February 20, 2024

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Johnson County loses another ‘dark store theory’ court case

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The Kansas Court of Appeals issued yet another ruling against Johnson County’s “dark store” justification for increasing property taxes on big-box retailers. In an opinion issued April 2, the appeals court sided with a Board of Tax Appeals ruling that the county overvalued Bass Pro Shop in 2016 and 2017.

The appeal is the latest blow to Johnson County in a series of court cases related to how counties value commercial properties for tax purposes. The appeals court agreed with the tax appeals court that Johnson County’s appraisals of Bass Pro Shops in Olathe of more than $14 million in 2016 and 2017 were too high. Instead, the court upheld a $9.1 million valuation in 2016 and a $9.4 million valuation in 2017.

“Johnson County government is disappointed with the court’s decision and is reviewing its impact,” a county spokesperson said in a written statement. “We will have more information soon.”

County officials shouldn’t be surprised, though, because BOTA says the county admits it is not acting in accordance with state 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….”

The cases have significant financial consequences for the county, since they are spending money from the illegal property tax increases and will likely have to make adjustments as some point. Johnson County Commission Chair Ed Eilert warns “dark store” appraisals could cause retailers’ tax liabilities to plummet by more than 30%.

Dave Trabert, CEO of Kansas Policy Institute (the Sentinel’s owner), says Eilert’s claim is yet another disingenuous attempt to scare homeowners.

“He is really saying, ‘If the court won’t let us steal from retailers, we will have to steal from you so we can keep spending more than necessary.'”

JoCo officials’ methodology conflicts with state law

Government officials coined the term “dark store theory” to refer to valuing commercial properties based on the land where it sits and the value of the brick-and-mortar building. That’s how county appraisers valued retailers like Target and Walgreens prior to 2015, which is in accordance with state law according to the Board of Tax Appeals. That year, Johnson County’s appraiser deviated from state law to also include the intangible leasehold value associated with the building.  

Johnson County’s 57 big box retailers jumped in valuations from $400 million in 2015 to $742 million the following year — an 85% increase. All 57 retailers appealed their tax appraisals.

Linda Terrill, a property tax attorney who worked on behalf of Bass Pro Shops in the most recent case, told the Kansas City Star in 2019 that the change in valuation methodology is similar to basing a residential property’s value on the homeowner’s income.

“If you win the lottery on Monday, your house isn’t suddenly worth more on Tuesday,” she said. “And if you file bankruptcy on Wednesday, your house is still worth exactly the same thing.”

In the Bass Pro case, the county’s expert appraiser included the value of build-to-suit leases to determine the retailers’ market value. The board of tax appeals and the court of appeals rejected that valuation methodology.

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