July 24, 2024

Keeping Media and Government Accountable.

Dark store theory: counties break the law, threaten residential property tax hike

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Even the name — dark store theory — sounds ominous.

With the willing participation of local media, some local officials are threatening homeowners with property tax hikes if they don’t get away with illegally taxing large retailers. That may sound like a conspiracy theory, but it’s not; quotes from the Kansas Court of Appeals and elected officials reveal a conscious, concerted effort to deceive taxpayers.

Johnson County is ground zero in the “dark store theory” controversy.  In 2016, the county changed its valuation methodology, which caused some retail valuations to more than double.  Instead of appraising the value of the land and building as required under Kansas law, Johnson County Appraiser Paul Welcome also taxed owners on the value of the leases on their buildings.  When the retailers appealed, Johnson County said they wanted their buildings appraised as though they were empty or ‘dark.’  The county made it sound as though the retailers were asking for a big break, but they were only asking to be taxed in accordance with state law.

Media helps elected officials deceive taxpayers with ‘dark store’

The Kansas City Star has long helped Johnson County Commission Chair Ed Eilert threaten taxpayers and last week, the Gannett newspapers in Kansas joined in on the conspiracy to deceive taxpayers.  The story that appeared in Topeka, Hutchinson, Salina, and other markets said municipalities fear that “consistently lowering the value of the biggest commercial properties… will have a major impact on how much homeowners and small businesses pay going forward.”

Jim Garter, the top Democrat on the House Taxation Committee, said, “Something’s got to happen if you shrink the base and all that money is leaving.  Where do you make it out?”

But the Kansas Court of Appeals has consistently ruled that Johnson County and others are using an illegal appraisal method on large retailers like Walmart, Home Depot, and Target.

Johnson County officials even admit they are violating the law.  A September 2019 ruling from the Kansas Board of Tax Appeals (BOTA) admonished the Johnson County Appraiser’s Office for illegally hiking appraised values on Walmart and Sam’s Club stores.  The panel said, “…the County admittedly is making its record for an appeal seeking the reversal of Kansas precedent….”

Last week, the Kansas Court of Appeals rejected Johnson County’s “dark store” justification for increasing property valuations and taxes on Walmarts and Sam’s Clubs. The appeals court affirmed a Board of Tax Appeals decision, ruling that Johnson County overvalued nine Walmarts and two Sam’s Clubs.

Big-box property valuations increased by 85% in one year

Property appraisals for Johnson County’s 57 big box retailers jumped from $400 million in 2015 to $742 million in 2016. All 57 retailers balked at the new price tag, an 85% tax increase, and appealed to the Kansas Board of Tax Appeals. 

Retailers argued in court that the county used a property assessment method contrary to state law to establish big box valuations. The court agreed. Retailers will pay higher taxes than in prior years — just not 85% more.

“It is the role of the Kansas Legislature–not the courts or BOTA–to implement shifts in state tax policy,” the recent opinion reads.

The Kansas Association of Counties is now spreading the dark store theory propaganda.  Their 2021 annual conference agenda describes a seminar on dark store theory that makes it sound as though the retailers are at fault.

“Dark store theory, legally referred to as hypothetical leased fee valuation, allows real estate owners — big-box retailers in particular — to appeal their property valuations by arguing their stores should be valued in comparison to vacant, or dark, stores in the area, instead of having a traditional fair market valuation. During this session, attendees will learn more about this “dark store” theory and the concerning impacts it creates for local county government.

False that statements like these prompted the Legislature to pass the Truth in Taxation Act recently, which forces local officials to be honest about the property tax increases they impose.

Counties threaten homeowners with tax hike if courts follow the law

County Chair Ed Eilert warned the Shawnee Mission School Board a few years ago that a similar decision in a Target store tax appeal caused the retailers’ tax liability to plummet by 30%.

“That’s a lot of money that’s not collected,” he told the board. “And if it’s not collected from that class of property, who pays? All of us that are left, and that means residential properties.”

Eilert is essentially saying the county will make homeowners pay more if the county isn’t allowed to steal from retailers.

Shawnee County Appraiser Steve Bauman echoed Eilert’s threat.

“It will shift the taxes to homeowners, the other classes of property,” Bauman told the Topeka Capital-Journal.

According to former Johson County commissioner Mike Brown, the decision carries the weight of an asteroid coming in from outer space. Two years ago, he warned against  increasing the county’s budget with the court cases pending. 

“As we continue the deliberations about what we’re doing here, the taxpayer is taxed out,” Brown said. “They’re tapped. They are tired of us consistently pushing the envelope. When you’re looking at a potential shortfall, how can we sit here and push forward?” He asked during a budget discussion.

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