MADISON – A battle between national retailers and Wisconsin municipalities moved from the courtroom to the Statehouse Wednesday during a hearing on divisive tax legislation.
A Senate tax committee conducted a five-hour hearing on two bills written to stem a tide of lawsuits filed by big-box chains against communities over annual property tax assessments. Municipal leaders accused retailers of exploiting a tax loophole to push their share of the property tax burden onto average home and business owners. Business advocates claimed local governments have disregarded state law, court rulings and logic in an effort to tilt the playing field for their own benefit.
“It’s the big, bad business vs. homeowners,” Wisconsin Manufacturers & Commerce spokesman Scott Manley said. “It’s a great narrative, but it’s not accurate.”
Baraboo Mayor Mike Palm testified in favor of the legislation, noting that Menards has sued the city over its tax bill the past three years. “I see a pattern here, that they keep coming back to the well,” he said.
Last week, the Baraboo City Council approved a resolution asking for legislation to eliminate what local leaders call the “dark stores” tax loophole. National retail chains looking to reduce their property taxes are suing municipalities over their assessments, claiming their stores should be valued the same as vacant buildings of comparable size.
Indiana passed legislation tightening its property tax assessment rules, and bills supported by the League of Wisconsin Municipalities are moving through the Senate and Assembly.
‘Not built to sell’
Tax experts who’ve represented national retailers say it’s the government, not big-box chains, that’s trying to pull a fast one. Minnesota attorney Robert Hill, who has represented Menards and Walmart, said stores should be assessed at the value they’d fetch on the open market. He argues that because most major retailers would rather build their own customized stores at $40 to $50 per square foot rather than buy a less-than-perfect fit for $20 to $30 per square foot, the properties should be treated like warehouses, rather than thriving stores.
Tax expert Michael Wedl, who has worked with Hill on big-box cases, said if Menards were to leave its Baraboo store, the building would lose much of its value. “They’re not building them to sell,” said Wedl, a former assessor. “As soon as they build it, it’s obsolete.”
Business groups testifying against the legislation Wednesday said the bills would invite constitutional challenges because they target large retailers, treating big-box stores differently than other properties. They said municipalities are trying to change the law rather than follow it.
Hill said every property type should be taxed at its sales value. Vacant homes aren’t called “dark homes” and taxed differently. “These guys are really trying to ratify discrimination,” he said.
More than 50 Wisconsin municipalities have passed resolutions calling for legislation setting new rules for taxing big-box stores. Some are losing tens of thousands of dollars as courts order them to refund tax money to retailers. Statewide, more than 200 lawsuits have been filed by big-box chains over the past decade. Municipalities found themselves on the defensive after a 2008 Wisconsin court ruling found Madison overvalued Walgreens stores. One of the bills introduced in the Legislature seeks to reverse that ruling.
The bills’ sponsors said stores should be taxed according to their highest and best use – as thriving enterprises – rather than treated like warehouses. They said the legislation writes assessors’ best practices into state law. “This is about fair market value,” said Sen. Roger Roth, R-Appleton.
“When you build a location for $20 million and insist that it be assessed for $6 million, it defies logic,” added Rep. Robert Brooks, R-Saukville. “This affects every school district, every police department, every fire department.”
Sen. Duey Strobel, R-Cedarburg, said retailers’ legal teams are bullying municipalities. “They’re using the courts to their financial benefit,” he said.
Critics of the legislation said municipalities are using legislation to get around the courts. Legislation will only lead to lawsuits, creating expense for all parties, Hill said.
He said “dark store” is a nonsensical term municipalities created to cast his clients as greedy villains. A property being vacant and available is essential to any sale. “What they really mean is they’re finding themselves exposed,” Hill said. “These guys are going on the offensive without any facts.”
While business groups spoke against the legislation, dozens of municipal officials and assessors said state tax law needs to be clarified. The 9 a.m. hearing extended past 2 p.m.
Legislators expressed interest in Palm’s note that a law firm contacted him, promising to help the city cut the property taxes it pays on the airport it owns in the town of Delton. “When is this going to end?” Palm asked. “There needs to be a line drawn.”
“I think we need to find an answer and solution to make sure businesses are paying their fair share of taxes and not skirting it and challenging it,” said Sen. Devin LaMahieu, R-Oostburg.