By KAREN HOPPER USHER
Capital News Service
LANSING — A delay in changing the tax math for big-box stores could cost local governments big bucks for generations, say supporters of a bill that would stop the stores from claiming big tax breaks.
“That’s the really scary thing,” said Greg Seppanen, a former Marquette County commissioner fighting low tax assessments as part of the county’s Citizens for Fair Share.
The Michigan Tax Tribunal hears appeals from taxpayers who think their municipality has over-assessed the value of their property.
In 2013, the tribunal agreed with a big-box store that said the value of its property had more to do with their business and less to do with property characteristics. This ushered in a wave of big-box stores demanding tax breaks and pointing to vacant big-box stores as evidence that local governments were overcharging them.
Local governments say their revenues have been gutted as a result, and in some cases, they have to cut a check for tens of thousands of dollars to Menard’s or Lowe’s or Wal-Mart, said Chris Hackbarth, director of state affairs at the Michigan Municipal League.
That’s because stores can appeal more than one year at a time. If a store wins a multi-year appeal, it can get up to three years of taxes refunded to them, Hackbarth said.
In 2015, that meant Sault Ste. Marie and Chippewa County had to pay Wal-Mart $370,000, which is roughly the cost of the county’s entire prosecuting attorney’s office, said Kelly Church, deputy administrator of Chippewa County.
In Marquette, the library had to close one day a week when the city’s share of the refund came due.
Immediate cuts do not always happen.
In Escanaba, the city was able to move money from one fund into another, said city treasurer Bob Valentine.
In Chippewa County, the general fund covered the bill.
“How sustainable is that strategy?” asked Deena Bosworth, director of governmental affairs at the Michigan Association of Counties.
“I don’t know what they’re going to do,” she said.
A bill to address the dark store issue has already passed the House, 97-11 with bipartisan support. The bill, which is sponsored by Rep. David Maturen, R-Vicksburg, instructs the Tax Tribunal to ignore properties that were vacant when sold except under certain circumstances having to do with marketing and economic conditions and the way the property is used, according to a legislative analysis of the bill.
But with the election looming and few legislative sessions before the end of the year, it remains marooned in the Senate Finance Committee. The committee’s chair, Sen. Jack Brandenburg, R-Harrison Township, has repeatedly said that the bill will get a fair shake.
But there’s no hearing set.
“If he doesn’t allow it to come to a vote, we’ll go another year where more stores are locked into this ghastly low rate,” Seppanen said.
No statewide data exists on how much the dark store assessments are costing local governments, Hackbarth said.
The Association of Counties estimates that local governments have lost $100 million since 2013.
But it’s hard to say for sure what the true cost is, Bosworth said. Many communities can’t afford the legal fees to fight big-box stores. The communities stipulate or settle instead of taking the matter to the tax tribunal.
The effects are felt for years, Seppanen said.
State law says property tax rates can increase only by the rate of inflation or 5 percent each year, whichever is lower, Hackbarth said.
Once a big-box store successfully halves its tax bill, either through the tribunal or through stipulation, it will take take at least 30years for the tax revenue to recover, Seppanen said.
That’s why bill supporters want the legislation to pass soon.
“If you’re gonna do anything, now’s the time to do it,” said Jack Van Coevering, a former chair of the tribunal and an attorney who is in private practice helping municipalities with their tax issues.
Next year’s property tax values will be set by Dec. 31. Once the appeals process starts in March, municipalities will keep losing money, Van Coevering said.
“The longer we delay, the more this loophole gets taken advantage of,” said Rep. Ed McBroom, R-Vulcan.
Supporters of the bill say it’s unfair and doesn’t make sense to compare operating stores with dark stores because many stores are vacant due to deed restrictions.
If one big-box store leaves and restricts future owners from operating a similar store there, the value of the property is dramatically lower.
Property assessment principles are built on highest and best use, Hackbarth said, and If there are deed restrictions on properties that limit that, it hurts the value of the property.
The Michigan Chamber of Commerce disagrees.
Deed restrictions don’t automatically lower the value of a property, said Tricia Kinley, senior director of tax and regulatory reform at the chamber.
Defeating the bill is a top priority for thechamber..
“‘Dark store’ is nothing but a disparaging term for vacancy,” Kinley said.
The legislation is “quite prescriptive,” and would require the tribunal to ignore valuable evidence, Kinley said.
Hackbarth defended the bill.
“The Maturan bill tells the tribunal it has to look at all of the relevant data, but do it in context of the original site,” Hackbarth said.
If the Senate does not act, a courtroom solution is possible. The city of Escanaba recently won a court of appeals dark store case. Menard’s is appealing the decision to the Michigan Supreme Court, which has previously declined to look at dark store cases.
“We don’t want a court decision–we want a statute that’s very clear,” Hackbarth said.
But for now, that statute is on hold while Brandenburg collects more information from Meijer, Wal-Mart, Home Depot, Lowe’s and Target.
Brandenburg said he’d never been inside a Meijer store until recently.
“What caught my eye the most was the number of people each employed,” Brandenburg said, citing 35,000 Wal-Mart jobs in Michigan.
He said he’s worried about creating the perception that Michigan is a tough place to do business.
“I don’t think we need to be attacking our best employers,” he said.
One of the pieces of information he’s looking at is corporate charitable contributions.
“You have to pay taxes. You don’t have to do charitable contributions,” he said.
Sen. Tom Casperson, R-Escanaba, supports the bill and said he, too, has been trying to get information about what the companies do with the extra money.
He suspects the money heads straight back to out-of-state headquarters as profit.
“I have nothing against profit,” Casperson said. “The frustrating part is what they’re doing with the profit.”
It’s impossible to say exactly how all the retailers are spending the money, Tom Scott, senior vice president, communications and marketing at the Michigan Retailers Association said in an email. Retailers frequently invest in improved customer service, new product offerings, store improvements and charitable giving.
Casperson said that even if big-box stores lower prices because of the lower tax bill, it’s not fair to mom-and-pop stores that are paying more in taxes per square foot and can’t compete.
By KAREN HOPPER USHER