By State Rep. David Maturen, 63rd District
Overwhelming concern has been expressed recently over a tactic developed by large retail corporations to dramatically reduce taxable values on their properties and in turn their property taxes. The approach is known throughout the industry as the “dark store” assessing theory. It describes the condition of older, vacant (no lights on) properties being used for comparative purposes in the assessment appeal process to value new, mint condition stores.
In recent years the Michigan Tax Tribunal (MTT) has adopted a policy that allows lawyers working on behalf of these major corporations to argue that as soon as a new store is constructed, 50 to 80 percent of its value (cost of land and building construction) is lost. They argue the only way to determine the value of any big box facility is to use sales of comparable properties that are not occupied at the time of sale. This method, which other states have not adopted, excludes other legitimate sales in the market place and many times ignores the other two universally recognized approaches to value, cost and income.
Here’s how it works: A huge building — “big box” — is constructed by a large corporation in a prime location. The city or township assessor estimates the value of this new project, and the local government develops a tax bill based on this assessment. Under the “dark store” theory, however, the building owner appeals the assessment to the MTT arguing that since they are occupied structures, their value includes “business value” — which is not assessable. This artificially narrows the data selection for comparables to vacant structures — “dark stores.”
In addition, the dark store comparables often have deed restrictions that prevent most commercial uses (no sales of food, clothing, hardware, garden supplies, pharmaceuticals, housewares, and on and on) for up to 25 years, understandably lowering their commercial appeal and future use. Any objective party would recognize that these alleged comparables don’t even remotely have the same highest and best use (the cornerstone of the valuation process) as the property being appealed.
A recent situation near my district has highlighted the need for legislation to clarify the actions necessary by the MTT in making decisions. A large retail chain recently purchased a large tract of property for $5.5 million at one of the busiest corners in southwest Michigan. They purchased a building permit for $12 million. When completed, the assessor put a true cash value for the brand new store — after a $17.5 million investment by the corporation — at $8.5 million, which makes the taxable value $4.25 million. The corporation countered by appealing their assessment, contending the true cash value should be $4 million with a taxable value of $2 million. Thus, they are arguing essentially that the value of the land and new building is worth $1.5 million less than what they just paid for the land alone.
These maneuvers result in large reductions in taxes for the big box stores. This creates an inequitable distribution of the tax burden for the rest of the local property taxpayers, including residents, and also the many small businesses that still have to compete against these big box retailers.
To close this loophole, I’ve introduced House Bill 5578, which would require the Tax Tribunal to operate using professional, universally accepted and equitable appraisal principles.
My bill also requires the entire Michigan Tax Tribunal to base the valuation of the property under appeal on the Tribunal’s own, independent determination of true cash value and the “highest and best use” of both the property under appeal and, more importantly, the comparables used for comparison purposes. In its recent rulings, the Tribunal has been comparing apples to onions; we need to get back to comparing apples to apples.
My bill has been reported out of the House Committee on Tax Policy. If you think all properties should be measured with the same set of rules and no special carve outs, I urge you to contact your lawmaker and ask them to support HB 5578.
(Editor’s Note: Rep. David Maturen, a certified general real estate appraiser and former township trustee and county commissioner, represents the 63rd House District which encompasses portions of Calhoun and Kalamazoo counties. He is vice chair of the House Committee on Tax Policy. Email him at firstname.lastname@example.org, or call (517) 373-1787.)