The “Dark Store” Strategy for Commercial Property Assessments – What You Need to Know
If you haven’t heard of the “Dark Store” tax strategy, you need to understand how this may affect your commercial property taxes. In this blog post, we break down this concept so you can understand this trend and how it works.
What is Dark Store?
Dark Store is a strategy that Big Box Retailers are using to try to lower the amount they pay in property taxes. Retailers are making the argument that the market value of their stores should be based on the sale of stores of similar sizes, even if those commercial properties are vacant. Chains such as Target, Home Depot and Lowe’s are taking advantage of a tax loophole that allows them to assert that they should pay the same commercial property taxes for an active store as for other, similar stores nearby which are empty and unused.
There have been cases, in Michigan for example, where courts have allowed this and commercial property owners have had their property tax assessments cut by up to 50%. Some see this as a concern because it could lead to decreased services and place more of the tax burden on residential properties, and they are asking legislators to pass legislation restricting the use of Dark Store arguments.
However, the practice of using the Dark Store property tax strategy for commercial properties is growing. It could potentially save commercial property tax owners millions of dollars in property taxes. Retailers say that this appraisal approach is backed by the market and is necessary to balance the fact that they believe they have been overtaxed. In Michigan, the courts have taken up these cases, and retailers have succeeded in cutting their property tax assessments in half. In Wisconsin, retail properties typically used by pharmacies like Walgreens and CVS have also been successful in achieving lower assessments.
The Dark Store strategy is as follows:
Commercial retailers say that the value of the property should be based on comparable sales of similar properties. They argue that whether the store is functional or whether it is empty should have no affect on the value of the real estate. Therefore, the property tax assessment should be the same. This argument shifts the way that things are currently assessed. Vacant buildings that previously housed big box stores are usually not worth much to the market – they tend to be very large and so attract limited interest. Different retailers also use different dimensions and would rather build a new store than adjust an existing property. So these buildings tend to have a lower value. If this value can be taken into consideration in assessments, it would likely lower the assessment of stores that are currently in use. Retailers say that it shouldn’t matter whether the store is vacant or in use, the building itself is the same regardless.
In Wisconsin, the assessment reductions achieved using the Dark Store method are often between 10-20% but there have been rare times that they have led to a 50% reduction. These commercial property tax reductions can be a huge savings for retailers. The Dark Store argument is starting to gain traction, as more commercial retailers across the US are keeping an eye on these developments.
