The dark-store theory is increasingly becoming more about practice than theory since emerging during the Great Recession in the late-2000s. The concept is relatively simple – the value of warehouse space, big-box retail building or other commercial property should be determined by the value of the building when it is empty. The owners complained that they were over-taxed by local assessors and overvalued by local appraisers, which meant they paid millions in taxes. The valuation of real property generally involves looking at comparable properties and their sale price, the cost to reproduce the property and the ability of the property to earn income.
The recent economic downturn has meant retailers like Kohl’s, Home Depot, Walmart, and others are closing stores and selling properties. While local officials may value a property as (for example) $6 million, the retailer finds that they are actually selling the property for about half of that. Companies routinely dispute their property assessments in hopes of shaving off pennies on the dollar, but it is now a bigger and more lucrative fight.
This issue is further complicated by the fact retailers do not want to sell their property to competitors regardless of how long the store is vacant/dark. They may have put a new store nearby and do not want the competition.
Valid point or tax dodge?
Retailers claim that they are feeling the squeeze at the federal, state and local levels, with cash-strapped rural counties assessing millions to subsidize services that the community would have difficulty otherwise affording, including police, fire, and schools. If the chain does not pay the taxes, that burden shifts to local property owners. However, critics argue that location is key to a building and land’s value, regardless of the business’s success. Location is certainly a consideration when valuing land.
The courts weigh in
Courts in Wisconsin, Kansas, Michigan, and Minnesota are hearing tax appeal cases on this matter. Obviously, Florida’s economy is much more robust, and the state does not collect property taxes, but dark-store theory remains a national issue. Amidst the pandemic, inflation and other economic challenges, many retailers are successfully lowering their tax burden.