion County. The decision would hold Marion County responsible to refund $2.4 million to cover the years from 2002-2012. Other county assessors are under no legal obligation to abide by the ruling, but the closely watched case dealt with a fundamental issue in Meijer and other big-box chains’ appeals: Is the value of a store tied to the sales that happen inside, or is it limited to the big, boxy building itself?
A Pennsylvania school district is creating significant tension between itself and the Franklin County, Pennsylvania Economic Development Department. In an effort to generate more tax revenue from commercial and industrial properties, the Chambersburg Area School District (CASD) is pushing a reverse tax assessment initiative, in which the district has a consultant that identifies commercial properties as being underassessed. With school board approval, the district pursues an appeal to reassess a property's value at an increased amount -- going back to the point the appeal is filed, and through and beyond the time a settlement is reached or the appeal is won. Specifically, the CASD is targeting large warehouse properties occupied by major corporations such as Sears and Target. Not only is the school district creating a risk of losing large commercial tenants and the jobs they provide, there seems to be little concern about the impact it would have on the economic stability of this mostly rural central Pennsylvania county. Paradigm Tax Group is available to assist taxpayers effected by this trend of reverse tax appeals.
The performance gap between strong class-B malls and struggling ones continues to grow by the day. According to the National Real Estate Investor, while malls with little competition are experiencing increasing market rents, class-B malls in larger markets that are competing against other properties are losing tenants and struggling to stay afloat. Weak performance of anchor tenants such as Sears and J.C. Penney has already challenged occupancies and rental rates at many class-B malls, especially. Another challenge facing the sector is that in addition to competing with other malls to retain tenants, mall owners are also competing against open-air centers, who have been receiving greater interest in their properties over traditional mall tenants. Lastly, investor interest is low for class-B properties, as many traditional investors are shying away from the sector.
Despite Michigan voters overwhelmingly approving Proposal 1 last month, which phases out the business personal property tax, business lobbyists are pushing for further business tax reform. While Prop 1 was a major accomplishment for the state, many people don't realize that large non-manufacturing companies, including major retailers such as Meijer Inc., big legal and accounting firms and utilities, were not covered by Proposal 1 and will continue paying the tax on their office equipment. That will generate roughly $400 million a year for local governments, according to an estimate from the state House Fiscal Agency. The new legislation opens the door to further reform, as those business not included in Prop 1 will eventually want relief from the tax as well.
Two Michigan townships, Breitung and Marquette, took cases to the Michigan Court of Appeals in April, where they battled to overturn the Michigan Tax Tribunal's ruling to slash the property assessments of two “big box” retailers. After the failed appeals, Dickinson County has decided to step in and provide $5,000 to help Breitung Township (which already spent $80,000 on their unsuccessful efforts to appeal the property tax reduction for Home Depot) to help the county take the case to the Michigan Supreme Court. County Commissioner Joe Stevens, who proposed the spending, is taking action due to the major significance of the case and its statewide implications.