Rep. Dianda's Resolution Calls for State Study on Dark Store Tax Issue

Dark Store Tax Payments Drain Funding From Local Services
Wednesday, September 9, 2015

LANSING – State Representative Scott Dianda (D-Calumet) introduced House Resolution 133 today calling on Gov. Rick Snyder and the state Tax Commission to conduct a statewide impact study on the current and future effects of the “dark store” tax method. Big-box retailers have been able to convince the Michigan State Tax Tribunal to cut their property values and lower their taxes. Local governments are then forced to refund to these retailers their overpaid property taxes, typically hundreds of thousands of dollars, which then reduces the money locals have to spend on services like police and fire services, and trash pickup.

“When big-box stores use this tax loophole to cut their property tax payments, it directly affects our communities and puts at risk the local government services that citizens, and these stores, rely on,” said Dianda. “I’ve listened to my local officials about the problems and the tough budget decisions they are facing. It’s time for the state to do a study to determine what the effects of this tax is on communities now, and what it could be in the future. We need that information to show my colleagues how this affects their district and to determine a solution to this problem.”

The trend of approving lower assessment values for thriving stores – the dark store tax method – can harm the quality of life in our 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. The practice has been exceptionally hard on Upper Peninsula communities where lower tax collections hit police, fire, ambulance and library services hard.

The situation gets more complicated because many big-box stores have a proprietary design and cannot be easily converted into another space. Corporations also 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 is the sponsor of House Bill 4681, which 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 Tax Tribunal. A statewide impact study on the issue would also look at communities that have already lowered large retail property tax assessments and study the impact on local services. Ottawa County has lowered these assessments by $14.8 million. Marquette Township recently had to refund overpaid property tax assessments of $756,000, computed by the dark store tax method.

Other states are also studying this issue. Indiana has determined that the dark store tax method could be applied to more than 17,000 commercial properties, causing a $3.5 billion loss in the tax rolls. The state then moved to change the process by requiring an assessment valuation be based on construction costs.

“Upper Peninsula communities have suffered from these tax losses because our communities are small, and we can’t pull money from other parts of local budgets to replace what was lost,” said Dianda. “But this isn’t an issue that’s unique to the UP, because big-box stores are everywhere. Local governments across Michigan don’t get as much revenue sharing from the state as they used to. So when their big-box stores make these tax claims, they’ll feel this pain too. We need to act on this sooner rather than later, so I hope my colleagues will support my resolution and House Bill 4681.”