Big-box stores across Michigan have won massive tax breaks in recent years using what’s known as a “dark store” argument. For tax purposes, local assessors have been valuing stores like Best Buy and Lowe’s based on what they cost to build or how much income they make. Now those chains, and many others, are successfully appealing their valuations by claiming that they should be compared to buildings that are similarly sized but vacant.
“Dark store” cases have already resulted in assessment cuts topping 50 percent for some stores and property tax losses in the hundreds of thousands of dollars for the municipalities. Last year, the Michigan Court of Appeals upheld a state tax tribunal decision in favor of two Upper Peninsula stores–a Marquette Township Lowe’s and a Breitung Township Home Depot–that used “dark store” valuation methods to cut their taxes by 63 percent and 59 percent, respectively.
“They’re attempting to bring this to fast foods and anything else they can,” says Scio Township assessor Jim Merte. The companies argue that their stores are built to suit their specific businesses, so they are inherently less valuable without the originally intended occupants inside. Merte says that essentially means assessing them as though they were “bankrupt or vacated for whatever reason,” which “contradicts” his basic job responsibility: valuing properties according to their “highest and best use.”
“Their point is if that particular Taco Bell vacates that store, there’s going to be a certain period of time where the owner of the building has to then eat missed rent, more or less redesign the store, put in their own signage, all these things,” Merte says. “It doesn’t really give any benefit to the fact that you have a profitable existing store in place.”
Merte says the township saw three “dark store” cases in 2012, all of which were settled without going to the tax tribunal. CVS Pharmacy’s Jackson Rd. location, Taco Bell’s Jackson Rd. store and the Wendy’s on Zeeb Rd. saw their “true cash values” reduced by 27 percent, 36 percent, and 8 percent respectively. This year, the Jackson Rd. Panera Bread tried to invoke “dark store” methodology to slash its assessed value from $619,300 to $350,000. Merte says the township used sales of comparable buildings to refute that appeal, settling for a more modest cut to $555,070.
Pittsfield Township supervisor Mandy Grewal says her township’s first “dark store” case is currently pending: Costco’s Airport Blvd. store is seeking to have its assessed value slashed from $6.9 million to $3 million.
Most shopping centers in the city of Ann Arbor were built up before the big-box era. City assessor David Petrak says no “dark store” cases have yet come before his office–but “that’s not to say that we might not currently have an outstanding case” where the owner might use the “dark store” argument.
Petrak refused to comment on the valuation methodology behind a May settlement that slashed the Briarwood Von Maur store’s assessed value from $3.1 million to just over $2 million. That gives it an estimated market value of $4.2 million–less than the $5 million Von Maur paid for it in Jacobson’s 2002 bankruptcy auction.