'Dark store' theory tops discussion for local intergovernmental meeting

AJ Dome, The Manhattan Mercury, Kan.
·3 min read

Mar. 23—Riley County's counselor and appraiser both say officials should continue to pay attention a pair of bills floating in the Kansas Statehouse related to "dark store theory."

During a meeting with local officials from various agencies Monday, county counselor Clancy Holeman and appraiser Greg McHenry gave a virtual presentation on dark store theory, legally referred to as hypothetical leased fee valuation.

Under this theory, real estate owners — big box retailers in particular — have appealed their property valuations by arguing their stores should be valued in comparison to vacant, or dark, stores in the area, instead of having a traditional fair market valuation. Retailers who have successfully used this theory have been able to reduce their valuations and property taxes by as much as half in some cases.

Holeman said there are two identical bills in the Kansas Legislature, HB 2402 and SB 222, that would eliminate the theory's use.

"What these bills do is make it clear that fair market value in Kansas for property tax valuation does not include this hypothetical value," Holeman said.

The proposed bills have not yet moved on to subcommittee review. Holeman said this represents a clarification to the law, and that he and others are concerned about any potential fallout to come with implementing the dark store theory on a wider scale. With property values in the millions of dollars, any reductions in valuations would add up to hundreds of thousands of dollars in lost revenue for local entities funded by property tax revenue, like local governments and school districts.

"The biggest single issue of dark store theory being applied to commercial properties, is we create a special class of properties not held to market value," McHenry said. "Everyone else ends up getting to share the burden that those dark store cases get rid of."

McHenry said the injection of hypothetical values into the appeals process is a recent thing and will continue as more tax appeals garner favorable rulings toward the big box retailer. He said attorneys for the large retailers will claim a property should be valued not by its current use, but by its estimated value at the end of its usable lifespan.

"In effect they're telling us we should ignore everything that's going on currently, with the location and physical condition of the property ... and use dark store theory, that the true value of a building can only be achieved at the end of its economic life," McHenry said.

In other meeting business, director of the Flint Hills Metropolitan Planning Organization Stephanie Peterson gave a presentation on a proposed change to the metrics for determining what makes up a metropolitan statistical area.

Right now, an MSA is categorized as any urbanized area with a population of 50,000 people. The change would bump that population requirement up to 100,000, therefore rendering Manhattan a micropolitan statistical area, and potentially impacting the availability of federal funds for transportation and infrastructure.

Peterson said it's not likely that the change in population requirements will take effect, nor is it likely that Manhattan's population would fall below 50,000, but she said it's important to get answers regarding any potential impacts to federal funding and data-gathering.