Why Wisconsin municipalities see 'major victory' in state Supreme Court 'dark store' decision

A Wisconsin Supreme Court opinion issued Thursday is being celebrated as a big win for cities and villages beset by big box store operators seeking significant cuts to their property tax payments.

The League of Wisconsin Municipalities on Monday hailed the state Supreme Court's opinion, which sided with the city of Delavan over Lowe's Home Centers LLC as a rejection of the "dark store loophole" big box retailers have used for nearly a decade to slash property values and their tax bills.

The lawsuits are called "dark store" cases because retailers like Lowe's, Woodman's, Menards, and Walmart use nearby empty, distressed stores to argue cities, villages and towns overvalued their active buildings by millions of dollars. Though often settled before trial, cases can be costly for communities to litigate and amount to a concerted effort to pressure local governments to reduce major retailers' and commercial developers' property tax payments by tens of thousands of dollars, the League said.

"We hope today’s court decision brings an end to that practice,” said Claire Silverman, legal counsel for the League of Municipalities, in a media release headlined "Ding Dong the Dark Store is Dead."

More:For years, big box stores have sued Wisconsin cities to lower their tax bills. Judges have started to side with the cities.

What’s the case?

Lowe’s Home Improvement sued the city of Delavan to challenge the city’s 2016 and 2017 property valuation of $8.9 million for one of its stores. The retailer claimed the valuation was excessive when compared to vacant big box stores, should not have been presumed correct, and the proper value was closer to $4.6 million.

Delavan argued its determinations were accurate, that the properties Lowe’s said its store should be valued based on were unoccupied, and should be excluded from its property value analysis.

The Walworth County Circuit Court upheld Delavan’s assessments, but Lowe’s appealed the decision to appellate courts. When the state’s Second District Court of Appeals sided with the county judge, Lowe’s appealed to the Wisconsin Supreme Court.

The state Supreme Court held oral arguments on the case in September before issuing its ruling on Feb. 16. The court's opinion had the support of all seven justices. Justice Rebecca Grassl Bradley did file a concurring opinion, which is an explanation that agrees with the court's decision but highlights different reasons for doing so. Justice Patience Roggensack joined Bradley's concurring opinion.

"We determine that the assessments in this case were properly afforded a presumption of correctness," the court wrote in a majority opinion authored by Justice Ann Walsh Bradley. The justices also determined that "Lowe's failed to demonstrate that the City's assessments were excessive" and gave deference to lower court findings.

"We determine that the assessments in this case were properly afforded a presumption of correctness," the court wrote in a majority opinion authored by Justice Ann Walsh Bradley. The justices also determined that "Lowe's failed to demonstrate that the City's assessments were excessive" and gave deference to lower court findings.

Is the dark store loophole dead?

It's not likely that every retailer will cease filing or withdraw active dark store lawsuits because of the ruling.

But the Wisconsin Supreme Court's decision last week gives some heart to communities like the village of Bellevue, southeast of Green Bay, that has defended itself against several dark store cases filed by Walmart and Menards. One Walmart case, filed in July, remains open in Brown County Circuit Court.

Andrew Vissers, Bellevue's community development director, said Walmart claims its store is worth about $5 million, a little more than half of the village's assessed value. The devaluation would cost the village about $70,000 per year in tax revenue. The village's residential, commercial and industrial property owners would have to make up the difference.

"Some settlements might cost tens of thousands of dollars," Vissers said. "It adds up when you think about the level of service we provide our constituents and the additional burden it puts on residential property owners."

Video:Lawmakers look to close dark store tax loophole

Why should I care?

Money. Specifically, your property taxes, which it seems no one wants to see increase.

For almost a decade, big box retailers such as Woodman's, Menards, Lowes Home Improvement and Walmart have filed dark store lawsuits challenging village and city property assessments. Communities that lost these cases would have to refund tens or hundreds of thousands of dollars in property taxes to these companies.

Communities have to make up those lost property tax dollars, often by shifting the burden to residential property owners who in recent years have paid about $68 of every $100 in property tax collected statewide. In 1970, for comparison, the League said residential property owners paid $50 of every $100.

Why are cities, villages and towns pleased with the court's decision?

The League is pleased because communities have faced dark store challenges, as well as related challenges going back to a Wisconsin Supreme Court 2008 decision involving Walgreens that limited how assessors could use lease payments to determine a property's value.

Silverman in the release called dark store tactics aggressive and novel theories that represented an expansive interpretation of the court's 2008 decision that amounted to "an unfair tax break" for national retailers and owners of big box commercial properties.

"It’s incredibly expensive to litigate these cases and owners of big box commercial properties who assert these theories unsupported by the law, like dark store, are trying to pressure local governments to reduce their tax assessments," Silverman said.

The court's decision, Vissers said, means stores may face more of an uphill battle if they do decide to take cities, villages and towns to court.

"This lays the groundwork for communities to say 'You can try, but there is case law to discourage it,'" Vissers said. "It hopefully sets the narrative that you can challenge (assessments), but there's a logic and case law" behind them.

What do the property owners/retailers say?

Wisconsin Manufacturers and Commerce, the state's combined chamber of commerce and manufacturers association, has filed amicus briefs in dark store cases, including this one, and organized a coalition opposed to changes to state law aimed at curbing dark store suits. Amicus briefs offer groups like the League of Municipalities and WMC a chance to offer information, insights or related information for the judges to consider.

WMC has claimed municipalities are attempting to avoid legal consequences for assigning "occupied" stores higher values than identical, vacant properties, and that their valuations amount to an unlawful business tax. It claims the real estate value is what matters, not the business use.

In this court decision, Evan Umpir, WMC Director of Tax Transportation and Legal Affairs, noted the court upheld certain circumstances where retailers could make "dark store" claims.

“The Court reaffirmed the law and its previous decisions on the proper valuation of property, that in certain situations ‘dark’ or ‘vacant’ properties may be valid comparisons and, when using an income approach to assessment, the fair market value of leases, not actual or contract value, must serve as the basis,” Umpir said.

Contact Jeff Bollier at (920) 431-8387 or jbollier@gannett.com. Follow him on Twitter at @JeffBollier.

This article originally appeared on Green Bay Press-Gazette: 'Dark store' ruling gives Wisconsin's cities, villages and towns hope