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Dark stores debate

Jerry Duschane, at left facing camera, executive director of the League of Wisconsin Municipalities, and Cory Fish, next to Duschane, director of tax, transportation and legal affairs for the Wisconsin Manufacturers and Commerce, make their arguments on "dark store" legislation to the Racine County Government Services Committee on Sept. 4 at the county's Ives Grove offices.

YORKVILLE — For nearly 90 minutes on Tuesday, the auditorium in the county’s Ives Grove Office Complex turned into a metaphorical courtroom as members of the Racine County Government Services Committee heard arguments on both sides of the “dark store” loophole issue.

The dark store loophole, broadly defined, allows businesses that appeal their property tax assessment to a lower amount to occasionally use empty stores or vacant land as evidence for the lower amount.

The committee recently was considering recommending an advisory referendum on dark stores, but it held one more meeting to allow for each side to make its case. Because the meeting was held beyond the Aug. 28 deadline, the county cannot have a referendum this fall.

The committee is not currently considering a particular referendum or resolution on dark stores, and the meeting was held to get more information in case a resolution or referendum is drafted.

During the public comment period, before scheduled agents for and against legislation could make their case on the dark stores, Dan McHugh, assessor for the Mount Pleasant and Waterford told how he has come across this issue.

Since becoming assessor in 2011 for Mount Pleasant, McHugh said, the village has “continuously been in litigation with large retail properties who have been appealing their assessments repeatedly.”

For example, McHugh said the Walgreens store at 6125 Durand Ave. sold for roughly $6.3 million but, “When they appealed their assessment, they asked that it be lowered to $1.75 million. I don’t know about you, but my home is not assessed for one-third or less than what I paid for it.

“Yet, these large national retailers are seeking to have that done themselves,” McHugh said. “It’s the small-business people and the homeowners that are making up the difference in the tax. We’re not seeking to raise taxes, we’re not making any more money off of anybody. We’re simply trying to apportion the taxes appropriately to properties based upon their value.”

McHugh said last week Mount Pleasant was served with three lawsuits: two from area Walmarts; and one from Roundy’s, which owns Pick ‘n Save, challenging their assessments.

“This is what we’re dealing with: values that are cherry-picked and have no basis in fact,” McHugh said. “Then we’re going to be in court the next three years defending this value, trying to protect our tax base.”

For dark store legislation

Jerry Duschane, League of Wisconsin Municipalities executive director, spoke in favor of legislation that would close the dark store loophole.

“This is driving a shift in property taxes from large properties onto homeowners and small independent businesses,” Deschane said. “If this is not corrected — and it needs to be corrected by legislation — the problem will continue to grow. It will accelerate to the point where we estimate that it will drive an 8 percent increase in the average homeowner’s property tax bill.”

Deschane points to the Wisconsin Supreme Court ruling on Walgreens v. City of Madison as a major contributor to the dark store issue.

Deschane said the state Supreme Court essentially ruled that municipalites cannot use the actual lease income of a property as part of its assessment. Instead, they must use a “market rate lease” which, he argues, is “always considerably lower and is not a fair representation of the income potential of that property, which is really what an assessment is supposed to do.”

“Because of that Supreme Court case, these stores routinely are assessed for taxes at less than half of what they sell for on the open market,” Deschane said. “These stores — I’m not talking about buying a Walgreens franchise, I’m talking about the buying the (property) and you get the lease with it — are very hot commodities on Wall Street but, unfortunately, what you can tax them for on Main Street is substantially less.”

Deschane also accused attorneys for the property owners of benefiting from the loophole.

“This has become a cottage industry,” Deschane said. “The attorneys that represent these property owners work on a percentage of recovery, and so there’s very little downside risk to the property owner.”

Against dark store legislation

Cory Fish, director of tax, transportation and legal affairs for Wisconsin Manufacturers and Commerce, spoke to oppose any legislation whatsoever on the issue.

Fish said the characterizations of the legislation proposed to solve the problem have been “disingenuous.”

“All the entities that support this legislation, on the top of their agenda is the elimination or modification of (property tax) levy limits,” Fish said. “It’s a very real possibility that the levy limit is repealed in the near future, and if you give tax assessors the tools, which this legislation will do, it will provide tools to create more subjective tax assessments and make it harder for taxpayers to appeal their tax assessment. … It will be easier to raise taxes on all taxpayers in the future.”

Fish said if legislation on dark stores is passed, it will “make Wisconsin a worse place to do business.”

“The dirty secret is that these terrible policies in these bills would spread far beyond retail,” Fish said. He added that over the last 10 years there has been a 3 percent tax shift from residential property owners to commercial and manufacturing.

“The (tax) shift has been towards business — and you can certainly cherry-pick municipalities where that’s not been the case, and I’m not going to deny that — but statewide when looking at the total tax revenue, the shift has been towards business,” Fish said. “This legislation affects everyone statewide, so I really don’t think we should make legislation by cherry-picking a few municipalities.”

Fish said it is “absurd” to think a law that has been on the books for decades would suddenly be taken advantage of by businesses in the mid-2000s.

“However, something did change in the mid-2000s, but it was the behavior of tax assessors and not businesses,” Fish contended. “The vast majority of tax assessors in this state are not increasing tax assessments, in our view, illegally, in order to gin up litigation to cause a problem. But there are a few activist tax assessors who are actually part of a group, who want to include the business value while taxing property.”

“I don’t know about you, but my home is not assessed for one-third or less than what I paid for it. Yet, these large national retailers are seeking to have that done themselves.” Dan McHugh, assessor for the Mount Pleasant and Waterford

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Reporter

Ricardo Torres covers federal, state and Racine County politics along with the Village of Mount Pleasant. He bleeds Wisconsin sports teams.

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