'Dark store' theory revisited
Lisa Bowers
lbowers@miningjournal.net
MARQUETTE — As communities continue to adjust to the potential economic reverberations of the coronavirus pandemic, the "dark store" theory keeps darkening the doorstep of municipalities all over Michigan. Local officials, like those in Marquette Township, have struggled to continue providing services in the face of a nearly $3 million combined cumulative revenue reduction in the last 10 years.
A Michigan State University study on the subject characterizes the "dark store" tax valuation method as a "practice whereby big-box stores contend that their fully operational, often thriving, businesses should be assessed the same as vacant buildings or "dark stores." The process can reduce the taxable value of a property to less than 50% of the municipality's initial assessment, according to laws governing Michigan assessing.
The process begins when businesses petition the Michigan Tax Tribunal, a five-member body appointed by the governor, for a reduction in their properties' tax valuation, based on a variety of factors.
The end result is less money for local education, municipal operations, public transportation, roads, emergency services, veterans, libraries and more.
According to a report compiled by Marquette Township Assessor Dulcee Atherton, the cumulative effect of state tax tribunal decisions involving businesses in the township alone has resulted in over $2.8 million in reductions for all taxing entities from 2009 to 2019.
In that 10-year span, MTT decisions to reduce property tax assessments for retail businesses in the township like Target, Lowe's, Menards, Gordon Food Service, AutoZone and Kohl's, for example, have hit the Marquette Area Public Schools' operating millage especially hard, reducing it by nearly $1.2 million in cumulative budget reductions or refunds, according to Atherton's calculations.
Other local taxing entities that have seen a cumulative derogatory impact from tribunal decisions involving Marquette Township businesses over the last decade include:
≤ Marquette Township operating fund — $312,942 reduction
≤ Marquette County operating fund — $337,738 reduction
≤ Special education — $127,327
≤ Marquette Township Fire — $159,636
≤ Marquette Township road millage — $68,098
≤ Peter White Public Library — $57,810
≤ Marquette County Dispatch — $31,582
Other Marquette County funds like veterans affairs, Marquette County Transit Authority and the Marquette County Commission on Aging have also seen budget reductions and/or have had to issue refunds.
What's the justification?
The big box stores' arguments for tax reductions can be based on a variety of factors including self-imposed deed restrictions that disallow future retail activity to take place in a building once it is sold, as well as the very disposable nature of the buildings themselves.
For example, a portion of the argument in the 2012 case of Lowe's vs. Marquette Township:
"The big box stores are not concerned about the market value of the stores constructed, but instead, design and build a store that will maximize sales and profits. The big box stores are constructed for the single user's specific business mode," the 2012 MTT documents state. "When sold, they are converted to another use, demolished, or an investor will spend a considerable amount to reconfigure the space. (Certified General Real Estate Appraiser Lawrence G.) Allen gave examples of several big box stores that were five years old that were purchased and razed for the new owner to construct a building that meets its specific business prototype."
Marquette Township Supervisor Lyn Durant said one of the most frustrating things to municipalities is that assessors are following applicable state law in their valuations of all properties.
"The biggest problem is the (state) tax book has to be followed. Assessors have to follow that, and if they go out one iota, they can be, who knows what, how they are punished by the state," Durant said. "And yet, the tribunal can sit there and in many cases (at the time when the dark store petitions first began to be filed) they were attorneys and many of them didn't know a lot about taxes or assessing or anything. They were making these decisions … without thinking through what the assessor is required to do. They changed the rules, basically."
Renewed frustration at the state level
The Lowe's decision is important, because it was overseen by Victoria Enyart, who Gov. Gretchen Whitmer recently reappointed to four-year term on the Michigan Tax Tribunal.
According to Marquette Township officials, it was Enyart who reduced the tax rate for Lowe's Home Center on U.S. 41 from $60 per square foot to $25 per square foot, resulting in the local taxing entities being forced to reimburse the retailer $500,000 for taxes paid in 2010, 2011 and 2012.
Both local and state officials warn the appointment of Enyart, who is a level IV assessor from downstate Jackson, means the atmosphere around big box property tax devaluations will likely remain the same, and may get worse.
State Sen. Ed McBroom, R-Waucedah Township, who is on the Michigan Senate Advice and Consent Committee, is calling for a hearing regarding the appointment of Enyart, who he said has a "troubling dark store past."
