For a generation, big box stores have swept across America, using predatory pricing and other dirty tricks to kill the independent retail sector; they used their corporate lobbying muscle to tempt cities and towns into handing out massive corporate welfare checks to lure them to town, and now, with the help of hustling contingency lawyers, they are promulgating a property-tax scam called "the dark store theory" that is cutting their taxes in half or more, with further reductions every year, and no end in sight.
The "dark store theory" holds that property taxes on thriving, super-profitable big box stores should not be based on how much the property sold for, plus the capital investment, minus depreciation -- instead, these stores should be valued based on the selling price of nearby failed big-box stores that have been sold at knock-down prices.
Big box stores used their generous municipal subsidies to overbuild across American towns, creating a glut that resulted in widespread closures after the financial crisis. Because big box stores are so terribly built -- shoddy construction, weird layouts, and not even enough freight docks to use as a warehouse -- the shuttered stores sell for a tiny fraction of their book value.
But even though the big boxes are shuttering their stores like crazy, the remaining stores are still profitable -- thanks to the overinvestment in big box stores during the rampup phase, all the local retail that might have competed with the remaining stores has collapsed. That leaves locals with no choice but to drive longer distances to the remaining stores to shop, meaning that the predatory mega-retailers now get to spend less to do the same business.
Entrepreneurial corporate lawyer/consultants like Detroit's Michael Shapiro (who is credited with inventing "dark store theory") and Minnesota's Robert Hill have made a fortune for themselves and for big box stores by filing costly court challenges to the stores' tax assessments, arguing that their property taxes should be based on the price of the abandoned, unsuccessful nearby stores, not on the standard formula of sale price plus improvements minus depreciation.
These lawyers seek reductions of fifty percent or more on property tax bills, and return year after year to drive those bills even lower. The small towns they hit -- who often can't afford to litigate against multinational, private-equity-backed retail giants -- roll over.
Towns that have granted these tax concessions are going broke. Ste St Marie, MI has slashed city pensions; Escanaba, MI has cut its library hours; and so on. Meanwhile, town residents and small businesses are facing rising tax bills as their cities seek to close the gap left by the sweetheart treatment the big boxes are getting.
Wisconsinites in 24 towns voted to end "dark store theory" tax treatments in ballot initiatives in this month's elections. But that's only a few towns in one states, and meanwhile the epidemic rages on.
Still, it’s going to be tough: Don Millis, a prominent tax attorney who represents retailers and a lobbyist for the Wisconsin Manufacturers and Commerce, the top advocacy group for big business in these parts, sits on the legislative committee assigned to review the issue.
Other states have proposed legal fixes, too, but in Indiana, the one state that managed to pass anti-dark store theory legislation in 2015, lobbying pressure led to its weakening the year after it was passed. The state tax board has continued to sympathize with retailers, who keep launching appeals.
If Wisconsin managed to change its laws, Hill told me, lawyers like him would just redouble their efforts. “That’s when we’ll grab the pitchforks and get the Constitution involved,” he said.
After the Retail Apocalypse, Prepare for the Property Tax Meltdown [Laura Bliss/Citylab]
(via Naked Capitalism)
(Image: Mike Mozart, CC-BY; Hgrobe, CC-BY-SA)