Dark stores

Big-box retailers’ strategy to cut property appraisals will harm local communities.

Nobody likes paying taxes, but we’re all supposed to pay our fair share. After all, that’s how we pay for our police and firefighters, our schools and streets, and so many other services essential to a civil society.

So it’s a little galling that some of the most familiar names in American business are using a dubious legal argument to win jaw-dropping cuts in their property tax bills. Alarmed appraisers here in Texas warn this rapidly spreading strategy could derail our entire property tax system, a threat that’s so serious our state lawmakers need to take action in the upcoming special session.

Smart lawyers working for some of America’s best known retailers — like Lowe’s, Home Depot, Kohl’s, Target and Wal-Mart — are appealing their property taxes with a convoluted legal theory that’s somehow gaining ground in the courts. These big-box retailers claim their properties should be appraised as though they’re empty buildings, not functioning stores.

Their logic is that the buildings are constructed for a specific use by a specific owner. So they argue the appraised value of a store should be based on the assumption that, if it closes, the building cannot be sold to anybody else. Hence, a bustling store is worth the same as an empty building.

Of course, that’s nonsense. New enterprises routinely open in old retail spaces. And anybody who’s dodged shopping carts inside a Costco on a Saturday afternoon knows one of those crowded buildings with long lines at cash registers is worth way more than an abandoned Sears outlet.

Nonetheless, this “dark store” theory of appraisals has been gaining ground ever since a Michigan court agreed with it in 2010. As a result, corporations have scored whopping cuts in their property taxes, like the Lowe’s store in Michigan that reportedly saw its tax bill slashed by two-thirds. Here in Texas, Lowe’s fought to get valuations on stores around Houston and San Antonio cut roughly in half. The Harris County Appraisal District settled and agreed to a cut of about 10 percent, but Bexar County is fighting Lowe’s in a closely watched court case.

This strategy is just getting off the ground here in Texas, but the impact in other states has been devastating. When Lowe’s managed to cut its property taxes in Indiana by $121 million, other residents and businesses ending up paying $50 million more. In Michigan, some local governments are gutting public services, roads have gone unpaved, library hours have been curtailed and police departments haven’t been able to update aging equipment.

The problem won’t stop with big-box retailers. Other businesses are starting to pursue the same strategy, threatening to throw property tax collections into a disastrous downward spiral. If Lowe’s wins in Bexar County and other commercial enterprises jump onto the “dark store” bandwagon, the state Comptroller’s Office estimates Texas cities, counties and school districts will lose $2.9 billion.

The Legislature can fix this problem. State Rep. Drew Springer, R-Muenster, and Comptroller Glenn Hegar backed a bill to limit the use of this legal strategy, but business lobbyists watered it down so badly even appraisers said it wasn’t worth the effort.

Now the legislation has a second chance. Gov. Greg Abbott has put tax reform on his agenda for the upcoming special session, and Springer will try to reintroduce his original bill.

What happened in Michigan is a warning and a wake-up call. Our state lawmakers need to fix this problem now. The “dark stores” strategy is a bonanza for out-of-state corporations, but it’s a looming catastrophe for Texas.