Another week, another Dark Store defeat

While the Wisconsin Legislature can’t seem to grasp it, members of the State Bar are beginning to get the idea: the Dark Store Loophole is a loser. This week the City of West Bend declared victory over a Dark Store play by Menards. The home improvement chain withdrew three year’s worth of Dark Store-based claims that it was being taxed too much. In a news release, City Administrator Jay Shambeau said the decision proves that his assessors, like many others in Wisconsin who face Dark Store claims, were doing it right all along.

“Our City Assessors take great pride in their work and establish fair and equitable assessed values,” stated City of West Bend Administrator, Jay Shambeau. The cancellation of this lawsuit affirms the fact that the City of West Bend assessments were proper and fair all along.  Shambeau also states, “The residents and property owners in West Bend should find peace in knowing that our city staff work hard to establish uniform and law-based assessments on all property assessments.”

We don’t have the exact numbers involved in this case, but similar claims from big box stores have called for cuts as large as half their tax bill, shifting tens of thousands of dollars in taxes onto homeowners, small independent businesses and manufacturers every year. In addition to shifting the tax burden to others, the cost of defending an assessment decision can easily exceed $50,000, forcing many cities and villages to make the hard choice and agree to a settlement. The Mayor of West Bend, Kraig Sadownikow, is pleased the city stuck to its guns and didn’t negotiate a settlement.

“West Bend has been a leader in combating the dark store theory,” states City of West Bend Mayor Kraig Sadownikow.  “I am proud of our city council and staff for their resistance to buckle to the big box pressure to accept a settlement offer. Any type of settlement would have caused a tax shift to other city property taxpayers. This was unacceptable in my opinion.”

Governor Tony Evers included language in his state budget bill that would have closed the Dark Store and Walgreens loopholes once and for all. On a party-line vote, Republican leaders in the Legislature removed that language from the bill. While the future of Dark Store legislation may be uncertain, the future of dark store arguments winning in Wisconsin court rooms looks even shakier. The good news is that, despite the significant legal costs, cities and villages that have stood up to the tax-shifting strategy have been succeeding lately. If this discourages enterprising tax lawyers for big box stores from using dark store strategies, it’s good news for taxpayers.

Way to go, West Bend!

Another assessment win

If you tell a bank that your property is worth $450 million, chances are you won’t win an argument claiming your property tax assessment of $400 million is too high. That’s one of the morals of this most recent property assessment story. On May 9 the City of Wauwatosa won the largest, most complicated retail property assessment challenges to date. By order of a judge, super-regional Mayfair Mall is worth what the assessor said it’s worth (and probably more), not what 20 less attractive malls are worth.

The Mayfair Mall property tax saga began in 2013 when the city of Wauwatosa pegged the property’s value at $400 million. The city’s data suggested the property was worth about ten-percent more than that amount, but the assessor went with the more conservative figure in part because he didn’t have access to income information that had been repeatedly requested from the owner. The assessment was the same for 2014 and raised by roughly 5-percent for 2015. The real estate investment trust that owned Mayfair sued, claiming the city assessments were in error.

A four-year court battle ensued. A year ago, both sides met in Milwaukee County Circuit Court for a six-week trial. The trial became a dense and complicated contest of competing experts. Milwaukee County Circuit Judge Marshall B. Murray issued his written decision in favor of the city this month. His 34-page written decision carefully details how Wauwatosa Assessors Steve Miner and (later) Shannon Krause repeatedly used correct data, scrupulously-followed the Wisconsin Property Assessment Manual and assigned values that were conservatively-beneath the actual value of the property.

On the other side, the experts hired by Mayfair to justify its claim that the assessment was wrong were repeatedly found to be “inconsistent and not credible” by the judge. In some instances, the judge’s decision points out that the owner’s experts contradicted their own previous work. Mayfair had an appraisal done to finance the mall, putting its value at about $460 million. One of the experts who challenged the $400 million assessment worked for the firm that had done the appraisal. (Just one of the facts that Judge Murray pointed out in his “inconsistent and not credible” finding.)

