By Kevin Boneske
Staff Writer
BROWN COUNTY – Local municipalities continue to face the prospect of having to defend their property tax assessments against what’s known as the dark store loophole.
This after legislative efforts have stalled to change state law related to tax assessments for leased property and assessments based on comparable sales and market segments.
The loophole has been used by commercial retailers and manufacturers challenging the assessed value of their properties by claiming they are worth the same or close to the lower assessed value of similar but empty buildings.
The Village of Howard’s assessment dispute with the Woodman’s store at 2400 Duck Creek Parkway has extended to a third tax year with attorneys from the Milwaukee-based law firm of Gimbel, Reilly, Guerin and Brown LLP recently filing a suit on behalf of the company in Brown County Circuit Court to claim the property is worth no more than $5.25 million, instead of being assessed for more than $12.6 million in 2019.
The firm previously claimed the property wasn’t worth more than the $5.25 million amount in a case that has been consolidated for the taxes in 2017 and 2018 and set to go to trial next April.
The property’s value increased this year from a previous assessment of around $11.7 million following a reassessment of the village.
Woodman’s is seeking a property tax refund on what the company contends is an excessive assessment, plus statutory interest.
The company’s legal argument states the assessment is not uniform with the assessment of other properties in the village and the state, thereby violating the Uniformity Clause of the Wisconsin Constitution.
The village previously disputed the company’s claims of an excessive assessment and sought a dismissal of the action.
Loophole impact
Throughout the state, companies which have challenged their assessments and won, either in court or with an out-of-court settlement, have been able to receive a refund with the affected municipalities having to make up the difference with that lost property tax revenue, such as with homeowners having more of the tax burden.
After the effort to eliminate the loophole didn’t pass in the last legislative session, the League of Wisconsin Municipalities (LWM) kept the issue in front of candidates running last year for governor and the Legislature with an issue advocacy campaign funded by itself and member municipalities, which included contributions by Howard ($2,000), Ashwaubenon ($10,000), De Pere ($5,000), Suamico ($1,200), Hobart ($1,200), Allouez ($1,200) and others.
Gov. Tony Evers included a provision in the budget bill he introduced earlier this year to end the loophole, but that provision didn’t end up in the budget bill lawmakers sent this summer to the governor for final approval.
Subsequent efforts to pass separate legislation ending the loophole haven’t progressed in the current legislative session.
The LWM doesn’t expect a pending bill (AB 146/SB 130) with more than 50 co-sponsors to receive a vote in the Assembly.
“Speaker (Robin) Vos is no friend of the bill,” said Curt Witynski, LWM deputy executive director.
Among those opposing the bill, Wisconsin Manufacturers and Commerce (WMC) has claimed ending the loophole “would just make it easier for aggressive assessors to raise property taxes on businesses.”
Howard Village Administrator Paul Evert has disputed WMC’s argument by noting municipalities have levy limits on the overall amount of property taxes they can raise.
“The way the levy laws work, we spend the same amount of money,” Evert said. “It’s who pays the tax, whether it’s the single-family homeowner over what we think is a fair-market value on these kind of (business) operations.”
LWM also brought the issue to the voters last fall with Brown County being one of 17 counties last November to hold an advisory referendum on the dark store loophole.
It asked: “Should the state legislature enact proposed legislation that closes the Dark Store loopholes, which currently allow retail properties to significantly reduce the assessed valuation and property tax of such properties, resulting in a substantial shift in taxes levied against other tax paying entities, such as residential home owners, and/or cuts in essential services provided by an affected municipality?”
Public support to repeal the loophole was overwhelming with the non-binding referendum passing in the county by about a three-to-one margin.
Defending challenges
Given the current legislative efforts having stalled to repeal the loophole, the LWM is now urging municipalities to defend challenges to their assessments in court following a string of municipal victories.
In an article Witynski co-authored for the October 2019 edition of the LWM’s magazine, The Municipality, he said winning in circuit court “may mean a legislative fix is unnecessary.”
“Tax attorneys working for municipalities have found ways to convince judges that the dark store comparables used by thriving big box stores aren’t valid and that the actual rent being paid and recent sale prices of leased commercial space are the best evidence of fair market value,” the article states.
The article also notes legal challenges have often led to communities settling a case “rather than spend limited resources on litigation.”
However, the more often communities choose to litigate, and win, “the less inclined big box stores and other commercial properties will be to file excessive claims,” according to the article.
In addition to listing cases in which municipalities around the state have won dark store loophole challenges, the article also lists a series of “best practices” to succeed in assessment litigation, such as adhering to the practices and procedures found in the Wisconsin Property Assessment Manual when determining assessed values.
Susan Allen, an attorney defending the Village of Howard in the tax dispute with Woodman’s, declined to speak publicly on the village’s legal strategy for handling the pending litigation, though she acknowledged she was aware of the October 2019 article about dark store challenges in The Municipality.
Legislation favored
Fourth Assembly District State Rep. Dave Steffen (R-Howard) has favored a repeal of the loophole and also co-sponsored the latest legislative effort to do so.
Steffen said the underlying law companies use to lower their assessments is flawed and should be repealed.
“A law can be stupid, but has to be followed by a judge,” he said.
When asked about the provision initially placed in the budget to repeal the loophole, but was taken out prior to final approval, Steffen said the budget isn’t the place for including policy items, even ones he supports.
Even if challenges to assessments can be successfully defeated by municipalities in court, Steffen said lawmakers still need to work on a legislative approach to ending the loophole.
Absent a repeal to the loophole, Steffen said he believes “the largest property tax shift in state history is about to occur” with homeowners having to pay more.
Though much of the Village of Ashwaubenon is commercial property, Village President Mary Kardoskee said the village so far hasn’t had any issues with the dark store loophole.
“With having such a large commercial tax base, it could be a large shift to our residential taxpayers if any of our commercial/manufacturing would have this objection to their assessment,” Kardoskee said.
In addition to several communities having won assessment challenges in court, Kardoskee said the assessor in Ashwaubenon, Mike Denor of Fair Market Assessments, “has done a great job for us in keeping the assessments fair.”