The tax break big box stores use to avoid funding your cities schools, police, and fire departments.
This tax avoidance gimmick allows big box stores to lower their property taxes and push it on to homeowners. Some of the companies using this gimmick are Target, Walgreens, Wal-Mart, Lowes, Menards, CVS, and Kohls, really any big superstore; some car dealers are even trying to take advantage of the loophole.
Generally, all commercial real estate is taxed the same way in a taxing district, whether it’s a hotel, office building, or retail. There are different ways to value these properties, but we’ll keep it simple and use the cost approach.
Let’s say the store purchased land for $5 million and spent $10 million putting up the structure. The municipality would value the finished building at $15 million, so their rate per square foot or sales volume, or whatever method the city uses, would apply to that valuation.
What expenses do property taxes cover?
Police, fire departments, schools, parks, utilities, roads, snow plowing, garbage pick-up, libraries, senior meals, and anything your local government spends. Generally, a local government gets 30% of its operating budget from property taxes.
What is the Dark Store Theory?
These companies ask for unique lower property values and lower taxes because while the store may be thriving now, but if they go out of business, the stores aren’t sold quickly and usually sit vacant for years. This can also result from deed restrictions that the company puts on the property because they don’t want another big box store to purchase it.
Cities spend millions on building roads, sewer hookups, utilities, street- lights plus provide police and fire protection, often with bond offerings that need to be repaid. The cities then rely on those property taxes to pay off those bonds and help with other city expenses.
Appleton Wisc. had to refund $723,000 to five retailers for revalued stores after the retailers had gone to court and won lower assessments. It cost the city $294,000 in legal fees. The stores lowered their assessments by $8.35 million. Homeowners will now have to pick up $174,300 more on their taxes.
In 2017 Wisconsin had 79 dark Store appeals in the court system.
Michigan estimates that local cities have lost $100 million in property taxes from 2013 to 2017.
If the trend keeps up, Texas will lose $2.6 billion in taxes and $1.2 billion for schools.
Some states have passed laws to abandon the loophole; more should do the same.
Badgett, Rebecca. “The State of the Dark Store Theory.” Coates’ Canons, 16 May
Cohen, Patricia. “As Big Retailers Seek to Cut Their Tax Bills, Towns Bear the Brunt.”
The New York Times, The New York Times, 6 Jan. 2019, www.nytimes.com/2019/01/06/business/economy/retailers-property-tax-dark-stores.html.
Fettke, Kathy. “[REN #659] ‘Dark Store’ Tax Loophole Battle.” Real Wealth
Network, 25 Nov. 2019, www.realwealthnetwork.com/learn/dark-store-tax-loophole-battle/.
Jackson, Abby. “A ‘Dark Store’ Tax Loophole Enjoyed by Target and Lowe’s
Is Costing American Schools Billions.” Business Insider, Business Insider, 4 Aug. 2017, www.businessinsider.com/dark-store-theory-helps-retailers-pay-less-taxes-2017-8.