'Dark store' cases could cost millions in taxes (2024)

Doug Schneider|USA TODAY NETWORK-Wisconsin

HOWARD - An aggressive move by some major retailchains is putting homeowners in parts of Brown County and a number ofother areas of Wisconsin at risk of a property tax jumpin the coming years.

The action by retailerslike Menards, Target, Lowe's and Walgreens has cost taxpayers millions of dollars in Michigan and Indiana. Oshkosh had to refund more than $300,000 in taxes and fees. Howard,the Howard-Suamico School District and the county could wind up owing thousands to Menards.

It works like this: Retailers challenge their property assessments, citing similar — but vacant, or "dark" — stores, claiming their buildings are worth millions of dollars less than they've been assessed for by local governments, which typically set values based on both the building and its use.

In many cases, they've won so decisively that a Bloomberg headline saidstores have "weaponized" the approach.

When retailers win, the other taxpayers lose. Municipalities have two choices: Cut services— sometimes dramatically— or make the rest of the community pay more in taxes. About 70 percent of municipal tax collections comes from homes. Smaller communitiesare hit particularly hard due to their smaller tax bases.

"What happens if the assessments of large format retailers get chopped in half?," asked Howard Village Administrator Paul Evert."All the other taxpayers pick up the slack."

How much slack? Howard has assessed the Menardsand its 18.7-acre siteat 2300 Woodman Driveat $12.45 million.Eau Claire-based Menard Inc. acknowledges it spent $10.6 million to buy the land and build the store, but claims in legal papers that the site is worth only $5.8 million.

In papers filed in November, the retailer demands that Howard provide a refund, with interest, and pay its legal fees."The 2016 assessment of the property was excessive," wrote Christopher Strohbehn, a Milwaukee attorney. "The tax imposed on the property was excessive."

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The challenge is one of more than a dozen the company has filed in Wisconsin in the past year.

The company listed several stores as comparable to its Howard facility, including a Cub Foods in Green Bay, a Sears in Sheboygan anda former Home Depot in Beaver Dam.The three have something in common. None has operated as a store for years.

With Menards paying $209,000 in taxes this year, the communities that tax it would have to refund about $111,000 if the store wins the case.

'A real problem'

Communities including Ashwaubenon and Howard and the League of Wisconsin Municipalities are asking the state to step in, said Patrick Moynihan Jr., the Ashwaubenon village clerk who also represents the village on the county board. A committee of county lawmakers earlier this month recommended adding their voices to that crowd, saying the state needs to adopt legislation that blocks businesses from using unused buildings to reduce taxes on working stores.

"This is causing real impacts," said Howard Supervisor Richard Schadewald. "And the only remedy we have to help local taxpayers is with the state legislature. This is a real problem."

How real? Menards' annual tax payment ofHoward-Suamico School districttaxes would fall from roughly $103,000 to about $48,000. For 2016, the district would have to refund the difference. In future years, the district would face a difficult choice: increase taxes next year to make up the difference, or cut its budget by a corresponding amount.

"That would be a rather large refund," said MattSpets, the district's assistant superintendent for business services. "You're talkingabout one less teacher."

A reduction in the store's assessment would also mean more than $50,000 in lost revenue for others that tax the store: Brown County, the village of Howard, Northeast Wisconsin Technical College and the state of Wisconsin.

Municipalities also fear that successful challenges will prompt other businesses to take similar steps.

"If one type of business or one type of property gets more favorable treatment, then everybody is going to be looking at that," Oshkosh City Attorney Lynn Lorenson said. "They'll say, 'If Walgreens had success, maybe we can use a similar argument.'"

Retailers' side

Retail chains see the issue differently.They insist it's unfair for communities to assess based on what's inside their stories, rather than valuing only the bricks and mortar.

Additionally, modern retail store designs are fairly unique, making it sometimes difficult for a company to sell a store it no longer wants or needs. Potential resale value, of course, plays a role inhow a property can be assessed. Or, like a former Walmart near Milwaukee, stores have deed restrictions that prevent them from being operated by other retailers.

