Big Box Stores Gird for Battle with Wisconsin Cities

A battle pitting big-box retail giants including Menards and Wal-Mart against Wisconsin towns and cities is headed to the Legislature.

Republican-backed proposals, written in conjunction with the League of Wisconsin Municipalities, are designed to close the so-called dark store loophole and increase how much the mega-retailers pay local communities in property taxes.

The bills come in reaction to court rulings in Wisconsin and nearby Midwestern states — starting in Michigan — that have helped the retail giants lower the value placed on their stores for levying property taxes. The retailers have successfully challenged their tax assessments in communities across Wisconsin, and the Midwest, by arguing they are overtaxed and should pay the same rate as a store that is closed and vacant.

That results in a shift of the property tax burden to smaller retail stores and property owners, said Jerry Deschane, executive director of the League of Municipalities.

“We just think that's fundamentally unfair,” he said. “The bottom line with the property tax is it has to be uniform.”

The cities will have to overcome opposition from the powerful state chamber of commerce and deep-pocketed retail giants that stand to lose millions from a change in current practice.

Wisconsin Department of Revenue rules require that assessments be based on the fair market value of a property. The stores argue that the value of the underlying real estate should be determined by looking at comparable building sales, prices that usually fall far below the assessment of an operating store.

Assessing the building as if it were empty has long been the standard in Wisconsin for determining its value, said Don Millis, a Madison attorney who has represented Target and other retailers in assessment challenges. Millis is also lobbying for the Wisconsin Manufacturers and Commerce against changes to the law.

“You value the sticks, bricks and mud,” Millis said. Cities have been incorrectly assessing the property based on the potential lease value, he said.

“We don't think they're being undervalued,” he said. “We think assessors are being overly aggressive.”

But Republican state Sen. Duey Stroebel, who plans to introduce a bill next month addressing the issue, said the potential lease value of the property should be considered when valuing it for tax purposes. That is what the bill he and others are working on will do, he said.

Millis warned that changing the law “could have long-term unintended consequences” affecting how all property is valued.

Big box stores including Menards, Lowe's and ShopKo have filed more than 20 lawsuits against Wisconsin municipalities in the past year challenging their property assessments.

In one, Menards successfully argued last year that the value of its store in Fond du Lac assessed by the city at $9.2 million should be no more than $5.2 million. A similar lawsuit from Target argues that Fond du Lac should reduce its taxes on the retailer by about a third.

The dilemma for small cities is that the cost of defending lawsuits can equal or exceed the amount of property tax revenue at play, so they are more inclined to settle than fight it, said Deschane, who's with the League of Municipalities.

Lawmakers in nearby states have had mixed success in tackling the issue.

A proposal in Michigan that attempted to require the taxable value to be based on the highest and best use of a property failed to pass last year. But in Indiana, the Republican-controlled Legislature, along with then-Gov. Mike Pence, enacted legislation to block what opponents call a tax loophole. The Wisconsin bill is modeled after the Indiana law.