Some lawyers have proposed a new tax court to replace MTT.

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TAX GRAB=$78 M: Locals Fight Big Box Tribunal Rulings

January 2, 2016
By: Dave Rogers

Local governments have had to refund total of $78 million, mainly to large retailers, since 2013 under so-called "dark stores" rulings by the Michigan Tax Tribunal (MTT).

"Large retailers have convinced the MTT to give them special treatment as it pertains to the fair market value of their property," states an organization critic.

This theory has resulted in smaller retailers in Oakland County paying 72 percent more in property taxes than the Big Box stores, according to the Michigan Association of Counties (MAC).

"MAC thinks a fully functioning retailer's property value should not be determined by the value of vacant property," a MAC briefing paper states.

In Bay County, local governments have lost about $5.8 million over the past five years. The rulings require a cash refund of taxes previously paid, causing even more pain to locals and adding to tax bills of homeowners and "mom & pop" businesses.

A coalition of nearly every county, city, township and public school association in Michigan has urged a state House committee to pass bipartisan legislation that would close a gaping tax loophole.

Proposed legislation would block future use of the Dark Store theory by:

*Preventing the use of anti-competitive deed restrictions that distort the market and contribute to blight in our communities; and *Requiring the use of all three assessment approaches (cost, sales and income) based on the particular circumstances.

Under the loophole, retailers such as Meijer, Lowe's, Target, Kohl's, Menards, IKEA and Home Depot across Michigan are pressing to have their operating 'Big Box' stores compared to closed, vacant properties for the purposes of establishing their value.

One example given by MAC is Kohl's in Kochville Township, Saginaw County. Before the MTT ruling Kohl's taxes were $74 per square foot (psf). Now Kohl's is paying $25-29 psf.

Target in Midland was paying $64-66 psf, now is taxed at $24-30 psf, MAC says.

The loophole was created in a 2013 decision by bureaucrats and political appointees to the largely obscure Michigan Tax Tribunal. It has since become known as the 'Dark Store' theory of determining tax assessments.

Business-friendly Indiana passed legislation closing a similar Dark Store loophole while Wisconsin and Alabama lawmakers are also working on a fix in their states.

Republicans and Democrats have joined to close the Dark Stores loophole by introducing House Bill 4909 and Senate Bill 524. The House Tax Policy Committee took testimony on the issue in November.

"We are asking the Legislature to close a gaping tax loophole scheme being exploited by Big Box stores. This scheme is costing local communities and schools across Michigan millions of dollars and is creating an unfair tax advantage for Big Box stores over local retailers," said Dan Gilmartin, executive director and CEO of the Michigan Municipal League.

"Other states are addressing this issue, and we are grateful to those Republicans and Democrats in the Michigan Legislature willing to join together to solve the problem here.

"Most communities welcome having Big Box retailers such as Lowe's and Home Depot nearby. But they don't expect those stores to then ask to be taxed at artificially low rates. The bills being proposed would require that Big Box stores be valued and taxed in the same manner as any other Michigan storefront business and like any other taxpayer."

"By any measure of common sense and fairness, the property value of a store that is open for business should not be influenced by a store that is closed for business and vacant," said Larry Merrill, executive director of the Michigan Townships Association. "Legislative action is necessary to re-establish fairness and common sense in the assessments. Failing to close the Dark Stores loophole means big retailers will continue to operate with unfair tax advantages over small businesses. All residential taxpayers will end up shouldering far more of the local tax burdens to pay for education for our children and local services such as police protection and firefighting."

Timothy K. McGuire, executive director of MAC, said House Bill 4909 and Senate Bill 524 are the products of months of discussion among stakeholders, legal experts, legislators and members of the Executive Branch.

"The policy changes in the bills are not made lightly, nor were they crafted to single out or punish a business or retail sector," McGuire said. "Rather, they are the means by which Michigan restores an equitable arrangement for establishing a true value to property -- the foundation of the property taxation system that is vital for local public services across our state."

A joint coalition letter on this issue was submitted to the House Tax Policy Committee. The coalition organizations signing the letter were Michigan Municipal League, Michigan Association of Counties, Michigan Townships Association, Michigan Association of Chiefs of Police, Michigan Public Transit Association, Michigan Association of School Administrators, Michigan Community College Association, Michigan Library Association, Michigan Association of School Boards, Michigan Association of Intermediate School Administrators, Michigan Assessors Association, and Middle Cities Education Association.

The coalition of Michigan school and local government organizations will continue to work with the Legislature to pass legislation to restore tax fairness, MAC officials said.

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