Thursday, December 8, 2016
Taxing Full Stores Like They're Vacant?
Who enjoys paying taxes?
Sure, every now and then, some hopelessly altruistic person gets all philanthropic about it. Chirping about how blessed they are to be able to contribute to the welfare of their fellow humanity by paying taxes.
But when you hear people like that, don't you secretly figure they must be expecting an audit by the IRS?
Most of us pay our taxes begrudgingly, with a faint hope that at least what we're paying is somehow fair and equitable. At least as far as the value and rate we're paying is concerned. We're probably far less confident that the money we spend in taxes is being spent wisely, but as long as everything else is equal on our end, at least we figure we're well within our rights to complain how the government uses it on their end.
But what if you're not being taxed fairly? What if, for example, your property taxes are based on an inflated value? Wouldn't you file a protest, and argue that your property's taxable valuation needs to be lowered? That would be fair, right?
You might not enjoy paying taxes, but you're willing to pay your fair share of them.
That's the argument big-box retailers have been making recently in what's become a pesky problem for parts of small-town America. It's not that retailers don't want to pay their property taxes - at least, to hear them tell it. They just want to be taxed fairly.
After all, they own big pieces of property. Often, in America's smaller towns, big box stores represent the biggest chunks of taxable property. Think of the Walmarts, Lowes's, Khols's, and other big box retailers where you live. At least in terms of retailers in your town, these are the biggest property owners by far, aren't they?
Now ask yourself: How much are those big stores worth in terms of property values? Add it all up, including the value of the land, parking lot, bricks and mortar, landscaping; the whole thing. That's the gross value of the property.
Adjust it annually for however much appreciation or depreciation it has, depending on how robust your locality's real estate market is, and there you have your valuation for taxable purposes.
Not according to the companies who own those big box stores. Instead, they have begun to argue in court that their big box properties shouldn't be valued based on how much was spent to purchase the property and construct the bricks and mortar edifice housing their retail operation. No, they say; the value of that big box store should be based on how much it would be worth if the retailer wasn't there.
In other words, your town should be taxing that big box store as if it were a "dark store." As if it were empty.
It's called the dark store loophole, and wealthy retailers like Walmart, Lowe's, Khol's, Target, and Meijer have been successfully using it to deeply discount the property values of stores in small towns across Michigan, Indiana, Wisconsin, and Texas. More lawsuits have been filed in Alabama, North Carolina, and Kentucky. And the valuations are being reduced by hundreds of thousands - often millions - of dollars per property, which adds up to big savings for the retailers.
Meanwhile, however, when one retailer's lawsuit wins, other retailers operating in the same town often jump on board, winning property tax concessions for themselves that, combined, create a huge hole in that town's operating budget.
Big box retailers claim their argument is realistic and honest, since in reality, all they're doing is occupying the space. If they weren't in that big box of steel and concrete, wouldn't it just be sitting there, empty? How many other retailers would purchase that space? After all, different retailers build their stores based on their company-specific parameters. Target doesn't build to Walmart specs, for example, and certainly not for Lowe's specs. You and I might figure a Home Depot could easily move into an unused Walmart store, but don't tell that to the suits at Home Depot who make their living telling investors their special retail strategy requires a specifically-designed space.
Besides, how many national retailers move into empty Walmart stores? The rationale is - and it's a financially-sound rationale - that if Walmart can't cut it in a particular location, how will anybody else? So, if Walmart does decide to close a store, that means there's far less value in that property than people thought there was.
So, argue the big boxers, let's assume that all of our big box stores are worth only as much as their concrete and steel shells are. Never mind how much the place cost to construct. Never mind its replacement value, if it were destroyed by a tornado or fire. How much would it be worth just sitting there, surrounded by empty parking lots and sidewalks with weeds growing in the cracks?
THAT'S the value upon which we'll pay our property taxes!
