Michigan Legislators Talk Big-Box Store Taxes

Decisions by the Michigan Tax Tribunal, affirmed by the state Court of Appeals, have trimmed initial property tax assessments, sometimes by 50 percent or more. For municipalities and other public bodies like libraries, school districts and community colleges — refunds for assessments, often stretching back two or three years, can cost communities hundreds of thousands of dollars or more.

Bills pending in the Michigan House and Senate would address policies and practices that set the taxable value of big-box stores like Home Depot, Meijer, Kohl’s and Wal-Mart at less than it costs to construct them. These building are now taxed on their resale value, which in turn is based on the depressed value of abandoned, so-called “dark stores” that are often encumbered by covenants that prevent their sale to the most likely purchasers — big-box store retailers.

According to the lobby group Close Michigan Loopholes, the bills, proposed by Representatives John Kivela and Ed McBroom and Senator Tom Casperson would:
Prevent operating stores in Michigan from using closed stores anywhere in Michigan as comparables.

Prevent new stores from using closed stores with restrictive easements on them as comparables.
Prevent property owners from imposing an easement on deed restrictions that runs counter to the community master plan.

The bills are backed by the Michigan Municipal League and the Michigan Township Association. Opposing the bills are the Michigan Retailers Association and the Michigan Chamber
of Commerce.

At play in the dispute are two issues: One is how big-box properties are assessed; the other is the accuracy of the assessments that were lowered after they were appealed.

“Our perspective is that these taxpayers, these retailers, believed they were being over-assessed in their real estate property taxes. They went through proper channels, and the Michigan Tax Tribunal agreed that they were over assessed,” said Tricia Kinley, senior director of tax policy and regulatory reform for the Michigan Chamber.

Tax Tribunal members, all of whom were appointed by Governor Rick Snyder, include Chairman Steven Lasher, assessor member Victoria Enyart, appraiser member Valerie Lafferty and attorney members Preeti Gadola and David Marmon.

Tom Scott, senior vice president of the Michigan Retailers Association, characterized the issue succinctly, “Ultimately the fault is that they were assessed incorrectly.”

In testimony prepared for the House Tax Policy Committee, Michael Shapiro, an attorney with the law firm Honigman Miller Schwartz and Cohn LLP, advanced the MRA’s. His firm has orchestrated hundreds of business property tax appeals.

He wrote:

“In Michigan, the property tax valuation is (“TCV”), statutorily defined as ‘usual selling price’ (MCL 211.27). There are no exceptions. The valuation standard applies to all taxable property including, for example, apartment complexes, office buildings, industrial buildings, single family homes and, of course, all retail property.”

Citing the Michigan Supreme Court, he added the state constitution “specifically provides for uniform property taxation.”

Shapiro reminded the legislators that Michigan businesses pay substantial taxes based on their business activity: income taxes, sales taxes, use taxes, fuel taxes and unemployment taxes.

What he didn’t address was the issue of covenants affecting the comparable values of vacant buildings. According to the Michigan Municipal League, restrictions included in a 2011 covenant deed executed by Wal-Mart for a property in the city of Auburn Hills are typical of the limits governing big-box store sales.

The covenant states that the property will not be used for a “grocery store or supermarket” larger than 35,000 square feet, “a wholesale club operation similar to that of a Sam’s Club,” “a discount department store or other discount store” larger than 50,000 square feet, “a pharmacy” or for “gaming activities” which include gambling, electronic games or a business that derives “principal revenue from the sale of alcoholic beverages.”

Also it mandates that “The Property Restrictions shall remain in effect for a period of twenty-five (25) years.”

The cumulative effect of reduced assessments can be significant in communities with large retailers. “Adding up tax history numbers for Home Depot, Meijer, Kohl’s and Target, big-box tax revenue losses as a result of the Michigan Tax Tribunal in Meridian Township are in excess of $1.5 million since 2011,” said Meridian Township Treasurer Julie Brixie. “Our assessors assessed fairly. This law is to close a loophole.”

