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Monday, September 12, 2016

Ind. Gov't. - "South Bend area governments to keep up fight against big box stores"; A nationwide issue

Jeff Parrott reports in the South Bend Tribune on the Sept. 7th Indiana Tax Court decision in Howard County Assessor v. Kohl's Indiana LP (ILB summary here)- the story begins:

St. Joseph County’s attorney is advising the county to keep defending its property tax assessments of big box retail stores, despite an Indiana Tax Court ruling last week in favor of such stores in a similar case.

The court Wednesday affirmed a decision by the Indiana Tax Review Board holding that a Kokomo Kohl’s store could include property values of nearby vacant store buildings, called “dark sales,” when figuring the assessed value that determines their property tax. Howard County had argued that only occupied store values should be factored into the calculations.

Elected leaders in South Bend, Mishawaka and St. Joseph County side with Howard County, arguing that big box stores that don’t pay their fair share of property taxes ultimately force individuals and businesses to pay more. In April the three governments decided to share costs in hiring appraisers and attorneys to fight several chain stores filing similar assessment appeals.

In the wake of the ruling, St. Joseph County attorney Jamie Woods sent county officials an email stating that they can make a different legal argument than the one Howard County presented to the Tax Court, said county auditor Mike Hamann.

“The idea is to present a more thorough defense of our argument,” Hamann said. “That’s good news. Initially I was a little concerned.”

Frank Agostino, the attorney representing county assessor Rosemary Mandrici, agreed that the ruling won't affect local cases.

"The assessor in that case was mostly attacking the method that was being used by the appraiser for those big box stores," Agostino said. "In St. Joe County, we've hired an expert appraiser and that expert appraiser will deliver an opinion of value."

Meijer, Kohl's, Lowe's, Target and CVS stores have appealed their assessments in St. Joseph County.

ILB: This issue is not unique to Indiana. Liz Farmer of Governing had this story in the September 2016 issue, headed "Big-Box Stores Battle Local Governments Over Property Taxes." Some quotes from the story, that is subheaded "The [big box] retailers are deploying a ‘dark store’ strategy that’s hurting cities and counties around the country" [ILB emphasis]:
On Michigan’s sparsely populated Upper Peninsula, big-box stores are a modern necessity. * * * Landing one large retailer is a coup. Having more than one can make a city or town a regional shopping destination. Marquette Township, a small community adjacent to the larger city of Marquette, is in the unique position of having a handful of big-box chain stores. * * *

But recently, the township suffered a dramatic drop in its property tax revenue. It had to cut back on spending, trim employee benefits and reduce library hours. The impact has reached up to surrounding Marquette County, which earlier this year closed a youth home to save money. The reason for the lost revenue isn’t declining consumer demand. It’s a series of rulings by the Michigan Tax Tribunal that have allowed large retailers to reduce their property tax assessments, in many cases by as much as half.

Big-box retailers argue that the market value of their commercial property should be the sale price of similarly sized but vacant retail buildings. They point out that these buildings are extremely hard to sell as-is once the retailer moves out. They tend to sit empty for long periods. Thus, the assertion is, they aren’t worth nearly as much as local tax assessors have traditionally assumed in valuing the property. * * *

Michigan is far from alone in seeing localities take dark-store hits to their property tax base. Counties in Alabama, Florida and Indiana are seeing widespread challenges that make use of the dark-store method. The National Association of Counties says it’s an emerging issue in Iowa, North Carolina, Ohio, Tennessee, Washington and Wisconsin.

Still, while these cases have been proceeding for the better part of a decade, it’s only been recently that county organizations and public officials have realized the geographical magnitude of the challenge. County assessors forced to respond to it aren’t always aware of similar controversies outside their jurisdiction. This is particularly true in places that are geographically isolated and where assessors are part-time employees. * * *

Even in places where counties have pieced together a coordinated effort to fend off challenges, response on the state level has varied. The Indiana General Assembly took arguably the strong-est action, passing two laws last year that essentially banned the dark-store tactic. But those laws were repealed and replaced with a weaker law this year. Alabama passed a law that amounted to an administrative change giving counties more legal resources. The Michigan Legislature has considered but not approved bills dealing with how the Tax Tribunal hears assessment challenges. In these places and elsewhere, many are concerned that the longer it takes for a concerted state response, the more money counties and local governments will lose.

The lengthy article then goes into a worth-reading discussion that begins:
There are different nuances and different case law in every state, but it can be generally said that appraisers look at three factors in determining the taxable value of property: the sale price of comparable properties, the current cost to build minus depreciation and the income generated by rents charged to tenants. Appraisers can apply a blend of these approaches to arrive at a property’s value, or place most of the weight on just a single approach.
Later in the story:
The big-box retailer Meijer brought a case at one of its most successful Indiana locations, in Marion County, after winning reduced assessments in Michigan. The attorney for Meijer went so far as to tell the Indianapolis Business Journal that the appeal in Marion County was a test case because “whatever the value is there would be the upper limit of the value across the state.” The retailer won in late 2014 and got its assessment slashed from $83 per square foot to $30 per square foot. The decision applied retroactively, requiring Marion County to refund Meijer $2.4 million for nine years of back taxes. Indiana county officials estimated that if the decision were to be extended to the more than 17,000 commercial properties across the state, it would mean a loss of $120 million in property tax revenue statewide.

Indiana lawmakers responded quickly. In 2015, the legislature passed two bills: One effectively banned using the dark-store method to value existing businesses, and the other required using the cost method for properties over a certain square footage. But those laws were repealed this year under concerns they violated the uniformity clause in the state’s constitution, which requires all property to be assessed on an equal basis. The Indiana General Assembly then passed a new law that requires assessments to be based on the value of properties that are “similarly situated in the marketplace.”

Other states have tried other tactics. Alabama passed a law this year that allows counties to remove these cases from their district attorney’s jurisdiction and hire outside attorneys to fight them. In Michigan, a bill passed the House that would require the Tax Tribunal to consider all three valuation methods (rather than just the one the retailer is arguing for). It will be considered in the Senate later this fall.

In short, the legislative authority of lawmakers to intervene is murky. “It’s always appropriate for the legislature to try to clarify and remedy a situation when appropriate,” says Joan Youngman, a property tax expert with the Lincoln Institute of Land Policy. “But you want to be sure this is a problem with the existing law.”

In the end, the best way to beat back the challenges is to win in court. * * *

In Michigan, a recent Court of Appeals ruling may prove to be a turning point. In May, the court overturned a 2015 decision by the Michigan Tax Tribunal that had favored the retailer Menard against the city of Escanaba in a property tax dispute. The court found that Escanaba’s cost-based approach was more reasonable than the retailer’s comparable sales method, which included using dark stores. The case was remanded back to the tribunal with directions to consider all the assessment methods. It may end up setting a precedent for cases in Michigan that are currently open.

Still, for counties and townships that have already lost or settled cases, the damage has been done.

Here is a new story from The Dallas Morning News, headed "Will big box retail's 'dark store' strategy lead to fewer taxes in Texas?."

In addition, the ILB has a long list of earlier stories on the appraisal/assessment of big box stores.

Posted by Marcia Oddi on September 12, 2016 10:41 AM
Posted to Indiana Government