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Legislators introduce bill to reform ‘dark store’ property tax loophole

BY Sunday, May 01, 2016 12:12pm

With a decades-long background as a real estate appraiser, State Rep. David Maturen believes he’s the right legislator to curb a controversial practice for property tax appeals that drains municipal coffers. 

The Kalamazoo County Republican from Brady Township has introduced House Bill 5578 to curtail the so-called “dark store” loophole, a common method of lowering the property tax liability for big-box retailers.

The controversial loophole allows retailers such as Walker-based Meijer Inc., Wal-Mart and Home Depot Inc. to appeal their property tax assessments and have their stores assessed at rates comparable to nearby closed or vacant stores. The Michigan Tax Tribunal — a five-member, governor-appointed body that rules on property tax appeals — has largely agreed with companies that argue for the dark store theory. 

It’s a practice that’s cost Michigan municipalities about $100 million since 2013, as MiBiz previously reported.

The comprehensive legislation would force the Michigan Tax Tribunal to use properties that are truly comparable to the locations in question, as well as apply “good, sound, solid appraisal principles,” Maturen said in a phone call with reporters. 

“There are sound principles that I think are just not being followed as (well) as they should,” Maturen said.

Typically, property taxes are assessed at rates based on “fair market value,” according to the Lansing-based Michigan Association of Counties. However, retailers who use the dark store assessment argue their purpose-built stores exclusively fit their use and that other users would be unable to make the space work. 

Municipal stakeholders contend the use of dark store assessments recently has spread beyond big-box chain retailers to fast-food restaurants, auto parts stores and chain pharmacies.

The issue is exacerbated when retailers put deed restrictions on their old properties, meaning that stores with similar or competing uses are blocked from purchasing the sites. That results in many former retail storefronts being left vacant, which the retailers then claim as comparable properties in appealing their assessments. 

“Basically (the deed restriction) self-imposes a devaluation in its other property and then (the retailer) seeks to appeal that for their own benefit,” said Chris Hackbarth, director of state affairs at Ann Arbor-based Michigan Municipal League. “It really is self-serving. That for us is a huge problem in the current situation.”

Moreover, supporters of the bill say it is needed because most other states have abolished the dark store practice.

“Michigan really stands out like a sore thumb nationally on this issue right now in terms of how the Tax Tribunal in Michigan has chosen to treat some of these large retail establishments in (their) property tax appeals,” Hackbarth said.

While the financial hit has had an impact on municipalities statewide, backers of the reform legislation argue the issue encompasses more than money diverted from local coffers.

“This issue is about far more than the lost tax revenues for local government services — money that could be spent on fire protection, roads or economic development,” Judy Allen, director of government relations for the Michigan Townships Association, said in a statement. “This is about ensuring that all taxpayers pay their fair share and that all properties are being properly assessed.”

Meanwhile, Brian Westrin, director of public policy and legal affairs for the Lansing-based Michigan Association of Realtors, said the bill would make some marked changes in the Tax Tribunal’s role in these types of cases. The organization has yet to take a formal position on the proposal. 

So far, Rep. Maturen has assembled 27 co-sponsors for his bill, a number that he says serves to demonstrate that the issue has broad bipartisan support. While previous bills were too focused on narrow issues within the law, the new legislation aims to take a comprehensive look at the dark store practice and create an equal standard for all property types, he said.

“House Bill 5578 is an attempt to make sure that the Tax Tribunal, if it does use comparable (properties), that they are truly comparable and they have to go through some steps in their decisions,” Maturen said. “It will have to be better reasoned, better explained to the public. That’s what my bill attempts to do. It doesn’t discriminate among properties and it treats everybody the same that goes to the Tax Tribunal.”

Despite the broad support from other legislators and advocacy groups, Maturen concedes the bill likely faces an uphill battle. 

“I think the folks that get this treatment will be adamant in keeping it,” Maturen said. “I don’t think it will be quick and easy.” 

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