Walmart Acquiesces in Big-Box ‘Dark Store’ Tax Dispute in Michigan

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A county administrator commends the retail giant for “seeing the community’s side and taking the fair route in the matter.”

Last week, Walmart dropped a court appeal against the city of Sault Sainte Marie in Michigan’s Upper Peninsula, bringing an end to a two-year tax dispute and handing a surprise victory to a government coalition formed to combat a local manifestation of a larger movement that has pushed down property tax rates for “big box” retailers across several Midwestern states in recent years.   

Walmart was fighting to apply the so-called “dark stores” tax-assessment theory to its “supercenter” space in the city of around 14,000 residents, located across the St. Mary’s River from Canada. The theory holds that the value of big-box retail property should be assessed as if it were empty. Companies like Menards, Home Depot, Target and Walmart say the dark stores theory more accurately tracks with the market because demand for big-box retail space is fairly limited. They say the value of an operating big-box business is much greater than the value of a cavernous vacant storefront property.

Opponents of the theory argue that all kinds of property similarly treated would see their tax assessments plunge. The value of an occupied home, they point out, is not equal to the same home fallen into foreclosure and left unoccupied for weeks or months or longer.  

Nevertheless, the dark stores theory has gained traction in assessor offices across the country, and particularly at the Michigan Tax Tribunal. Disputes heard there stretching back over the last half decade have seen repeat victories for retailers. State tax revenue has plummeted as a result—by $100 million since 2013, according to some estimates.

Tax assessments that once came in at $55 a square foot now come in at $25 a square foot. Jack Van Coevering, a Grand Rapids, Michigan-based lawyer, told the Milwaukee Journal Sentinel in January that retailers are returning time and again with new proposals, recently asking assessors to set values at $10 a square foot for big-box space.

“There’s wave after wave after wave,” Van Coevering said. “Whether we’ve reached the end of the storm, I don’t know.”

Indeed, the Sault Sainte Marie case is sure to fuel hope among local governments that have seen revenues shrink.

The government entities fighting Walmart in the Sault Sainte Marie case anticipated losing $268,000 in revenue per year if Walmart won, an amount that would likely be made up from resident pocket books in other forms of taxes or fees. City Manager Oliver Turner estimated Sault Sainte Marie alone stood to lose $100,000 in tax revenue per year.

It’s not entirely clear why Walmart pulled back from the case. Turner was reluctant in conversation with Route Fifty to speculate on what made the case different than the string of cases that came before it. He did however point out that the city was joined by a strong coalition of partners that included Chippewa County and the local school district and road commission—all of which were seeking to “preserve equity in taxation and protest the application of the ‘dark store theory’ of property valuation,” according to a press statement.

“We commend Walmart for seeing the community’s side and taking the fair route in the matter,” Chippewa County Administrator and Financial Officer Jim German said.

Turner also applauded the Walmart decision. He added that the city would continue to push for statewide legislation that might head off future dark-stores tax assessments.

In Michigan, that effort has been led by Republican state Rep. David Maturen, a longtime real estate tax assessor, whose district includes Calhoun and Kalamazoo counties.

Maturen introduced bipartisan House Bill 4397 this year, which would require the state tax tribunal to apply "standard appraisal procedures” in property tax cases. A similar bill passed the House on a wide margin in 2016 but died in the Senate.

In March, MLive reported that the tax tribunal was “hearing appeals from dozens of other retailers across the state” and that big-box retailer Menards, based in Wisconsin, had filed assessment appeals in 20 Michigan communities.   

John Tomasic is a journalist who lives in Boulder, Colorado.

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