Wisconsin stores say they want fair property taxes; cities say that could cost you
Large chain-store retailers are trying to cut their property assessments by more than $700 million across Wisconsin — potentially forcing other taxpayers to pay more to fund local public services, a USA TODAY NETWORK-Wisconsin analysis has found.
Already, nearly 60 towns, cities and villages in Wisconsin have paid refunds to big-box stores who successfully argued their properties were taxed too high because they were overvalued.
Janesville, for example, has returned $700,000 in tax money just since 2014 to settle so-called "dark store" cases.That city is far from alone: Wisconsin stores have filed more than 100 lawsuits against local officials in the past three years.
"There will be more and more appeals (of assessments) and communities can't afford to fight every battle," said Wauwatosa Assessor Shannon Krause.
Retailers argue that their buildings have been assessed based on their full business use, rather than on the actual value of the brick-and-mortar structures. They cite similar but vacant, or dark, stores as a fairer comparison for assessments.
USA TODAY NETWORK-Wisconsin has analyzed 130 "dark store" court cases filed in counties statewide since 2014 and tracked by the League of Wisconsin Municipalities, an advocacy organization for local government.
The analysis included only cases that reached the circuit court level, not cases that could have been settled by the municipality and retailer before reaching court.
The news organization's analysis found:
- If all 67 open cases were successful, local governments would lose a collective $773.7 million in taxable property value.
- Menards has led retailers statewide with 43 cases filed. Walgreen's filed the second most with 20. Walmart was third with 12 cases since 2014.
- Retailers are represented by only a handful of attorneys, each of whom files dozens of these cases.
- The two sides settle a majority of the lawsuits before trial. A handful have been dismissed in court or withdrawn by the retailer.
The retailers' legal challenges stem from a 2008 ruling by the Wisconsin Supreme Court that limited how assessors could use lease payments in property tax assessments.
Representatives for the retailers say the court filings are meant to ensure businesses are taxed fairly and consistently with other types of property — and not based on the value of the business operations or the rent they pay.
"(Retailers) don't want this publicity," said Robert Hill, a Minnesota-based attorney who's represented retailers in dozens of Wisconsin cases, including the 2008 Supreme Court case. "They just want to be assessed in line with the market value of the property, like buying a house."
Municipal officials hope the state Legislature passes bills that would curb the impact on taxpayers by closing two loopholes that allow businesses to get lower property values and, ultimately, lower taxes.
Supporting lawmakers share a sense of impending doom for taxpayers, including homeowners and small business owners, who would see an increase in their property taxes to make up the difference if assessments continually drop for big retailers.
"We're hearing from local officials how it's impacting them," said state Sen. Janis Ringhand, D-Evansville, who was the mayor of Evansville before being elected to the Senate. "I understand what it does to a tax levy when something like this happens."
In contrast, retailers say the market value of these properties isn't as high as assessors think because of the shriveling demand for storefronts amid increasing online retail sales.
"Who is the most likely buyer (for the retail properties)? A very, very, very limited pool of buyers because they're too big," Hill said. "And when you strip them bare, they're warehouses."
There's been considerable attention on individual cases, such as Macy's suing Grand Chute in Outagamie County to drop its Fox River Mall property value from $11.4 million to $7 million, or Wal-Mart suing Sheboygan to drop its value from $13.3 million to $9.7 million. But there's been little analysis of what the impact looks like statewide.
One bill before the Legislature would address the portion of the Supreme Court ruling to clarify that lease agreements cannot be factored into property valuations. The other bill would not allow for closed or vacant properties to be valued the same as occupied retail properties, often called the "dark store" theory.
Neither bill has yet been taken up by an Assembly committee. In the Senate, the proposals made it through committee but haven't received a full vote, despite bipartisan support.
"There is a tax shift going on right now because of these loopholes, and this legislation seeks to bring that fairness and equity back into how we value property in our state," said Sen. Roger Roth, R-Appleton, one of the main sponsors of the bills.
