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Big-box retailers are employing a strategy to reduce property tax valuations across the country. The core contention of this strategy involves valuation of big-box stores using comparable sales, which are most often vacant properties. If occupied stores are considered as comparables, proponents of this strategy argue, assessors are valuing the leased-fee, or the value resulting from the owner of the property, rather than fee-simple interest, which is the value of the property itself, irrespective of the owner. The Michigan Tax Tribunal was the first to confront this theory, but it has now been considered in various jurisdictions across the country.
The strategy is based on that used by Michael Shapiro, a Detroit tax attorney who used it successfully to defend car companies.1 He argued that their plants should be assigned value based on that of closed factories because of the lack of a secondary market for these properties. In 2010, he applied the theory to big-box stores.2 Lawyers and tax representatives for these big box stores target smaller towns with smaller budgets for defense.3 The theory generally works as follows. Big-box stores are built based on specific needs, are large, and generally are not built to last. The appraiser for the big-box store contends that the most accurate valuation is based on comparable sales, which are often made for far less than the construction cost of the structure, and are almost always vacant. If occupied sales are considered, the appraiser is valuing the leased fee interest rather than the fee simple interest. This has begun to be called "the dark store theory" because of the use of vacant comparables. This theory has taken hold in Michigan, and is beginning to see success in other states. There are, however, some indications that the tide may be turning. There have also been legislative attempts to curb use of the dark store theory.
Method of assessment
Most states assess property for ad valorem real property taxes at some percentage of market value. Taxing entities have different terms for the value, but the properties are generally measured at the fair market value. The appraiser first determines the highest and best use of the property. This involves valuing the land as if vacant, and the property as it is improved....