By Michael Wedl

Lately, you may have seen or heard something called the “dark store theory” being written or talked about in the media. It’s often framed as a loophole allowing large corporations to improperly reduce their property taxes, resulting in large property tax refund checks being “given” to them by besieged local governments unable to challenge them in the courtroom.

Seems unfair, right?  Big corporations being handed the hard-earned property tax dollars of average local citizens based solely on their ability to strong-arm local assessors unfairly.

But what if the market data demonstrated the actual sale prices paid for big box retail stores for the past seven years averages less than 50% their assessed value(s).  What then?

By calling legitimate market sales of big box stores the product of “dark store theory,” proponents seek to accomplish two goals:

  • Make the assessment process for big box retail stores (which is currently the same process used for every other property type) seem ominous, scary, and confusing to average taxpayers;
  • Discredit & disqualify probative market data by criticizing the conditions under which sales of big box stores occur.

The “dark store theory” suggests it somehow is improper that big box retail property should be given a tax valuation as though it were vacant and available to be leased or sold to a second generation occupant or investor; never mind this is how the law requires every piece of real estate to be valued for property tax purposes. When a single-family home is assessed, for example, the occupant’s business isn’t considered. The assessor doesn’t say, “Geez, these folks called the police twice last year and the wife recently got a promotion at work.  Let’s charge them four times what their neighbors pay.  After all, they can afford to pay it and, in any event, the level of service they expect from the municipality requires me to assess them differently than their neighbors.”  Yet, some local assessors want to do precisely this to all big box store owners.

The only sensible, logical, and fair way to assess what something is worth is to determine how much someone would pay for it.  For real estate, the best way to do this is by comparing recently sold big box store properties to the big box retail property being assessed.  If you’ve ever bought a house, you are probably very familiar with appraisals and comparable properties. Assessors are supposed to apply the same logic when they value big box stores.  But as the recent deluge of refund lawsuits demonstrates, this has not been the case.

Technology has made it much easier for corporations to compare their tax bills to other taxpayers occupying similar space in a given geographic area.  Most quickly realize they are being taken advantage of, sometimes to the tune of assessments four times what comparable properties are being assessed at, with no explanation offered by the assessor for either the inequitable treatment or the disparate market values.  Essentially, “dark story theory” has become the dog whistle some assessors use to justify unequal, unfair, and illogical assessment results among similarly-situated taxpayers.

Other assessors use “dark store theory” as their excuse for continuing to consider how well a business is doing when determining the value of the real estate housing the business. However, how well a business is operating within a piece of real estate rarely has anything to do with what the real estate (bricks, mortar, and alnd) would sell for in the open market if the owner left.  No assessor would suggest that assessing a residential property based on the occupant’s business would be a fair way to assess the market value of the building housing the business.  Nor would an assessor suggest that a residential property would be worth less if the seller left the property and offered it for sale. So why are assessors treating big box retail buildings differently?

The answer is, the public remains largely unaware of the basics of accepted appraisal methodology and of the facts surrounding the sale prices for these obsolete warehouses.  So, why not scare local taxpayers into thinking big corporations are seeking to take advantage of a loophole?  It is a sure way to turn the discussion away from analyzing actual market behavior and market sales data toward allowing assessment officers to substitute their own subjective analysis for actual sale prices. This is a slippery slope no taxpayer should want, lest they become its next victim.

But it is precisely the slippery-slope politically-charged assessors are attempting to construct to avoid the prospect of assessing big box retailers just like everyone else: Based on actual sale prices and not some ginned-up, fictionalized assessment value devoid of market evidence and contrary to market participants’ actual behavior.

Michael Wedl is President & CEO of USA Property Tax Associates and a prominent Minnesota property tax professional. He has held senior positions at Paradigm Tax Group and Hart Property as well as assessment & valuation positions in county government.  Considered a property tax subject-matter-expert, Mr. Wedl is often asked to speak at symposiums and participate in roundtable discussions across the Midwest. USAPTA has developed a list of FAQs to address taxation of Big Box Stores.

Robert Hill Law has retained USAPTA to hold government officials accountable in uniformly assessing Big Box properties.

To contact Mr. Wedl for speaking engagements please visit his LinkedIn profile.