Big Box Store Tax Cuts Affect Townships in Michigan
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Big Box Store Tax Cuts Affect Townships in Michigan

December 2015

Since 2010, the Tax Tribunal has repeatedly applied a new valuation theory to big box stores that slashes their property values by 50% or more. As a result, hundreds of big box stores across Michigan have been devalued and local governments and education have lost tens of millions of dollars in tax revenues. There is a risk that this new method of tax valuation may spread to other kinds of property.

The Tax Tribunal as been challenged, as bills were introduced in the legislature to stop devaluing more stores, but state business and retail interests are fighting to keep the tax advantage for big box stores. Because of the undervalued assessments of big box stores, Proposal A may make it impossible to fairly revalue the big box stores since their values have been slashed so drastically from the Tax Tribunal.

Tax Tribunal's Impact on Big Box Store Valuation

The new valuation method used by the Tribunal in these cases compares operating big box stores with obsolete or failed stores that have become vacant or gone out of business, sometimes called "dark stores." Examples of the "comparables" being used include a store converted to a church and a store converted to a warehouse. Some townships have tried to appeal the tribunal rulings on big box stores to the courts, but the courts have upheld the tribunal. Proposal A effectively prevents increase in taxable values for future years, so once reduced, the big boxes may be stuck at those low values. Currently, the Tax Tribunal is not offering the same property tax reductions to other types of uses, such as mom-and-pop hardware stores, ordinary department stores, and other retail operations that are struggling to compete with the big boxes. However, there is a danger that the new valuation method could be extended to other properties in the future. Legislation has been introduced to address the big box valuation problem, but the retail industry is fighting it hard in order to prevent any changes.

FAQs Regarding the Tax Tribunal & Big Box Stores

How did this happen?

The Tax Tribunal started this recent line of big box opinions in 2010 in a case involving the Target store in Novi. Since 2010, the Tribunal has issued 15 opinions following that precedent in cases involving other big box stores. Hundreds of more stores—including Meijer, Home Depot, Menards, Wal-Mart, Lowe's and others—have gained the benefit of value reductions through settlements with townships and cities.

Don't big box stores cost a lot to build?

Yes, they cost several million dollars to build each one. But in one case where a Lowe's had just been built the year before for $10 million, the Tax Tribunal said that the next year it was worth only $4 million! According to the Tribunal, big box stores really aren't "worth" what they cost to build, even though retailers continue to build more of them every year.

Why doesn't the Tax Tribunal use the income method to value big box stores?

The Tax Tribunal ignores lease rents of currently operating big box stores because they are "build-to-suit" leases. In other words, they were leases prepared to pay for the costs of building a particular store for a particular use. According to the Tribunal, these leases must be ignored because they reflect specialized costs that a different user would not have incurred to build a building for its own use. This argument is especially strange in the case of big box stores, since they are just large building shells with very little ornamentation and no costly frills. There is obviously nothing "unique" about one big box store that would make it less than suitable for another big box retailer.

For more information regarding these issues and answers to more questions, be sure to attend the 2016 Michigan Township Association Conference & Expo, where William K. Fahey, will be discussing "Big Boxes Revisited" on Thursday, January 21 from 3:15pm to 4:30pm.

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