The result of the tribunal's decisions in multiple cases is that the big box stores remain open, still doing business, but with a property tax bill the equivalent of a vacant or "dark" store.

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DARK STORES: Legislature Zeroing In On Property Tax Loopholes

November 20, 2015
By: Dave Rogers

The state legislature is considering bills to address the developing issue of "dark stores" -- stores that remain open but pay taxes as though they were closed.

The bills have bipartisan support and are expected to pass handily. Similar legislation in Indiana was approved on a unanimous vote.

So-called "big box" retailers have been exploiting an obscure concept recognized by the Michigan Tax Tribunal -- causing other small retailers, businesses and homeowners to pick up the bill.

The result of the tribunal's decisions in multiple cases is that the big box stores remain open, still doing business, but with a property tax bill the equivalent of a vacant or "dark" store.

Worse than that, big retailers often have covenants in their deeds prohibiting reuse of the building by a competitor -- a so-called "negative use restriction" concept.

In some counties, lawsuits using this rationale have been won, and the municipality ordered to issue big refunds.

Dan Gilmartin, executive director of the Michigan Municipal League, and Tim McGuire, executive director of the Michigan Association of Counties, in an article in Bridge Magazine, state:

"Michigan's local governments and schools are losing millions of dollars that otherwise would go to libraries, classrooms and police, fire and senior services through a gaping tax loophole large retailers across the state are quietly exploiting to lower their local property taxes."

For example, Marquette County has had to pay back millions, causing closing of the Youth Home and cuts in other services.

"A study of property taxes in Oakland County showed the average property tax rate for most retailers is now twice the average rate for big box stores -- and significantly below the same rates they are paying for these same stores in other states," according to the Bridge article. Property taxes are up to 50 percent lower in some cases for big box stores.

The attorney who files the suit gets the first year refund as his or her fee, according to reports.

The "dark stores" concept is explained by one observer:

"They have successfully argued that since their stores are built specifically for their purpose, that they wouldn't be able to sell them for what they've invested in them (essentially saying that they are disposable).

"The problem is that most, if not all, of these stores put a restriction on the deed that prevents any competitor from moving into it, thereby lowering its value. Then the retailer uses the decreased value based on deed-restricted properties to say that the lower tax rate should be the standard for taxing stores that are open. Sound convoluted? Well it is."

House Bill 4909 and Senate Bill 547 would amend Michigan's zoning laws to require big box stores to end "negative use" restrictions and submit a plan for re-lease or redevelopment of the property in the event of a vacancy.

"The Legislature finds that vacant since retail establishments lead to blight," the House bill states. The bill would award a "special land use" to counties, cities and townships to rehabilitate vacant single retail establishments as a public purpose.

Gilmartin and McGuire concluded: "Most communities welcome a Wal-Mart, Lowe's or Home Depot. But they don't expect those stores to then ask to be taxed as though they are closed when they are still open and making a profit off the local residents who shop there. Our simple goal is legislation to require that big box stores be valued and taxed in the same manner as any other Michigan storefront business and any other taxpayer.

"Michigan's municipalities, townships and counties have suffered tremendously over the past decade through the decline of state revenue sharing dollars and property taxes. Leaving local governments on the hook to refund millions of dollars in property taxes to big box retailers because of a tax loophole created by bureaucrats is robbing our communities of vital services."

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