Revisiting Big Boxes and Shedding Light on Dark Stores
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Revisiting Big Box Stores: Tax Problems & Solutions for Townships

January 2016

Learn of tax problems and possible solutions your township may be facing with big box stores. Read how your township can protect itself and minimize the loss of property tax values from big box stores. Share this presentation with your township government officials: 

Revisiting Big Boxes and Shedding Light on Dark Stores

Michigan Townships Association Annual Conference 2016

What is the Problem?

  • Michigan Tax Tribunal decision and settlements involving big box stores.
  • Since 2010, MTT has applied a new theory that slashes values by 50% or more.
  • Hundred of store devalued; tens of millions of dollars lost in tax revenues
  • This new method of tax valuation may spread to other kinds of property
  • Legislation is introduced, but retail interests are fighting hard.
  • Proposal A prevents significant future increases to restore values.

How Did This Happen?

  • Opinion in 2010 in Target Corp v City of Novi set the precedent.
  • Since 2010, MTT has issued more than a dozen big box opinions.
  • Based on these opinions, hundreds more cases were settled.
  • MTT compares operating big box stores with “dark stores”—failed stores vacated and sold for some lesser use.
  • Former Sam’s Club that became first and indoor go-cart track and then a warehouse; former big box store sold for a church.

Does That Make Sense?

  • No. Dark stores are never worth as much as an operating store. Property tax laws require value based upon the “existing use,” not secondary use.
  • When a big box retailer abandons a store, it means something is wrong with the use at that location.
  • In addition, the seller almost always places a deed restriction.
  • MTT rulings also ignore the “highest and best use.” A dark store sold for a church or a warehouse has a different “highest and best use.”

How Can the MTT do That?

  • Claims that valuing the existing use would value the store based on “who” is using it.
  • Rejects construction cost of big box stores as a measure of their value, and instead relying of the value of dark stores. In Marquette Township, MTT considered a Lowe’s store just been built for $10 million, and concluded it was only worth $4 million.
  • Claims that a store value based on its existing use would result in “use value,” not true cash value. But if existing use is the same as highest and best use, there is no difference between the “use value” and the true cash value.
  • Ignores leases of currently operating big box stores because they are “build-to-suit” leases. In other words, they were leases signed to recover the costs of building a particular store. MTT says these leases must be ignored because they reflect specialized costs that another user would not have incurred to build a building for its own use. But big box stores are just large building shells with little ornamentation or frills. No unique costs justify discounting their value by 50% or more.
  • Rejects existing store leases as basis for valuing stores under the income approach. MTT claims that using such lease rents improperly values big boxes for their “leased fee” interest, rather than for a “fee simple” interest. But if the rent being paid under a lease is at a market rate, the “leased fee” value and “fee simple” value must be the same.
  • Ignores big box stores that sold from one investor to another investor (which happens fairly frequently) when the store is subject to a “build to suit” lease because this was the sale of a “leased fee.”
  • Claims that big box store are becoming obsolete as a result of the increase in online retailing. But big box retailers are continuing to build more stores, and are themselves using online shopping as an adjunct to their local sales.

Can You Appeal to a Higher Court?

  • Yes, appeal is available to the Court of Appeals and the Supreme Court
  • But in the only big box cases that were appealed, involving two townships in the Upper Peninsula, the appellate courts affirmed the MTT.
  • Appellate Courts MTT decisions very narrowly; very difficult to reverse the MTT on appeal.

Is the Cow out of the Barn?

  • After 5 years, hundreds of big box stores have had their values slashed. one big box advocate claims over 90% of Michigan big box have had their values reduced.
  • Once a property value is reduced in the MTT, Proposal A prevents the values from being significantly restored until the property is sold.
  • Walmart and Target just announced substantial additional store closings last weekend, including Flint, Warren, and Waterford. This may signal additional attempts to further reduce stores’ taxable values.
  • Stores that previously settled for lower values frequently return soon after to appeal again for more reductions.

Is This Problem Limited to Big Boxes?

  • MTT is not offering the same tax reductions to other types of uses, such as mom-and-pop hardware stores, ordinary department stores and other retail operations.
  • The inequity of the big box treatment is obvious; other retail, commercial and industrial uses will demand the same steep discounts the MTT gives big boxes. There is nothing so unique about a big box store that justifies their tax preferences.
  • So far, the MTT has refused to extend the “dark sotre” approach to a Taco Bell restaurant and a fitness center.
  • If left unchecked, the MTT my find it impossible to deny these discounts to many other uses.

Can the Legislature Stop This?

  • SB 524 (Sen. Casperson) would mandate a method of using the cost of construction, less depreciation, to assess the value of big box stores. It would require a determination of the value of property as vacant and a value of the property as improved. A big box store, the highest and best use of the property must be the continued use of the property as improved.
  • HB 4909 (Rep. Kivela) would prevent owners from placing restrictions on deeds when they sell their stores.
  • HB 4681 (Rep. Dianda) attempts to recoup lost tax revenue by requiring big box store to pay an annual “user fee” in the amount that the property would have paid if the “dark store” assessment method had not been used.

How Can You Defend Big Box Appeals in the Meantime?

  • Townships have the responsibility to defend MTT appeals. This duty can be very costly, especially when the Township is facing the well-financed attorneys and appraisers for the big box stores. But the stakes are very high for townships and other taxing units.
  • Get the best settlement you can. But consider litigation if the petitioner will not reasonably settle.
  • Attack the comparability of any dark stores used in the petitioner’s appraisal. Dark stores should not be used as comparables.
  • Show that the dark stores used in the petitioner’s appraisal are subject to deed restrictions that make them unusable for stores. This approach has been successful in other states.
  • Consider hiring a separate “review appraiser” to critique the petitioner’s appraisal.
  • Avoid characterizing the existing use as a “Home Depot” or a “Lowe’s.” It is a “big box home improvement store.”
  • Attempt to correlate the store value to the strength of the store’s retail sales compared to other similar stores, since this can demonstrate the strength and value of the store’s location.
  • Consider using as comparables the purchases by big box retailers of their own buildings, which is rare but occasionally occurs.
  • Demonstrate value relationship between “sale-leaseback” transactions or “leased fee” sales and “fee simple” sales. Downward adjustments may need to be made to such comparables.
  • Demonstrate value relationship between market leases and build to suit leases. Downward adjustments may need to be made such leases to reflect the current market and the age of the building.
  • Always use the cost approach as one of your alternative valuations. In other cases where there are inadequate sale and lease comparables, the MTT and the courts have often defaulted to the cost approach.

What Other Solutions May Be Available

MTA recommends that townships include a provision in zoning ordinances that prohibits new big box stores from including deed restrictions upon sale of the property. cannot affect existing big box stores, but might be applied to future stores. Justifications:

  • Deed restrictions artificially depress the value of properties.
  • Deed restrictions cause store to remain vacant.
  • Vacant stores create blight, can lead to vandalism and crime, negatively impact local economy and nearby property values.


William K. Fahey, Township Attorney: Fahey Schultz Burzych Rhodes PLC
4151 Okemos Road, Okemos, Michigan 48864
Tel: (517) 381-3150

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