Kansas Supreme Court rules against Walmart in Johnson County property tax dispute

The Kansas Supreme Court reversed a Board of Tax Appeals decision, ruling on Friday that property tax values at 11 Johnson County Walmart and Sam’s Clubs were underestimated by millions of dollars.

Last year, the Kansas Court of Appeals upheld a BOTA decision, siding with Walmart by saying the property tax values for those stores in 2016 and 2017 should be $60 million lower than what the county said.

At the BOTA hearing, Johnson County argued that their appraisers relied on data from build-to-suit leases to estimate fair market rental values and that doing so was common practice among appraisers, according to the Supreme Court’s statement.

Build-to-suit leases are an agreement where a developer builds a property specifically for a retailer and leases it to them.

According to the Supreme Court, the tax board disregarded that information and cited a 2012 Kansas Court of Appeals decision that said rental rates for commercial build-to-suit leases are not reflective of market conditions and should not be used to determine property values for tax purposes.

A common name for the theory that BOTA agreed with is the “dark store theory.” Walmart argued that the value of the business itself should not be factored into the property value. They should instead be assessed as if they are empty buildings, or dark stores.

The Kansas Supreme Court effectively overruled the dark store theory and sent the case back to BOTA to reexamine the county’s evidence.

“While we disagree with the decision, we look forward to asking the Board of Tax Appeals to reaffirm its prior findings about the proper assessed values of Walmart’s stores,” Randy Hargrove, a spokesperson for Walmart, said in a statement.

Johnson County Commissioner Chairman Ed Eilert said the decision was critical for local governments across the state.

“This case has been about equity for taxpayers,” Eilert said in a statement. “Every property owner in Kansas, from the large retailer to the homeowner, should be treated equally as the Kansas Constitution requires. Equity is an important factor in property appraisal.”

Overland Park Mayor Curt Skoog said the “case has major implications for Overland Park residents, through the city’s, Johnson County’s and other taxing agencies’ abilities to fund the essential programs and services that make our community a wonderful place to live, work and play.”