She added that the existing assessing methods simply give big companies an unfair tax advantage. “It hurts local communities and increases the burden on those who are left,” she said. Brixie is particularly incensed by the claims of Home Depot in Okemos that its assessments should be lower because of the “dark-box” valuations. The home improvement retailer is located in the 130,000 square foot big-box building that originally housed the now defunct Meijer SourceClub.

Indiana has wrestled with how to tax big-box stores, and this summer enacted a law to prevent appraisals from using comparisons to closed stores. The measure passed 98-0 in the state House and 49-0 in the Senate.

It regulated appraisals for non-income producing buildings occupied by their original owners for less than 10 years and prohibits comparisons for properties with significant deed restrictions. It requires that their assessments consider construction costs when determining taxable value and limits comparable sales comparisons to properties that have been on the market for less than a year. The law applies to 2014 assessments and to cases pending before the Indiana Board of
Tax Review.

The Indiana Retail Council opposed the bill, which like Michigan has constitutional provisions regarding uniform property taxation, but that issue was not raised during the hearings.

Mickey Hirten is an award winning writer and editor. He has been executive editor of the Lansing State Journal, the Burlington Free Press in Vermont, and was the financial editor and a columnist for the Baltimore Evening Sun. He is the current president of the Michigan Press Association. His wife, Maureen Hirten, is director of the Capital Area District Library.

Reasons for and Against Changes in Property Taxes

Reasons cited by those opposing changes in determining property taxes:
  • This would be a clear tax increase in the assessments on one segment of the business community — retail. Proposed legislation based on the size of a retail property is discriminatory.
  • It sets a slippery slope for establishing valuation that could quickly migrate to other industries, such as manufacturing.
  • It would be unconstitutional, because it violates the uniformity provision in the Michigan Constitution, Article IX, Section 3.
  • To have the legislation declared unconstitutional would require litigation, which would be costly and time consuming for taxpayers and government.
  • Businesses like certainty. Any proposed change in law designed to increase assessments on one property type sends a chilling message to potential investors that Michigan is not open for business. It is a step backward from the strong progress Michigan has made.
  • Local municipalities should concentrate on attracting investment, not discouraging new investment and penalizing those who have invested in their communities.

Source: Michigan Retailers Association

Reasons cited by those supporting changes in determining property taxes:

  • Big-Box retailers like Lowe’s, Home Depot and Wal-Mart have carved out a loophole in property tax law that allows them to argue that their stores should be valued the same as if they were vacant (or “dark”) and blighted.
  • This “theory” flies in the face of decades of precedent and training for property assessors and appraisers, virtually changing the property valuation system overnight, all based on a decision from a politically appointed board
  • in Lansing.
  • These same retailers are then putting deed restrictions on their vacant stores to depress their values and perpetuate their claims that their operating stores should be taxed at ridiculously low levels. These deed restrictions serve two purposes — they limit who can move into those buildings and potentially compete with the other big-box stores in the area and they limit potential buyers for those buildings, driving down the sale prices of those buildings that they turn around and use as an excuse to lower their taxes on their open and operating sites.
  • The tactics being used by these retailers are virtually unique to Michigan. In other states where these same arguments are being attempted, courts and legislatures have moved quickly to rebuff these appeals. Indiana had been the only other state where this theory had been used and their legislature passed a bill earlier this year to block the dark store claims. Michigan’s commercial property tax values are now a fraction of what they are in
  • surrounding states.
  • These unfair tax reductions are having a ripple effect throughout communities around the state as schools, libraries, community colleges, local governments and public safety are all forced to refund money to these retailers and reduce the services they offer or increase taxes and fees on every other taxpayer in that community.
  • The concern raised by local government is not about raising taxes on any one industry, or raising taxes at all. It is about maintaining a fair and equitable system of taxation for all taxpayers in a community.

Source: Michigan Municipal League

Mickey Hirten is an award winning writer and editor. He has been executive editor of the Lansing State Journal, the Burlington Free Press in Vermont, and was the financial editor and a columnist for the Baltimore Evening Sun. He is the current president of the Michigan Press Association. His wife, Maureen Hirten, is director of the Capital Area District Library.




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