Without dissent, Wisconsin Supreme Court strikes blow to ‘dark store’ tax theory

by Henry Redman, Wisconsin Examiner
February 16, 2023

The Wisconsin Supreme Court sided with the City of Delavan on Thursday, deciding that its property tax assessments of a Lowe’s Home Improvement store were correct after the store had sued in an attempt to get a lower assessment, and therefore pay less property tax. 

The decision strikes a blow to the use of so-called “dark store” tax theory that has become common in Wisconsin and across the country. The method involves comparing the value of an operating big box retail store to long vacant, or “dark,” stores nearby. Pushed by big box retailers such as Lowe’s, Menards and Walmart — with the support of Wisconsin Manufacturers and Commerce, the state’s largest business lobby — dark store theory has been criticized by local officials and the public because it can take revenue away from municipalities and cause the property taxes on residents’ homes to increase. 

“Property taxes for homeowners and main street businesses are increasing in Wisconsin as national retailers pay less,” the League of Wisconsin Municipalities wrote in a 2017 document. “A carefully-orchestrated wave of 100s of lawsuits in Wisconsin is forcing assessors to slash the market value of thriving national retail stores, shifting their tax burden to local mom and pop shops and to their home-owning customers.”

The dark store theory has drawn significant coverage in the national news media as local officials warn of what could happen to municipality’s ability to provide services such as police and fire, public schools and road maintenance if big box stores, that were lured to these towns because of the promise of jobs and effect on the local economy, are able to decrease their tax bills using this method. 

In Lowe’s v. Delavan, the hardware store was challenging city assessments of its property in 2016 and 2017. The store, located in a “thriving retail area,” according to the city, was assessed at $8,922,300 in both years by Delavan’s assessor. The outside assessor Lowe’s hired valued the property at $4,600,000, nearly 50% less than the city’s value. An outside assessor hired by the city valued the property even higher than the city’s original assessment at $9,200,000. 

The store appealed the assessment at the local board of review and then filed a lawsuit in Walworth County Circuit Court. The circuit court sided with the city, so Lowe’s appealed the decision. The appeals court also sided with the city, so Lowe’s appealed to the Wisconsin Supreme Court. 

At issue in the lawsuit were the stores used by each assessor to come up with the market value. When a store hasn’t been sold recently, which in this case hadn’t happened because the property had operated as a Lowe’s since it was constructed in 2005, assessors find comparable stores in the area to come up with a value. 

The assessor hired by Lowe’s had almost entirely used stores that were “dark,” vacant or considered distressed. 

Three of the stores had once been locations of the now-defunct American TV and Appliance and had been sold after the business closed through a receivership, meaning they were forced sales to cover the business’ debts and therefore the circuit court considered them not comparable to the Lowe’s. Another of the properties was a closed former K-Mart that had been vacant for four years prior to its sale, classifying it officially as a dark store. The K-Mart was also not in a busy retail area like the Delavan location. The assessor also used a Walmart in Brown Deer that had initially been a Lowe’s but closed after just five years in that location and sat vacant for two years before the purchase by Walmart. The final store used was a shuttered Target in Kenosha that had gone dark after sitting vacant for four years. 

The city’s outside expert, on the other hand, used comparison properties that had all been sold while still occupied. 

In a majority decision written by Justice Ann Walsh Bradley and joined by Justices Rebecca Dallet, Brian Hagedorn, Jill Karofsky, Patience Roggensack and Annette Ziegler, the court decided that both the circuit court and appeals court were correct when they decided that the Lowe’s assessor’s comparison properties weren’t adequate for assessing the property’s value. Justice Rebecca Bradley wrote a concurring opinion that Roggensack joined. 

“Generally, a site that can sustain a business is more valuable than one that cannot,” Walsh Bradley wrote in the majority opinion. “The highest and best use of a store in an area that is conducive to business (and is in fact operating as a business) is different from the highest and best use of a property that contains a failed big-box store. Lowe’s’ argument treats these different things alike, which is not [an] “apples to apples” comparison …”

The League of Wisconsin Municipalities, which filed a friend of the court brief in the case on the side of Delavan, celebrated the decision as a win for Wisconsin’s taxpayers. 

“We think it’s tremendous news for taxpayers,” Jerry Deschane, the League’s executive director, says. “The court has very definitively and hopefully finally put to rest the use of dark stores in our communities. I think it stuck a fork in the strategy is what it did, it’s done. There are places where it is reasonable to use a vacant property as a comparable sale, but not to the extent the people that proposed the philosophy wanted it to go. The court rejected that six ways to sunday.”

Deschane says the League believes it’s especially important that the decision was essentially unanimous. 

“That’s part of what convinces us that the dark store proponents have been wrong all along,” he says. “When you get reasonable jurists together, they come to the same conclusion. The fact that the Wisconsin Supreme Court came out with what is essentially a unanimous decision, this argument does not have credibility when it comes to assessing property.”

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