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MADISON — Municipal leaders in Wisconsin are seeking changes that would hasten the demise of the trend of big box retailers challenging their property tax assessments, in which the retailers argue that their stores should only be compared to vacant stores.

Called the “dark store” strategy, the argument has been employed by chain retailers across the country, and resulted in dozens of those retailers — including Walgreens, Target and Lowe’s — successfully cutting their property tax bills, sometimes by up to 50 percent. The result, say municipal officials, is that homeowners end up shouldering an even greater share of the property tax burden.

Big box stores argue that their businesses and buildings are branded to such a degree, that there is no market to speak of, so the only comparable properties are unused big box stores currently on the market. Assessors, on the other hand, say there is a market, based on the fact that the retailers chose their locations and have thriving businesses.

The cost

In Racine, the “dark store” strategy was employed by Target in five property tax challenges filed between 2010 and 2015. Although Racine County Circuit Judge John Jude did not agree with the retailer’s argument that its Racine store, 5300 Durand Ave., should be compared to vacant stores in the region — a former Home Depot in Milwaukee and a vacant K-Mart in Madison were among the comparable properties presented by the retailer — his final decision and a subsequent settlement resulted in the city refunding the retailer $386,000 in property taxes.

In the Village of Pleasant Prairie, Target used the “dark store” approach to challenge its assessments over a three-year period. A settlement eventually resulted in the village returning $118,947 in property taxes to the retailer. In Janesville, the approach most recently resulted in a settlement in which the city agreed to refund U.S. Bank $28,100 in property taxes, the Janesville Gazette reported.

While the “dark store” strategy isn’t the only approach major retailers in Racine — Sears, Toys R Us, and Regency Mall among them — have used to challenge their property tax assessments, addressing the issue is key, said Mayor John Dickert.

“The question is, really: How much can the residential property taxpayers afford when large corporations are not paying their fair share?” Dickert said.

The legislation

To address the situation, the League of Wisconsin Municipalities is working on legislation that would set standards for the kind of information assessors can use when valuing commercial properties; avoiding situations in which a thriving Meijer or Target that took $10 to $12 million to build is compared to a boarded-up big box store, explained Curt Witynski, the league’s assistant director.

The bill is patterned after legislation recently signed into law in Indiana and a proposal recently introduced, but not passed, in Michigan.

Although those states follow different processes when it comes to property tax challenges — state tribunals settle property tax disputes, not circuit court judges — the legislation is designed to have a similar effect, Witynski said.

“This would be the law that assessors would follow, and then if there was a challenge, the assessor would say to the judge: ‘The Legislature has spoken. Here is the methodology that I used, and this is what they said we should use,’ ” Witynski said.

In the case of disputes brought by companies like Walgreens that hire developers to construct their stores and pay leases, the bill would instruct assessors to take into account the value of the lease.

Why a law

The league is drafting the legislation, Witynski said, because it’s concerned about the tax shift that will occur if the strategy is adopted statewide by commercial property owners. If all, or even a great majority of commercial property owners, start challenging their tax bills by employing a similar strategy, it could reduce commercial property values across the state by up to 50 percent, he said. That hole would largely have to be made up by residential property owners, who already pay 70 percent of the property tax levy across the state, Witynski said.

“I think everyone can agree, regardless of where your perspective is on the property tax, that we can’t put more of the burden on homeowners,” Witynski said.

The league has been seeking to address the issue for about two years, Witynski said. It even had language drafted last year, but the “people they were working weren’t ready to introduce it” at that time, he said.

“I mean let’s face it, this is going to raise the hackles and be aggressively opposed by those who are able to take advantage of (the approach),” he said.

Asked about the issue, state Rep. Cory Mason, D-Racine, said he hasn’t seen the legislation but called the “dark store” approach shortsighted and “certainly something that would merit a change in public policy.”

“I understand that Target — and some of these other companies — want to pay less in taxes, but their customers are the people in the cities that they are located in, and those customers need good schools and police and fire services, and good roads to get their store,” Mason said.

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