The attorneys listed in Menards' Howard case didn't respond to requests for comment last week. But in a January interview with theJournal Sentinel, one made hisposition clear: The value of the store is its property, not what's inside the building.

Minnesota attorney Robert A. Hill's website calls his firm "relentless advocates for property taxpayers." He said municipalities “just want to pretend that what’s black is white, and that real estate somehow should not be the only thing that gets assessed."

Municipal officials, though, says that approach defies logic.

"A brand-new Walmart is worth the same as a boarded-up Kmart?" said Deena Bosworth, director of governmental affairs for the Michigan Association of Counties. "I don't think so."

'Devastating effect'

In Michigan and Indiana, where dark-store lawsuits were an issue before they took hold in Wisconsin, impacts are beingfelt.

Michigan's local governments have issued more than $100 million in tax refunds since 2010, experts say. Indiana's spent an estimated $120 million. In 2015, Indiana attempted to resolve dark-store cases by establishing new assessment standards for big-box stores, but repealed them in 2016, apparently amid concerns aboutconstitutional issues.

Before dark-store challenges became common, the average Michigan 'big box' store was assessedat $55 per foot, said Jack Van Coevering, an attorney who was chief judge of the Michigan Tax Tribunal but nowrepresents municipalities in dark-store cases. Now, assessments of Menards and Target are less than half that.

“There’s wave after wave after wave,” he said. “Whether we’ve reached the end of the storm, I don’t know.”

An Escanaba-area library cut hours because its host community had to cut its budget. When an Upper Peninsula Lowe's brought a dark-store case last year, about 130 people protested outside the business. Northern Michigan University produced a 25-minute documentary video,"Boxed In," on dark-store impacts.

"This has a devastating effect," the Michigan Municipal League says. "Municipalities don’t just lose future revenue, but have to pay back the retailers for 'over-taxing' them in prior years."

Communities also incur costs to fight the challenges.A Port HuronMenards sought a $2 million cut to its 2014 and 2015 assessments. A court reduced the store's valuationby $300,000.

The case cost the city more than $33,000 in legal expenses— more than it receives in taxes from the store.

dschneid@greenbaypressgazette.com and follow him on Twitter @PGDougSchneider. USA TODAY NETWORK-Wisconsin reporters Rick Romell and Nate Beck contributed to this story.

De Pere suit

Big-box retailers aren't just suing because ofassessments on their stores.

ShopKo Stores Operating Co. LLC has filed legal papers saying the city of De Pere over-assessed its west side distribution center by more than $9 million. The retailer seeks an assessment reduction from $20.1million to $10.9 million on its facility at 1717 Lawrence Drive, plus a refund of taxes it says it overpaid, and legal costs.

Shopko is represented by Christopher Strohbehn of Milwaukee, who also represents Menards in it's assessment lawsuit involving its Howard retail store. De Pere is represented bya Madison firm.

Other battlegrounds

Brown County isn't the only place where some major retailers are seeking significant reductions in their assessments. Highlights:

Alabama:Lowe's, a $59 billion business, has filed lawsuits seeking assessment reductions on 27 stores. Officials said a loss could cost the state $1.5 million annually.

Fond du Lac:Menards argues that the value of its store is no more than $5.2 million; the city's assessment is$9.2 million. A similar lawsuit from Target says Fond du Lac should reduce its taxes by a third.

New York:The city of Auburn agreed this month to settle a dispute by reducing the assessment of a Walmart by about $1 million, which will give the store a tax refund of about $11,000.

Racine:Target has filed multiple challenges to its assessment. It cites a vacant Kmart and a former Home Depot as comparable properties.

San Antonio, Texas: Lowe's sued Bexar County, claiming its 11 area stores were worth the same as empty buildings — about $30 per square foot, rather than the $80 to $85 per square foot at which they were assessed. A court recently ruled against the retailer.

