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March 11, 2020

Legislative jab at big-box retailers' 'dark store theory' up for decision

Photo / Maureen Milliken The Augusta Walmart is one of many across the state that has sought a reduction in tax valuation.
Where in Maine has dark store theory worked?
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The legislative Taxation Committee is expected to act Thursday on a bill that aims to end the practice of big-box retailers seeking lower tax assessments from towns and cities — a bill municipalities and assessors support, but the state's retail industry opposes.

Known as dark store theory, Walmart, Lowe's and other national chains have requested cuts in tax assessments by six- and seven-figure amounts, on grounds they are in economically disadvantaged areas and the stores would sell for far less than what's assessed.

The practice, which began in the Midwest more than a decade ago, spread to Maine over the past five or more years and has been tried, with spotty success, in communities across the state.

Most towns and cities don't have the resources to fight appeals that a denied assessment for large national corporation might bring, said Sarah Austin, lead policy analyst on tax and budget at the Maine Center of Economic Policy.

"[The corporations] can out-arm local officials, whether right or wrong," said Austin.

Austin told Mainebiz that Maine-based chains like Reny's, Hannaford and L.L. Bean, have not asked for similar assessment reductions.

While tax assessments are largely a local process, the intent of the bill is to give assessors a framework that will better ensure retailers are valued on a consistent basis.

The bill, LD 2045, is expected to be taken up by the Taxation Committee Thursday afternoon after being tabled last week. It would require retailers with a store of 20,000 square feet or more to be valued based on their current use compared to similar properties in their retail market segment or, if vacant, according to their highest and best use.

The bill is sponsored by state Rep. Ryan Tipping, D-Orono, the co-chair of the Taxation Committee, who asked when it was before the committee last week that it be tabled so he could look at it more closely.

In testimony to the committee last month, Tipping said the stores in question "are actually generating huge amounts of revenue and are in economically viable and successful areas, and therefore ought to be paying property taxes that reflect that reality." Otherwise, the municipality ends up paying for the revenue shortfall, he said.

"This bill heads off that strategy of gaming the system by clarifying the valuation law at the state level. As it stands, the assessment law is vague, creating opportunities for tax avoidance," he said.

But the state's retail trade groups say that the bill would have the opposite effect, unfairly targeting retailers.

Fair or unfair?

Both the Maine Grocers and Food Producers Association and the Retail Association of Maine oppose the bill. Officials from both told the Taxation Committee last month it singles out retailers, and that assessments should reflect the cash value of a property.

"LD 2045 looks to treat the assessments of retail property greater than 20,000 square feet differently than every other commercial, industrial or residential property," said Curtis Picard, president and CEO of the Retail Association of Maine. "The reality is that retail property is being over-assessed. Retailers are appealing property tax assessments because their property is being overvalued using methods that do not reflect the property's true cash value."

Christine Cummings, executive director of the Maine Grocers and Food Producers Association, said that some independently owned grocers can range up to 25,000 square feet, but still have only 10,000 square feet of selling space. "This bill focuses on only retail stores that are 20,000 square foot and above, capturing a large array of retail store fronts not just typical 'big-box' retailers," she said. Many of the stores affected are "owned independently by members of the same community."

The national nonprofit Council on State Taxation, which represents 550 multi-state corporations, added that the bill is "unfair and discriminatory." The group made the same points the local retail associations did, and added, "The proposed legislation potentially violates the state constitution’s uniformity clause."

But the state's municipalities and assessors see it differently.

In Brunswick, Walmart has two pending reduction requests that would reduce the store's $16 million assessment by $6.9 million for the 2017-18 tax year and $5.7 million for the 2018-19 tax year.

"We value having larger retailers in our town," Town Council President John Perreault told the taxation committee during the public hearing. "They contribute jobs and draw people to Brunswick, two things we need here. We simply believe that these stores should be treated just like everyone else."

He said, regarding the fairness complaints, "No other property taxpayers are held to the 'dark store' standard. Maine's small business owners can't pretend their stores are abandoned, and homeowners can't pretend nobody lives in their fully occupied home. Why should large-scale retail chains receive special treatment? Why should they get to push a chunk of a town's property tax burden onto those who can least afford it?"

