May 18, 2024

Keeping Media and Government Accountable.

Michigan decision rejects county’s ‘Dark Store’ appraisal theory

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For years, Johnson County, and others, have — illegally, according to courts — been attempting to use a different method to calculate property tax values for so-called big-box stores, and falsely claiming stores want to use a ‘dark store’ appraisal theory.  Counties have repeatedly been shot down by the Kansas Board of Tax Appeals, and now, by the Michigan Tax Tribunal.

In short, ‘Dark Store appraisal theory’ is a phrase coined by government officials, referring to setting commercial property values based on the building and land — which the way big-box retailers have been valued all along.  But counties also want to tax intangible value attributable to a lease in place and business value. In other words, Johnson County officials applied an ominous-sounding label to generally accepted appraisal practices to attempt to persuade residents retailers are asking for special treatment with “tax reductions,”’ in reality, those retailers are trying to hold county appraisers to existing law and appealing what they believe to be large, improper tax increases — more than 100% in some cases in 2016

Now a ruling from the Michigan Tax Tribunal — while hardly binding on Kansas — appears to affirm the state’s position.

Menards appealed a similar tax increase in Michigan, in 2019 and in 2020 the MTT issued a 110-page ruling, the upshot of which was that counties cannot simply charge a higher tax on a building which may have the same square footage and similar land-value — but is owned or leased by Menards, as an example — than they would an identical building owned by a private company.

“As our Supreme Court explained, “[t]he Constitution requires assessments to be made on property at its cash value,” the Tribunal wrote. “This means not only what may be put to valuable uses, but what has a recognizable pecuniary value inherent in itself, and not enhanced or diminished according to the person who owns or uses it.

“Therefore, even if the subject property is in fact continuously-occupied and successful, these characteristics of the property are not relevant for determining the property’s [Total Cash Value.] They are accidents of ownership, not measures of value inherent to the property itself.”

The Tribunal also noted that Menards already remits corporate income taxes as well as withholding for employees and other business-related taxes based on the success — or lack thereof — of its business and it would be inappropriate to, in effect, punish that success by basing property taxes on the success of the business.

Exactly what Johnson and Wyandotte Counties have been trying to do for years. Both counties have said the tax burden likely will be shifted to homeowners and small-business owners if their repeated appeals do not yield the result they want.

In a statement from 2019 carried by KSHB Channel 41 of Kansas City, Wyandotte County said the BOTA was destroying their tax base.

“The recent decisions by the Kansas Board of Tax Appeals are undermining the entire tax base,” Mike Taylor of the Unified Government of Wyandotte County said in that year. “While no one likes paying taxes, everyone likes good police and fire protection, good streets and well-funded schools. BOTA’s use of the dark store theory threatens all of those basic services.”

In a 2019 story, Kansas Policy Institute CEO Dave Trabert — which owns the Sentinel — said Johnson County is trying to pull a fast one on residents.  First, the county illegally jacked up appraisals on big-box retailers and concocted an ominous-sounding ‘dark store’ myth for cover. When retailers appealed, county officials warned they may have to raise property taxes on homeowners if the retailers get their taxes reduced.

“It’s like saying ‘we built our budget assuming we could steal from one group of taxpayers, so if the state won’t let us, we’ll have to steal from someone else,’” Trabert said.

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