SOURCES: USA TODAY NETWORK-Wisconsin, al.com, The Journal Times, San Antonio Express-News, Auburn Citizen.

'Dark store' cases could cost millions in taxes (2024)

FAQs

What is the dark store loophole? ›

'Dark store' tax loopholes have been around since the great depression, allowing big box retailers to reduce what they pay in property tax by claiming stores should be assessed based on sale prices of vacant, often deed-restricted stores.

What is the dark store theory? ›

The dark store theory argues that operational big-box stores should be valued as if they were empty, basing property tax assessments on the characteristics of vacant and possibly obsolete properties.

What is a Walmart dark store? ›

A dark store is a brick-and-mortar location that has been shut down and turned into a center for fulfillment operations. These distribution outlets are not open to visitors, which allows more space for store inventory and the opportunity to quickly and accurately fulfill orders.

What is the dark store theory in Kansas? ›

“Dark Store Theory” is a phrase coined by government officials, referring to setting commercial property values based on the building and land. Ironically, that's the way big-box retailers have been valued all along. Now the county also wants to tax intangible value attributable to a lease in place and business value.

What companies are using dark stores? ›

Read more news on
  • quick commerce.
  • dark store.
  • Zomato.
  • Blinkit.
  • Zepto.
  • Swiggy Instamart.
  • Bigbasket's BB Now.
  • e-bikes.
Feb 28, 2024

What is an example of a dark store? ›

Dark grocery stores and dark clothing stores are some examples of dark store models. The key reason why the dark supermarkets stay popular today is the rapid growth of eCommerce. By 2027, 23% of total retail sales will happen online.

What are the cons of dark stores? ›

Geographic Limitations. To justify the cost of a dark store, retailers need a high volume of orders from customers in the immediate vicinity, so dark stores typically make sense only in cities and densely packed suburbs.

Why are they called dark stores? ›

A “dark store” refers to a retail outlet or warehouse that is solely used for processing online orders and is not accessible to the public. These facilities are also known as dark shops, dark supermarkets, dotcom centers, or ghost stores. They function as distribution hubs for storing inventory and packaging products.

What is a dark store strategy? ›

The dark stores concept involves mid-size local warehouses used for storing, sorting, and managing orders, enabling a quick and cost-effective picking process, all of which can be easily automated.

What does code black mean in Walmart? ›

A "code black" indicates severe weather is imminent, especially a tornado warning. For safety tips in large stores or malls during such events, consult the National Weather Service.

What is another word for dark store? ›

A dark store (also dark shop, dark supermarket or dotcom centre) is a retail outlet or distribution centre that exists exclusively for online shopping.

What is the difference between a dark store and a warehouse? ›

Warehouse Fulfilment: Large, centralized distribution centers with substantial storage capacity. Dark Store Fulfilment: Compact, local warehouses are often located in urban areas to facilitate quick deliveries.

What is dark store theory? ›

The dark store. theory involves manipulating the comparable sales assessment approach in order to shift taxes to home owners and small businesses. The Walgreen's lease loophole manipulates the use of market rents to artificially decrease taxes.

What is the dark theory? ›

A new theory that suggests dark matter is made up of particles that strongly interact with each other via a so-called "dark force." If true, this may finally explain the extreme densities we see in dark matter haloes surrounding galaxies.

How big are dark stores? ›

Dark stores are typically 2,500-3,000 sq. ft in size, and are carved out of shuttered buildings or gone-out-of-business stores, and allow the companies not only to save costs, but also reach deep corners of cities and even semi-urban areas.

What is the concept of a dark grocery store? ›

Dark stores are warehouse-style fulfillment centers for online grocery delivery that are closed to shoppers. They stock a myriad of grocery items, and trained workers know exactly where to find them, load them into carts, and deliver them to your address.

What is a dark Walgreens? ›

The dark store. theory involves manipulating the comparable sales assessment approach in order to shift taxes to home owners and small businesses. The Walgreen's lease loophole manipulates the use of market rents to artificially decrease taxes.

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