Although Mayfair’s challenge did not turn on the “dark store” theory directly, the decision is an important element in the ongoing legislative debate. It is unquestionably the largest, most complicated retail assessment challenge in the recent string of property tax decisions. Two of Wisconsin’s best municipal assessors, Miner and Krause, were central figures in assigning the values to the property and the case was defended by expert municipal tax attorneys Amy Seibel and Ryan Braithwaite. The other side brought its legal A-team as well, and both sides relied on leading national experts in assessment and appraisal. The case was as expertly-argued as an assessment case can be…and the municipal side won on all points.

Despite the importance of this win, the fight continues. In Wauwatosa, there are related cases from more recent tax years still under appeal, and this decision may be appealed to a higher court. Wauwatosa Mayor Kathy Ehley has said her city budgets more for assessment-related legal fees annually than it receives in shared revenue payments; more than a quarter of a million per year.

Ironically, the same week Judge Murray rejected Mayfair’s appeal the Wisconsin Legislature’s budget-writing committee rejected a proposal to clarify the law. The Joint Committee on Finance voted 11-3 against League-supported Dark Store language in the state budget. Apparently, legislation that would help Wauwatosa and other Wisconsin municipalities not spend $250,000 per year on legal fees is not “fiscal policy” suitable for a state budget.

Stay tuned.

Dark Store is dead. Long live Dark Store.

I’ve never been a fan of zombie movies, but the Dark Store saga is beginning to look like one. For a significant number of property taxpayers: Beware, Dark Store zombies continue to walk the state. The solution to the problem will (almost-but-not-quite) certainly not be resolved by the Legislature this year.

For those of you who aren’t political junkies, Thursday, February 22nd was the last scheduled day for the State Assembly to be in session. Our two legislative proposals to close the Dark Store property tax loophole and its sister the Walgreens loophole were not on the list of bills to see resolution. We had been told the week prior that they would not be taken up.

But a day or two beforehand, we started getting phone calls from Representative Brooks, the bills’ author. He still had hope that at least part of one of the bills could be amended onto another piece of legislation. A large number of Republican State Representatives did not want to go home for re-election without solving the Dark Store problem, which will start to show up on property tax bills this year, and they were encouraging Brooks to find a solution.

In addition, Representative Kevin Peterson had seen the damage caused by a large property tax shift in the village of Manawa and he was determined to get something passed to pull back the 14-percent tax increase imposed on residents and small business by a reassessment of a single large manufacturer in that community.

Despite Brooks’ and Peterson’s best efforts, opponents of the bill dug in. The manufacturers’ lobby, Wisconsin Manufacturers and Commerce (WMC) refused to accept any compromise. At the urging of Brooks and Peterson we agreed to change after change, narrowing after narrowing and WMC continued to say, “Nope.” Finally, at 11:00 p.m., we were presented with a solution that didn’t fix the Dark Store problem (it didn’t even mention it) and made permanent the sister loophole, Walgreens. We finally said enough and said no. (Ironically, the legislative leadership then promptly went to reporters to tell them that WE were unwilling to compromise. Sigh; politics is such fun.) The Assembly wrapped up its business and, barring another unexpected zombie uprising, there will be no Dark Store solution this session.

What’s next? For communities with a large amount of national-chain retailers, you can expect to see a steady or even increasing stream of property tax appeals. The Legislature’s lack of action, coupled with the significant financial incentives that big box retailers and others have to chase a tax cut/tax shift make that outcome inevitable. Attorneys who specialize in this area of tax law often work on a percentage of recovery, which makes the appeal a freebie for the property owner.

One more thing. Every other property owner will pay more. There will be another Manawa or two, as tax attorneys learn how to adapt the Dark Store strategy to Dark Manufacturers, Dark Banks, and so on. An enterprising attorney will attempt to expand the Walgreens loophole to other commercial properties.

The only ones who won’t be able to at least make a run at this loophole are home owners, apartment owners and small businesses. They will be left holding the bag while their big box neighbors happily fill it up for them. Dark Store is Dead. Long live Dark Store.