Rep. Dianda’s Bill Goes After Big Box Stores Exploiting Tax ‘Loophole’

Tax assessment appeals impact local government services
Thursday, June 4, 2015

LANSING – State Representative Scott Dianda (D-Calumet) introduced House Bill 4681 this week to create a user fee that would make local governments whole when big box stores are able to convince the Michigan State Tax Tribunal to cut their property values and lower their taxes. The practice has been exceptionally hard on Upper Peninsula communities where lower tax collections hit police, fire, ambulance, and library services hard.

“Corporations need to pay their fair share for police, fire, and the other local services they demand. Instead, they are being rewarded for gaming the state’s tax system,” said Dianda. “I’m introducing this user fee legislation because it’s time to take action and undo some of the damage ‘darkstores’ do to our communities. Bottom line is: if these businesses want services and residents to shop at their stores, then they need to contribute their fair share back to the community.”

Known as the “darkstore” issue, the trend of approving lower assessment values for thriving stores can decimate communities, particularly smaller ones where their local budgets are based on revenues from one or a handful of big box stores. Local property assessors are charged with valuing a property to its “highest and best” use. Traditionally, that means that a big box store that is open and thriving would be valued close to what it is worth to the corporation that built it. If it was built for $10 million in one year, then an assessor would value it at close to $10 million the next year.

However, many box stores have a proprietary design and cannot be easily converted into another space. Additionally, corporations often add deed restrictions against selling that property to another retailer. Because of this, corporations have argued successfully to the State Tax Tribunal that the “highest and best use” of a thriving retail space is for something far less valuable than retail. If the tax tribunal agrees, and it has been agreeing, then the big box store ends up paying less in property tax to the local unit of government.

Dianda’s bill would create a user fee for corporations that use this tactic to cut their property taxes. The purpose of the fee is to recover any revenues lost when a business successfully appeals its tax assessment to the Michigan State Tax Tribunal.

“So far, the Upper Peninsula has felt the pain of darkstores more than other regions around the state due to our small population, but that could change,” said Dianda. “I hope my colleagues downstate take action on the darkstore issue quickly, because it is coming soon to a community near them.”