How Big-Box Retailers Weaponize Old Stores

[FarCenter]

Tucked away on the northern edge of Michigan’s rugged Upper Peninsula, Sault Ste. Marie is bracing for the battle of its life. The tourist town is heading to court in early 2017 to fight Walmart Stores, which seeks to cut $286,000 off its annual property tax bill on a local store. Using what critics call the “dark store loophole,” Walmart is following in the footsteps of big-box merchants including Lowe’s and Target by arguing that its bustling store should be assigned about the same value for tax purposes as one that’s been vacant for years, hundreds of miles away.

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Michael Shapiro, a Detroit real estate tax attorney who pioneered the dark store argument, says he’s not insensitive to the financial needs of communities, but “whether it is unfair or not doesn’t have anything to do with me. I’m just looking at what the law is.” For more than 40 years, Shapiro has made a career out of helping businesses challenge property tax bills. A lawyer with the Detroit firm Honigman Miller Schwartz and Cohn, he made a name for himself representing car companies, successfully arguing their plants’ taxes should be based on the values of closed factories. Years later, he saw a similar opportunity in big-box stores. He made his first such successful case in 2010.

Typically, local property tax assessors set values of such stores based on the purchase price of the land plus the cost of construction, less depreciation. Shapiro believed a more accurate way to measure the value was to use comparable sales of similar properties, the way a house is valued for tax purposes.

He began amassing comparable sales data to make a case that the value of a big-box store on the market was far lower than what tax assessors had determined because they were built to suit the needs of a specific owner—the way “a suit would lose its value once it was tailored to a specific person,” says Shapiro.

There’s now a thriving cottage industry of lawyers, tax representatives, and appraisers helping retailers initiate dark store challenges. Larry Clark, director for strategic initiatives at the International Association of Assessing Officers in Kansas City, Mo., says lawyers and tax representatives typically target smaller towns that are less able to mount a vigorous defense. “They pick the low-hanging fruit,” he says. “It probably costs $50,000 or more to litigate one big-box chain,” says Jack Van Coevering, who’s represented small towns in Michigan that have faced big-box valuation challenges. “If you are a township with a whole bunch of these properties, imagine that.”

https://www.bloomberg.com/news/articles/2016-12-08/how-big-box-retailers-weaponize-old-stores

The US has about twice the retail floor space per capita of the UK and over three times that of Canada. The glut of floor space, plus the shift to online ordering and delivery to the home, means that communities that depend on real estate property taxes on retail commercial buildings will be hurting a lot in the near future.

[Sherman A1]

1. Interesting

Thanks for posting.

[mercuryblues]

2. In theory

that should mean, I can get my taxes lowered based on a vacant home, in another county. Preferably one where the property taxes are much lower. I designed our home based on our specific needs as a family. Therefore it the market for my home is much smaller that it would be if I bought a cookie cutter home, that appeals to everyone.

[FarCenter]

3. In theory, your home should have an assessed value equal to its market value

While the rules for property tax assessment vary from state to state, here a municipality has to reassess homes if they depart from fair market value on average by more than a certain percentage. When homes are sold, the new assessed value is the transaction amount adjusted for the average difference from fair market value.

Since homes are more numerous and there is a fairly liquid market, it is easier for assessors to find comparable homes and make estimates.

Historical cost minus depreciation is a fairly strange way to assess real estate, because it doesn't account for market changes.