"Ms. Enyart has served on the state's tax tribunal for several years and she has a record that must be taken into account," McBroom said in a release. "During her time on the tribunal, Enyart has established a troubling pattern of devaluing the property of big box stores. The tax tribunal has accepted faulty reasoning for the property tax of big businesses across Michigan, and not only does it result in an unfair advantage of not paying their share, the revenue reduction puts undue stress on governments trying to supply services like fire protection to their residents."
And objections are coming from both sides of the aisle with a recent release from state Rep. Sara Cambensy, D-Marquette, identifying Enyart as "instrumental" in "holding up efforts to abolish the 'dark store' loophole." She also noted that Enyart played a major role in the Menards v. City of Escanaba decision.
"The reappointment of Ms. Enyart to the tax tribunal by our governor is a disastrous decision for local units of government in Michigan," she said. "Her reappointment guarantees municipalities will lose big box tax appeals in the future."
The MSU study notes that since 2010, the use of the "dark store" method has cost more than $200 million to local governments and communities in terms of tax refunds to big-box stores.
"At least 72% of (Michigan) counties have faced tax revenue reductions due to the application of the 'dark store' method," the study states. "Local governments have not been successful in challenging the Michigan Tax Tribunal, which favors the use of the 'dark store' method. Five bills have been introduced by Lansing legislators over the last several years in an effort to close the dark store loophole, none of which has seemed to get any traction, according to the MSU study. The latest, a bill introduced by Rep. Beau Lafave, R-Iron Mountain, in January 2019, has not moved past the House Committee on Local Government and Municipal Finance, where it has been since March 15, 2019."
Concern rises as more petitions are filed
Three Marquette Township property owners have filed petitions with the tribunal this year, perhaps the most noteworthy is Meijer, which opened its supercenter and gas station, valued at $14.4 million, in May 2018.
The Michigan-based retailer filed a property tax appeal with the MTT in May, requesting the store's taxable value be reduced by nearly 43% — from roughly $7 million to about $4 million. The 24-acre parcel where Meijer's retail store and gas station are situated was purchased for $3.2 million in 2017.
Atherton has estimated that local taxing entities would lose about $140,000 in revenue if the state tribunal OKs Meijer's request.
Walmart is asking that the tribunal reduce the 2020 assessed taxable value of its property in Marquette Township from nearly $5 million to a little over $2.5 million, according to case documentation on the state tax docket website.
The company has launched similar petitions with the tax tribunal for its stores across the state, Durant said.
"There may be some more personalization to residents in smaller communities where those taxes are more significant," she said. "Michigan's residents have to realize that this severe reduction in revenue is having a crippling effect and will continue to worsen, and they need to push the legislature to address it, as many states across the country already have."
Westwood Mall Realty Holding, LLC, contends that the assessed value of that property in 2020 should be about $2 million rather than the $3.3 million assessed on the tax rolls, leaving $1.3 million in dispute. The company paid $3.2 million for the property in 2018.
Township Board Trustee Pete LaRue cautioned that local employees are not to blame for the tribunal requests.
"We don't want to take it out on the local stores. The managers there have almost nothing to do with this," LaRue said. "It's the bean counters and all those other ones. But if the residents would (tell those companies), 'I am paying for your roads and you are getting more out of it,' if they can get to their senators and representatives and the governor … We have to let them know that we're here and we're tired of this."
Durant said it is important that residents understand what is at stake, as more and more MTT "dark store" decisions are made.
"The problem with the big stores dropping their taxable value is that the burden falls to the resident to have them pay everything," Durant said. "The trickle-down is horrific for the whole tax code.
"For right now, their property values are still high, their assessed values are still pretty high in the township and their taxes are only going to change by the inflation rate for right now. But where they will feel it is that they will have to have more and more millages for the things they want."
That's primarily because the taxable value of the retail and commercial properties in the township is being artificially reduced by the tax tribunal decisions, she said.
According to Atherton's calculations, the taxable value in the township has been cumulatively reduced by over $72 million since 2009.
"Who knows what benefit there'll be, but we need to educate the public," Durant said. "(We need to explain) to them that if it's not hitting their pocketbook now, it will. Municipalities have been able to constructively manage budgets so far, but I think the next couple of years will be very telling as to whether services start getting cut."
Lisa Bowers can be reached at lbowers@miningjournal.net. Her email address is lbowers@miningjournal.net.