And on the one hand, it's not as outrageous a calculation as it may sound. If you own a single-family home, the property taxes you're paying are, in large part, based on the presumption that your house is worth something to somebody else. Depending on how vibrant the real estate market is in your community, it might be worth more, or it might be worth less. If there is a sizable pool of potential home purchasers that could reasonably be expected to be interested in purchasing your home, then your home's value is based on what most of the folks in that pool of potential buyers would be willing to pay.
If you live in a community which lacks any significant opportunities for you to sell your house, then it will be worth a lot less than if you could readily find a buyer for it. And that's basically the type of logic big box retailers are banking on. Although you and I might see big box stores all over the place, there's really only a limited number of retailers who need stores with that amount of space. Especially in smaller towns, which likely don't generate the sales volume big box stores in larger markets do.
It also works in the favor of big box retailers to re-write deeds prohibiting the sale of their property to another big-box retailer, meaning that even if another company wanted to purchase that empty Walmart shell, they couldn't. Then there's all of the online retailing that owners of bricks and mortar establishments can use to justify why they need to wring every dime and penny out of their bricks and mortar costs as they can.
Yet, on the other hand, critics of this trend argue that it creates a significant disparity between the large interstate retailers who have lots of money to wage war against local taxing authorities, and the mom-and-pop entrepreneurs who have far more limited resources - both in money and time - to file hefty property tax rollbacks for their own properties. Of course, as the big box phenomenon took hold across America a couple of decades ago, those mom-and-pop businesses were being put out of business as Main Street USA was abandoned. So, for better or worse, there aren't many of those local business stalwarts remaining to make the big boxers look really bad and cheap.
For municipalities being caught by the dark store loophole, what's more statistically significant is the amount of community resources being spent on their local big box retail locations. First is the congestion generated by moving the flow of vehicular traffic from the center of town to its outskirts. Then comes the development of new utilities, with water and sewer services being particularly expensive. A lot of towns pay big bucks up front to arrange for all of this costly utility work under the assumption that property taxes on the new retailer will replenish the proverbial community pot - which is another rude awakening with the dark store loophole.
But perhaps a community's most significant outlay in terms of safety and security comes in the form of crime, and the amount of crime generated particularly at Walmart stores across the country. Smaller cities and towns are finding that their local Walmart has become its own precinct for their police departments.
Statistically, across Walmart's 4,500 stores in the United States, about one violent crime happens every day. We're talking murders, attempted murders, kidnappings, shootings, stabbings... It's as if all the crime that used to take place across America's village greens and quaint town squares has moved to the local Walmart. Not Target, or Lowe's, but Walmart specifically. Bloomberg.com says Walmart's crime problem is "out of control". NPR calls it "overwhelming". The conservative Zero Hedge website estimates Walmart's "rampant" crime wave is costing taxpayers $4 billion a year by requiring local police departments to do what Walmart employees and security personnel will not: Provide a safe shopping environment for Walmart's legitimate customers.
And big boxers want to pay even less taxes?
At the end of the day, of course, crime isn't exactly Walmart's fault. And as far as the dark store loophole is concerned, if property taxes are so open to interpretation that taxing authorities have left the back door open with regard to lower valuations, then the baser instincts within capitalism are going to exploit those open doors. Already, Indiana and Michigan are contemplating new laws that could close some of those loopholes, even if the argument over how big box stores are fairly valued is left unresolved.
Which is still the issue here, isn't it? Is a property worth a certain mount just because it's occupied? If your local Lowe's decided to close, and sell its property to, say, an antique mall, do you think the property would be taxed at the same rate it was when Lowe's occupied it?
I'm normally not a fan of big box retailing. But this time, I'd say they've caught many small towns with an intriguing question: What's my big box store worth tomorrow if I leave it today? So why can't I be taxed at tomorrow's rate? After all, you'd still be getting more money than if this was still raw, undeveloped land.
Of course, the big box retailers look exceptionally miserly here. But if miserly prices is what their shoppers expect from them, why should those shoppers be surprised?
After all, you do get what you pay for.