The state's chamber of commerce, the Wisconsin Manufacturers & Commerce, has lobbied against the two legislative bills, which it says would result in a significant property tax increase for businesses.
"That's something we just can't be supportive of," said Scott Manley, senior vice president of government relations for WMC.
Hill said the legislation could hurt the state's economy.
"(The bills) make Wisconsin look foolish if they want to attract business," he said.
If the bills are passed and signed into law by Gov. Scott Walker, Manley said WMC would mount a challenge because it has "no doubt as to the unconstitutionality of the legislation."
Walker's spokesman, Tom Evenson, said Walker would review them if they pass in the Legislature and reach his desk. He did not reply to a follow-up email about Walker's position on the bills.
Hurts more for some than others
Mount Pleasant in Racine County has faced two cases, both from Menards, that dropped the retailer's property value from $12 million to about $10 million. Menards initially sought an assessment as low as $6.3 million.
So far, Mount Pleasant has been able to weather the reduced property values largely because of a diverse and growing tax base, wrote Dan McHugh, village assessor, in an email.
"However, if the trend continues and spreads to other properties, we will see more significant impact on residential taxpayers," McHugh added. "That has been our fear and why we continue to aggressively defend our big-box values."
In Wauwatosa, the Mayfair Mall is looking to cut its assessment from about $400 million to around $290 million for determining taxes paid in 2013, 2014 and 2015. Collectively, that's about $110 million of property value every year that could go untaxed if the mall is successful.
Krause, the city's assessor, said Wauwatosa could lose as much as $14 million in tax money stemming from cases dating from 2013 through 2016.
Unless the cases stop, she said, the tax base will further erode.
Municipal budgets aren't the only losers when retailers win lower assessments. Local school districts, counties and technical colleges collect property taxes based on those values, too.
In the Green Bay suburbs, the Howard-Suamico School District would have lost about $55,000 in annual tax revenue if Menards had won a dark-store lawsuit against the village of Howard for 2016 and '17. Menards said it spent $12.45 million to build the store — which Howard then assessed for $10.6 million — but the retailer claimed in legal papers the store is worth just $5.8 million.
An attorney representing Menards dropped the lawsuit in early November after the village refused a settlement offer that would have reduced the assessment, said Paul Evert, Howard’s village administrator.
“It apparently wasn’t the easy win they thought it would be,” Evert said.
Had Menards gotten what it sought, the school district would have had to refund a total of $110,000 collected in 2016 and 2017.
Going forward, the retailer’s tax bill would be 45 percent less than it was the past two years — with only one way for the district to make up the difference: All Howard-Suamico taxpayers would have shared “a little bit more of the burden,” and students would have been affected, said Matt Spets, the school district’s assistant superintendent of operations.
In the district, which has about 6,100 students, $55,000 could pay for two or three special education aides, computers and furniture for three classrooms, or the salary and benefits for a teacher early in his or her career.
“It makes me wonder,” Spets said, “how (dark stores suits) could be good for kids, and good for public education.”
Peter Krystowiak, the assessor for Kenosha, which has faced seven cases since 2014, said municipalities are simply seeking more clarity in how they can assess properties.
"If politicians feel that leases aren't to be looked at if Walgreen's should not be valued at the sale price, we just need legislation that directs us and is very clear about why that happens," he said. "Politicians then have to answer to constituents about why they did that. I'm just the practitioner and putting it into play."
How assessors value property
Assessors can use three methods to assess commercial buildings, depending on the property: the income, cost and sales approaches. The income approach comes into play when a property is generating income – the level of income helps determine the assessment. The cost method is typically used on a new property, with assessors looking at how much it cost to build it.
The sales comparison approach, meanwhile, uses the sales of similar buildings to determine the value of the property being assessed. This is where the "dark store" issue comes into play. Retailers like Menard’s and Lowe’s argue vacant, abandoned stores are worth the same as a functioning store. Opponents call that a tax loophole and they want state lawmakers to block it.