On June 29, The Assembly Ways and Means Committee held a hearing on a pair of bills that would increase property taxes for Wisconsin businesses. Assembly Bills 386 and 387, authored by Rep. Robert Brooks (R-Saukville) and Sen. Duey Stroebel (R-Saukville), aim to close the “dark store loophole” that claims businesses are using old, run-down, “dark” properties as comparable value to modern, occupied properties. In reality, the bills would make it easier for assessors to unfairly raise property taxes on businesses.
AB 386 would require assessors to consider the “highest and best use” of a comparable property in determining the value of a property for property tax purposes. The bill would also remove vacant properties, or “dark stores” as comparable sales for the purposes of property tax assessment, thus eliminating the component of market conditions from assessment practices. AB 387 would reverse the Walgreen Company v. City of Madison decision that said property tax assessments using the income approach must be based on market rents instead of contract rents. The bill allows for the inclusion of above-market leases in the value of property, thus essentially allowing for a second income tax. Together, the bills pose a significant change to the process of assessing property and a potentially massive property tax increase for Wisconsin businesses.
At the Assembly hearing on June 29, businesses and organizations including Wisconsin Manufacturers and Commerce (WMC) testified about the detrimental effects and unintended consequences the bills would create for Wisconsin businesses and communities of all sizes. Although the bills aim to target “big-box stores,” the costs and consequences of the legislation could be far reaching, changing the way small businesses and even residential properties are taxed. When property taxes increase, the burden of these costs is shifted not only to business owners but also to consumers. Opponents of the bills say that the legislation would tie the political influence of municipalities that are strapped for revenue to what are supposed to be fair, uniform formulas for determining market value. The opponents argue that the bills would increase property taxes, lead to more property vacancies, expensive litigation and cause a detrimental impact on the economic health of Wisconsin communities.
Those registered against the bill include WMC, Walmart, Walgreens, Wisconsin Grocers Association, Wisconsin Independent Businesses, Alliance of Wisconsin Retailers, Wisconsin Hotel and Lodging Association, and Americans for Prosperity.
Proponents of the bills include Wisconsin municipalities and assessors who have repeatedly tried to extract higher property tax collections from commercial properties. The proponents of the bills say that the legislation would close the so-called “dark store loophole.” However, businesses are not actually using dark store comparisons to reduce their tax burden, as the authors claim, because any judge would reject such a comparable sale. When dark stores are taken into consideration, the long-term vacancies are consistent with decline in market value and thus are an accurate comparison for assessment.
Similar legislation was drafted in the 2009-11 state budget, but was vetoed by Democratic Gov. Jim Doyle. Indiana is the only other state that has adopted similar “dark store” legislation, but the state repealed the bills just a year after their passage.