LANSING, Mich. (AP) - Municipalities that are collecting substantially lower property taxes than they used to from big-box stores must overcome opposition from business interests and their allies in the Legislature to tilt the tax assessing system back in favor of local governments.
The retailers have been successfully reducing their tax bills in the Michigan Tax Tribunal since 2010, when the administrative court began agreeing that the real estate should be compared to “dark,” or vacant, structures for tax purposes. Bipartisan House legislation reintroduced in the past week would restore fairness to the property tax appeals system, according to supporters who contend that the problem has reached crisis proportions especially in smaller communities unable to afford legal fights.
“Most of these stores, if they’re assessed $2 million less than what they should be, they’re saving a hundred grand a year,” the sponsor, Republican Rep. David Maturen of Vicksburg, said after helping to unveil the bill at the Michigan Municipal League’s conference in Lansing. “Multiply $100,000 times every big-box store in this state and all of a sudden there’s some major money out there. … That should be going to police and fire and schools and every other service that’s provided.”
He cited examples in Kalamazoo County, where he said Costco spent $17.5 million to open a new store but argued it was worth $4 million and Menards spent $16.5 million for a store while contending it was worth $5.6 million.
The bill won overwhelmingly approval in the GOP-led House last year, 97-11, only to die in the Republican-controlled Senate. It would not necessarily have increased taxable values from existing levels, but it could have potentially prevented large reductions in future appeals, according to the nonpartisan House Fiscal Agency.
Municipal groups are leaning on lawmakers to address the “dark store” issue, but opponents include the powerful Michigan Chamber of Commerce and groups representing retailers, grocers and manufacturers.
Amy Drumm, vice president of government affairs at the Michigan Retailers Association, said the measure is unconstitutional and would slant the tax appeals process toward assessors. Big-box owners discovered after the Great Recession that their stores had been “dramatically overvalued” by local assessors in Michigan and across the country, she said. She said Michigan property typically is based on the true cash value, which is defined in law as the usual selling price.
“So we have to look at comparable sales, and most of these properties that are larger retail properties or manufacturing properties sell when they’re vacant because that’s when they go up for sale. You don’t sell a thriving business typically,” she said.
But Rep. John Kivela, a Marquette Democrat, said the retailers - which he characterized as “large out-of-state corporations” - are exploiting a loophole while smaller Main Street competitor businesses still must pay higher taxes.
“This is touching every corner of the state,” he said, seeking to debunk a perception that the tax appeals primarily affect Upper Peninsula communities. He said it is “wrong” that businesses such as Wal-Mart, Menards and Home Depot are paying way less in taxes in Michigan than in the states where they are headquartered.
The bill’s critics question if such comparisons to other states are apples to apples.
The renewed debate in Michigan, where the dark store strategy took hold before spreading elsewhere, comes as Wisconsin Republicans aim to close the so-called loophole. Indiana last year enacted a law to curb the tactic.
But with the legislation likely to stall in the Senate Finance Committee if it clears the House again, municipalities’ hopes may hinge on the Michigan Supreme Court.
Justices in February ordered arguments in a dispute between Escanaba and Menards. The state appeals court in 2016 ruled for the city and reversed the Tax Tribunal’s decision to use sales comparisons in a tax reassessment case instead of the cost of construction less depreciation, noting how deed restrictions prevent the reuse of many big-box store properties as retail space.
Maturen’s bill would limit the extent to which other similar properties could be used for comparison if they have deed restrictions. Deena Bosworth, director of governmental affairs for the Michigan Association of Counties, said the restrictions “artificially drive down demand for the property, thereby lowering the value.”
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Online:
House Bill 4397: https://bit.ly/2odNUnA
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Follow David Eggert on Twitter at https://twitter.com/DavidEggert00. His work can be found at https://bigstory.ap.org/author/david-eggert
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