'Dark stores' argument allows big businesses to skimp on property taxes

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Elliot Hughes
Sunday, March 13, 2016

JANESVILLE—In late February, Janesville City Council members were asked to consider settling three claims of excessive property assessments levied by U.S. Bank.

They practically sighed before doing so.

The choices at hand were to either settle and fork over about $28,100 in property tax refunds or continue a costly courtroom battle.

Council members Douglas Marklein, Carol Tidwell, Richard Gruber and Jim Farrell all felt it necessary to clarify that settling was the best possible choice. Sam Liebert was the lone member who said he couldn't vote for that.

“There is a concerted effort by corporate America, especially in Wisconsin, to contest municipal assessments at every possible turn ... so that they don't have to pay as much in property taxes,” Liebert said. “When we're giving them $30,000, it's 30,000 more dollars out of the pockets of all the taxpayers in Janesville."

U.S. Bank declined to comment.

Therein is the difficult position that Janesville and many other municipalities in Wisconsin find themselves. Lawsuits over property valuations are rising here and elsewhere, thanks to a catchy litigation tactic that was once pushed only by big box stores but now has caught on with other businesses as an easy way to cut back on taxes.

It's call the “dark store theory” and it's the reason why the city has had to pay out $132,280 in refunds to some commercial properties since 2011. And when that kind of thing happens, it places a higher tax burden on small businesses and residential properties.

“What ends up happening is that you and I end up paying for it," said Jef Muelver, Janesville's assessor.


Dark store litigation has been around since the 1990s, but in Wisconsin it appears to have gained traction in the mid- to late-2000s, officials said.

When these arguments are made, the commercial property owners basically say their properties, when being assessed for its value, should be compared to a property with a similar but vacant building--a dark store.

Businesses argue that their buildings are so specific and unique to their needs that if the business ever left, the property would never sell because nobody could use the leftover structure. It's also common for deed restrictions to prohibit the sale of buildings to competitors anyway, according to experts.

So, they conclude, their property value should be lowered.

But that's not the way property assessments should work, municipalities argue.

"In order to be comparable, not only do properties have to be physically comparable, but they have to be economically comparable in their ability to produce income,” said Amie Trupke, an attorney for Madison-based Stafford Rosenbaum, who assists the city of Janesville in its property assessment lawsuits. “An empty dark store that's been vacant for a number of years does not have the same potential to produce income like an operating retail property."

That's a defense that sometimes works and sometimes doesn't. Janesville has faced at least 20 dark store lawsuits since 2011, Trupke said, and ended up giving a refund and lowering a property's value in seven of them.

The judge, the geography, the business market at play and the property type all are variables that account for the variance, Trupke said.

But for property owners, often--if not always--these types of lawsuits do not include a way for them to lose.

Muelver, who has worked as an assessor for more than 20 years in about a half-dozen Wisconsin counties, said tax lawyers will cold-call businesses and offer their services for free, unless they win in court.

“Companies are like, 'No cost to me? And you might lower my assessed value? Why not?'” said City Manager Mark Freitag in a city meeting on the subject in January. “It's become a cottage industry.”

But there's always an expense for the city. Legal fees might run over $100,000 to defend one case, Muelver said.

Tax lawyers are so proactive that sometimes, Muelver said, they will call him on behalf of a property before even contacting the owner, trying to feel him out and gauge the situation.

Two city council members said their businesses have fielded such cold calls, or “blind mailings.” Council President Douglas Marklein said he's received offers to help him lower property values of the apartments he owns. Council member Richard Gruber, a vice president for the Mercy Health System, started seeing similar offers last year.

Trupke said it wouldn't surprise her that dark store propagators would have a go at a hospital or a residential property.

“It surprised the pants off me,” Marklein said.


Trupke and Assistant City Attorney Tim Wellnitz identified eight businesses that have used the dark store tactic against the city: Blain Supply, Farm & Fleet, Target, U.S. Bank, Menards, Sears, Rosebud Partners (for Wildwood Theaters) and Jade Taco (for Taco John's).

Representatives from those businesses either declined comment to The Gazette or did not return a request for comment.

Sears, Target, Jade Taco and U.S. Bank--each of which has filed at least two lawsuits since 2011--are the only ones that have scored lower property values so far.

Sears got about $1.5 million of value knocked off its property at 2500 Milton Ave., while Target, Jade Taco and U.S. Bank each shed less than $1 million of value off their properties at 2017 Humes Road, 2821 Milton Ave. and 2732 Milton Ave., respectively.

That accounts for $132,280 in tax refunds payed out by the city, according to city documents.

Comparatively, six other non-dark store property tax lawsuits have cost the city $48,205 in refunds since 2011, according to city documents.

As of March 3, there are 15 unresolved property tax lawsuits on the city's plate stretching back to 2013, according to city records.

Eight come from businesses Trupke said use the dark store argument--three from Blain Supply, two each from Menards and Farm & Fleet and one from Rosebud Partners.


Municipalities have to look to state government for help, but it's unclear if it will come.

The solution would be to prohibit assessors from valuing active stores at the same rate of similar but vacant properties, according to the League of Wisconsin Municipalities.

Janesville officials in January lobbied for legislation on the issue to State Rep. Debra Kolste, D-Janesville, and state Sen. Janis Ringhand, D-Evansville. But they made no indication that change would come fast, if at all.

Curt Witynski, the assistant director of the League of Wisconsin Municipalities, said his organization recently began lobbying legislators to nix the dark store tactic. He expects a continued uphill climb.

“I think it's just a difficult issue for people to get around,” he said. “There's probably not going to be a lot of pressure on the Legislature from the general public, who probably doesn't even realize this is occurring.

“There will be incredible pressure from the other direction to maintain the current law--by the national chains, from the commercial property owners.”

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