Austin, of the Maine Center of Economic Policy, also doesn't buy the argument that the guideline requested in the bill isn't fair.

"Property taxes are supposed to be based on apples-to-apples comparison between the property in question and similar situated properties," she said. "Dark store theory instead asks local assessors to compare fresh fruit to rotten vegetables."

A tale of two towns

Maine Center of Economic Policy did an extensive study of the practice after being contacted by municipal tax assessors. The organization filed records requests going back four years in the 25 municipalities with the highest retail sales, as well as every community with a Walmart, which has filed the majority of the assessment reduction requests in Maine.

The study shows that large-scale retailers have requested at least $184 million in reduced property tax value since the 2015-16 tax year, ranging from 14% to 56%. The average requested reduction is 34%. Austin said the requests may go back farther, but she limited the records request to four tax years.

Of those towns and cities the study looked at, Walmart has asked for 21 reductions in 16 municipalities from the 2015-16 tax year on; Lowe's has asked for nine in six municipalities; Sam's Club has has for four in two municipalities; Walgreen's has asked for three in two municipalities; Best Buy and BJ's have each asked for one in one municipality.

Of 39 reductions requested by Walmart, Lowes, Sam's Club, Walgreens and BJ's, nine were successful, 20 denied and the other 10 pending.

Austin said that the corporations don't appeal all of the denied requests. "As they're being denied in three communities in Maine, they're being said yes to in so many others across the country," she said.

In Oxford, Walmart asked for a $3.5 million reduction in the $11.5 million 2017-18 tax year assessment. If approved, it would have reduced the amount of taxes the store pays the town of 4,100 by about $32,000. The town has a yearly budget of about $7 million.

Delia Garcia, Walmart’s senior director of communications, told the Republican-Journal newspaper that Walmart was doing what any  property owner who believed their assessment was too high would. “Property values are dynamic and change with market forces,” she said. “Based on current market data, we believe the property has been over-assessed."

In a reply letter, town Assessor Donna Hays disagreed, and added that Walmart's attorneys hadn't provided any evidence to prove the assessment was too high. The board of assessors voted 3-0 to reject the request, and Walmart didn't appeal in the 60-day window allowed.

But in Brunswick, where town officials say Walmart's two reduction requests could cost a combined $200,000 in revenue, the company is pushing the issue.

The appeal of the 2017-18 tax year cut, a requested $6.9 million of a $16.9 assessment, was denied by the assessor and the town's board of appeals, and, after mediation failed, is waiting for a date before the state board of assessment.

The clock is ticking

Across the country, results have been mixed on appeals by the big-box companies, according to MECEP study, authored by Austin and Mario Moretto, the nonprofit's communications director.

An August ruling by a county court in Arkansas that Walmart's evidence was inadmissible was appealed to a circuit court and will likely end up in that state's supreme court, they said.

A 2017 Arkansas state law repealed a legal requirement that judges defer to assessors, placing the burden of proof for property tax appeals on the property owner. "With both sides now equal before the courts, the Arkansas case will deliver a clear-cut verdict on the legitimacy of dark store theory," the study said.

A Michigan Supreme Court ruling in 2017 overturned a successful dark-store appeal by home improvement chain Menards.

In Wisconsin, a bill would ban most applications of dark store theory, and state voters have passed advisory referendums across the state asking lawmakers to end the practice.

Moretto told Mainebiz that it's just a matter of time before some of the valuation requests that are pursued result in a court decision that sets a precedent.

"The longer we wait, the more likely they are to get a victory in court," he said.

The 129th Legislature adjourns April 15, and if there's no decision on the bill, it will have to be reintroduced with the new Legislature convenes in the fall.

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March 12, 2020

While in operation current valuation theory would hold that big box stores are fully functional and should NOT receive a break for some sort of obsolescence as is being claimed by big box retailers. If the stores go dark, they may or may not suffer from obsolescence depending on the case.

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