Dark-store theory has emerged since the great recession as a premise for changing the value of a commercial property. During the previous economic downturn in the late-2000s, owners argued that big box stores and other large commercial properties were overvalued by appraisers and overtaxed by local assessors.
Texas Property Tax Code requires that value be determined by looking at comparable sales while considering the property’s condition, occupancy, and other legal burdens. The owners argue that their vacant buildings are considerably less valuable than those fully operating in a vibrant retail environment.
Moreover, chains often build a structure to fit their specific needs, which may mean that it is of little value to a vast majority of the buyers. So, a closed 100,000 square foot Walmart location could sit for months or years until a new occupant buys or leases the property. This is further complicated by the general practice among chains of not selling property to retail competitors regardless of how long the property is vacant, sometimes just building a new space nearby.
A tax dodge?
Counties, states and the U.S. government are looking for more tax money, particularly in cash-strapped rural communities where these stores are dominant. Their hundreds of millions in tax dollars, perhaps in a single county, help cover the expense of police, fire, schools and other community services. Not paying that money pushes a considerable expense from the company to homeowners in the community who do pay property taxes.
Critics argue that regardless of whether the business is successful or fails, the property value is strongly tied to the property’s location. Location comes into consideration when appraising the value.
Courts weigh in
The courts in Wisconsin, Michigan and Minnesota are hearing tax appeal cases mounted by the owners. While Texas does not have economic woes faced by our northern friends, this is an issue large enough that the state comptroller weighed in on this matter, pointing out that Dallas, Harris and Williamson counties compromised the appraised value of properties to avoid outright litigation they had a good chance of losing.
Amidst shutdowns, the pandemic, and the rise of online shopping, big box stores are now using the dark store theory more than ever. It’s gone badly for many municipalities in northern states, so this issue will continue to be litigated in the months to come.