Some big-box retailers in Wisconsin have successfully challenged their tax assessments by claiming they should pay the same rate as a store that’s closed and remains vacant.
Critics say that “dark store” legal loophole could cause municipalities to raise residential taxes to make up the difference.
The legal tactic is relatively new and has some cities struggling to keep up, according to Rocco Vita, chairman of the Wisconsin Association of Assessing Officers’ Legislative Committee.
“The stores have this very polished and professional legal team that peddles a product — property tax mitigation strategies,” Vita said. “All of a sudden, this strategy is gaining power in the Midwest. It has taken people by surprise.”
The Wisconsin Department of Revenue requires property tax assessors to account for the fair market value of a property. That includes both the value of the building and its location.
Retailers have successfully argued in court that there should be no tax difference between their thriving businesses and the vacant retailers down the block, Vita said.
In one case, Menards argued in a lawsuit filed in July that the value of its store in Fond du Lac assessed by the city at $9.2 million should be no more than $5.2 million. A similar lawsuit from Target argues that Fond du Lac should reduce its taxes on the retailer by about a third, according to USA Today Network-Wisconsin.
In another case, Oshkosh was ordered to pay Walgreens nearly $306,000 in overcharged taxes, plus court fees and interest. Last summer, two similar lawsuits surfaced from Menards and Lowe’s.
Oshkosh City Attorney Lynn Lorenson said municipalities are worried that as retailers win these lawsuits, more stores will follow. The limits of the loophole are unclear, she said.
“If one type of business or one type of property gets more favorable treatment, then everybody is going to be looking at that,” Lorenson said. “They’ll say, ‘If Walgreens had success, maybe we can use a similar argument.””
The League of Wisconsin Municipalities has helped draft legislation to plug the loophole, according to Curt Witynski, the league’s assistant director. The league hopes lawmakers will introduce in January.