Closing time for ‘dark store’ loophole?
An effort is underway to rewrite state laws and close a tax loophole that lets big-box retailers reduce their property taxes at the expense of homeowners and small businesses, but it’s not moving fast enough for one local community.
If there’s a loophole, someone is going to exploit it.
In the case of Walmart, the big-box retailer has filed suit against the city of Monona to reduce its tax assessment from $24.5 million to $9.5 million, citing a 2008 state Supreme Court ruling over a Madison Walgreens store that allowed the pharmacy retailer to lower its assessments to reflect the value of other stores that are “dark,” or vacant.
The high court ruled that the city of Madison assessors had overvalued the Walgreens store.
Since then, other big-box retailers have used the strategy to lower their own property tax assessments.
No one likes to be overassessed but big-box critics say that by taking advantage of this loophole, large retailers are essentially shifting their tax burden onto homeowners and small business owners in the community, two groups that are far less able to handle higher taxes than the multibillion-dollar retail giants.
Earlier this year a bipartisan group of state lawmakers introduced companion Senate and Assembly bills (SB 292 and AB 386) aimed at closing the “dark store” loophole, but both bills are currently stalled in the Legislature. The Assembly version had a public hearing in June but no action has been taken since then. The Senate version actually passed unanimously out of the Revenue, Financial Institutions, and Rural Issues Committee on Oct. 11, but it has yet to be scheduled for a full Senate vote.
Meanwhile, Monona and other Wisconsin communities are left hanging.
“Big-box stores like Menards, Target, and Walmart, to name a few, are successfully arguing in court that their property should be assessed as a vacant or abandoned building of the same size, not including the value of the business on the property,” Monona Alder Andrew Kitslaar wrote in an editorial this summer. “Such victories will have dire consequences on municipalities large and small because big-box stores will push a significant tax burden onto small businesses and homeowners.”
“If Monona’s Walmart is successful in reducing its assessment, Walmart’s tax bill would be reduced by an estimated $433,000,” notes Kristie Schilling, executive director of the Monona East Side Business Alliance. “The city would lose $111,000 in tax revenue and the Monona Grove School District would lose about $245,000. As a result, the city would have to drastically cut services, or raise the tax rate for homeowners and small businesses. To maintain the current level of city services, it would cost the average homeowner an additional $113 in property taxes, and the average commercial property, or small business, approximately $600 more.”
Schilling says Monona is home to eight big-box stores and if Walmart’s lawsuit were successful the other large retailers would likely follow Walmart’s lead, resulting in more taxes being handed off by these entities to residents and small businesses in Monona.
Kitslaar says to gain a greater understanding of where some of the city of Monona’s taxes go, all you have to do is look at one department — the Monona Police Department.
According to Kitslaar, in 2016 the department spent $75,089 in police officer time for theft, armed robberies, assaults, drug deals, and other issues just at big-box stores within Monona. Walmart alone cost the city $51,731 in police services.
Overall, 1,464 hours of officer time — 1,009 hours just at Walmart — were spent on an initial response to calls at all of Monona’s big-box stores, notes Kitslaar.
“The large amount of hours does not include the time and cost of any additional follow-up on a call, such as writing reports or investigative efforts,” Kitslaar says. “This is time not spent patrolling other businesses, slowing down traffic on residential streets, pulling over OWI drivers, or serving some other part of the city. Big-box stores like Walmart and others would be successfully pushing the tax burden onto city residents and small businesses, while benefiting from city tax resources.
“The big box stores receive city services — emergency services, road construction, and maintenance, etc., and they are not just vacant buildings,” adds Kitslaar. “They should be taxed accordingly.”
Monona is one of many Wisconsin communities that have passed a resolution urging state representatives to take quick action to close the dark store loophole, notes Kitslaar. Likely thanks to opposition lobbying against the bills from retail advocates and other groups like Wisconsin Manufacturers and Commerce, he says progress at the state level has remained slow.
Opponents of the bills aimed at closing the loophole argue the legislation amounts to a tax increase on businesses, and blame local city assessors for being overzealous in their property assessments.
In response, groups like the League of Wisconsin Municipalities have taken a grassroots approach and are urging small business owners and homeowners to write their legislators and encourage them to take action on the bills.
“Other states like Michigan and Indiana have faced the same challenge and have passed similar legislation with bipartisan support,” says Kitslaar. “It’s time Wisconsin followed suit.”
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