Local governments seek help to regain big box tax revenue

By CHAO YAN
Capital News Service

LANSING — Local governments continue to fight recent changes in valuing commercial properties that they say have cost them $100 million in lost tax revenue since 2013.

The problem, according to local officials and some lawmakers, is that the state’s Tax Tribunal is using methods to assess “big-box” retailers like Target and Menard’s based on sales of similar, vacant properties, often called “dark stores,” whose true value is not reflected.

That’s a shift from evaluating a store’s tax value based on more complete factors such as the cost of constructing the building and the amount of income it generates. Now, big retailers are appealing assessments and winning big tax breaks across the state.

Rep. David Maturen, R-Vicksburg, and dozens of co-sponsors are again pushing to solve the issue by insisting that the tribunal take more information into account when reviewing assessment appeals for any commercial property.

“What I want to do is require the Michigan Tax Tribunal to use professional evaluation, a standard and practical evaluation, when they are making a determination for the property that is appealed,” Maturen said. “No more, no less. I don’t see how anybody could object to that.”

The bill would require the tribunal to make tax determinations in commercial property dispute cases independent of dark store tax assessments.

A similar bill passed the House last year, but wasn’t taken up by the Senate.

Maturen said that when they were drafting the last bill, Michigan Realtors, a business group, came to support it.

But, he said, the bill’s fate is uncertain.

“Hopefully we will get support from the House members, and then hopefully things will go differently in the Senate,” Maturen said. “I will keep trying to talk to some people in the Senate, see if we can have somebody’s ear and get an opportunity to make a case.”

If the issue isn’t addressed by the Legislature, it could see action in the courts.

In 2014, the city of Escanaba valued a Menards property at about $8 million, but the store appealed the assessment, arguing that commercial properties should be appraised based on similar properties nearby. The Tax Tribunal ruled for Menards.

But Escanaba, and local government groups supporting Michigan townships and counties, argue that deed restrictions on comparable “dark store” properties — such as prohibitions against selling many retail items — artificially deflate those properties’ values. They say that makes comparing an active retailer’s value with those vacant, restricted properties unfair.

Escanaba took the case to court, where it won a ruling for the higher valuation from the Court of Appeals. The state Supreme Court will hear oral arguments on the case later this year.

In 2015, the Supreme Court refused to hear a similar case brought by Breitung Township in Dickinson County, which sought to appeal a tax reduction for a Home Depot store.

“It’s the same case as what we brought to the court in 2015, just under the different names,” said township Assessor Joan Nelson.

Nelson said special interest groups are bogging down efforts to change the dark stores assessment practice.

“It’s impossible to solve it at my level,” Nelson said. “We lost $20 million and it’s just ridiculous. It is screwing the local governments out of millions of dollars a year.”

Reducing valuations for large retailers shifts the burden to smaller taxpayers, said Derek Melot, the director of communications and marketing for the Michigan Association of Counties. Counties can’t stop performing their constitutional functions because of the lost revenue.

“We have to continue to do everything that we are mandated to do, even though they are not carrying the responsibility that they once did,” Melot said.

Bill Stanek, the supervisor for Big Rapids Township, said retailers will ultimately suffer if local governments can’t provide the infrastructure that supports business activities.

“That’s the tax revenue we depend on for roads, to have people get to these big box stores,” Stanek said. “When they do not pay their fair share, then we can’t fix roads or provide sewer service.”

Stanek said he has some hope that local governments will see some relief.

“I think the state realized that we have to have tax dollars locally to supply services,” he said. “The big box issue is happening all over. The court and the Legislature both need to take a stand on this.”

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