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Our Views: ‘Dark store’ litigation putting Janesville in tight squeeze

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Gazette editorial board
Friday, March 18, 2016

Catch-22: “A difficult situation for which there is no easy or possible solution.”

—Simple definition, Mirriam-Webster

When lawyers demand lower property tax assessments for big retailers and other businesses, Janesville gets snared in a catch-22, the term author Joseph Heller coined in his 1961 novel with that name.

Agree to their demands, and the city encourages more claims. Fight them, and legal fees could cost more than the city might lose in a tax refund.

Last month, council members swallowed hard and accepted three U.S. Bank claims that cost the city $28,100 in refunds.

Council member Sam Liebert would have none of that.

“There is a concerted effort by corporate America, especially in Wisconsin, to contest municipal assessments at every possible turn…” he said.

You would expect a liberal such as Liebert to rail against the bogeyman of “corporate America,” but he has a point.

As Elliot Hughes reported in last Sunday’s Gazette, businesses are using a tactic known as “dark store” litigation. It started in the 1990s and has accelerated. Since 2011, Janesville has forked out $132,000 in related tax refunds.

Essentially, a lawyer preys on the city by arguing that a building is unique to a company’s needs and should be compared to a similar building that’s vacant or “dark.”

Worse, businesses use this theory so successfully that lawyers cold-call them, offering services free unless they win in court.

In essence, the business can’t lose. That is, unless publicity angers customers. When a company gets a lower property tax assessment, the extra burden gets spread to everyone else—smaller businesses and homeowners.

City Manager Mark Freitag says the deals have spawned “a cottage industry.”

Council President Douglas Marklein said “it surprised the pants off me” when a lawyer even contacted him and offered to help get the assessment lowered on apartments Marklein owns.

It didn’t surprise Amie Trupke with the Madison law firm Stafford Rosenbaum, which helps Janesville with assessment lawsuits.

Trupke argues that to be comparable, properties should be similar physically and in revenue potential.

“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,” she said.

That’s sounds reasonable. For example, if this “dark store” idea was valid, how could Dollar Tree fill the vacant Walgreens near the Five Points downtown with little altered use other than abandoning of the pharmacy’s drive-through window?

Sure, taxes make profitability more difficult. But absent the dark-store factor, assessments are the best valuation estimates the city can offer in hopes businesses will pay fair shares.

Yet Sears got $1.5 million in value knocked off its Janesville Mall assessment. Target and Jade Taco for Taco John’s got smaller reductions. Hughes found 15 other unresolved lawsuits as of March 3. Eight involve dark store claims—three from Blain Supply, two each from Menards and Farm & Fleet and one from Rosebud Partners, which operates Wildwood Theatres.

A solution might be to change state law and ban valuing active stores at the same rate as vacant properties. Janesville officials have lobbied local Democrats, Rep. Debra Kolste of Janesville and Sen. Janis Ringhand of Evansville. But a League of Wisconsin Municipalities official expects an uphill battle.

Perhaps that’s because Republicans control Madison and often back corporate interests.

Absent a law change, as settlements continue, homeowners should expect to pick up bigger shares of the tax burden, even if the amounts are tiny when spread among many.

 



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