by Luke Ulatowski
For The Beacon

Sheboygan area people have spoken: The “dark store” loophole that allows big-name retailers to shift property tax burdens onto homeowners must be closed.

At the April 2 election, a referendum appeared on the ballot for both the City and Town of Sheboygan. It asked voters if legislation closing the dark store loophole should be pursued. In Sheboygan, 6,119 voted “Yes” and 747 voted “No.” In the Town of Sheboygan, 1,542 voted “Yes” and 222 voted “No.”

The proposed legislation would serve the following two functions as described on the ballot:

1. Prohibit using closed, vacant (dark) properties as comparable properties for determining the assessed value of open, occupied, and fully operational properties.
2. Overturn the 2008 Wisconsin Supreme Court decision in Walgreens v. City of Madison, which is being interpreted by the courts as requiring municipalities to assess many leased commercial properties at a substantial discount, often 50 percent below the actual sale prices of such properties.

The dark store loophole refers to the argument that an up and running retail store should be taxed according to the facility’s value at the time of the retailer’s purchase. For example, if Walmart buys a vacant supermarket building and turns it into a Walmart, the company’s attorney might argue that the property should be taxed as if it remained vacant.

The reason an attorney might argue this so-called “dark store theory” is that retailers typically only buy and sell facilities that have already been vacated. By that logic, the value of a given retail facility is relatively low for a building of its size. This is a concern for homeowners who believe they are paying higher property taxes because big businesses are paying lower ones.

According to the Sheboygan Mayor Mike Vandersteen, homeowners are paying 68 percent of the statewide tax levy. Vandersteen compared this to homeowners in Minnesota, who pay 50 percent of property taxes.

Current use of the dark store loophole relies on the 2008 Walgreens v. City of Madison case in which the Supreme Court decided that the rents paid by Walgreens should not have an affect on the value of Walgreens’ property. Currently, Walmart is targeting Sheboygan for overvaluing its Taylor Drive location according to the dark store theory. Walmart is asking for the 2017 assessed property value to be lowered from $14,660,998 to $9,689,490, which would lower the $330,000 property tax to $240,000

“These reductions in Walmart’s property tax would then be shifted to residential and small business property owners in Sheboygan along with the legal bills to defend the City of Sheboygan is (up to) $250,000, plus interest if City loses this case,” Vandersteen said. Walmart is also targeting Plymouth in a similar lawsuit regarding the Walton Drive location.

On Nov. 6, 2018, residents of 20 Wisconsin counties voted in favor of referendums calling for lawmakers to close the perceived dark store loophole. The ballot came from a campaign by the League of Wisconsin Municipalities, Wisconsin Counties Association and Wisconsin Towns Association against the so-called loophole. In January, the Sheboygan Common Council voted to add the advisory referendum to the April 2 ballot.

“A decade ago several businesses sued the City of Sheboygan and used these loopholes to have their property tax refunded and reduced,” Vandersteen said in a statement about the common council’s vote. “Since these judgements approximately $1,300,000 of property tax has been shifted from the owners of Memorial Mall and the three Walgreens stores to residential property owners in the City of Sheboygan.”

In February 2019, Governor Tony Evers released his 2019- 2021 budget proposal. It included a call for the closure of the dark store loophole.