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Taxes, Big-Box Stores And The 'Dark Store Theory'


OK, as holiday shoppers look for bargains this season, big retailers are also looking for a bargain of sorts.


Yeah, companies like Target and Lowe's want to keep their tax bills down, and they do this with something called the dark store theory.

INSKEEP: What? Well, Sehvilla Mann of member station WMUK is here to explain.

SEHVILLA MANN, BYLINE: Here's how it works. Similar to homeowners paying tax on their house, stores pay taxes on their buildings. If a store thinks its tax bill's too big, it can appeal, but it has to justify the lower rate. One method to appraise a property is to use comparables - essentially, comparing properties like yours. If you can find a store that's paying lower taxes, your appeal might succeed. And if you're a big-box retailer, you might want to compare yourself to a dark or vacant store, like this one near Kalamazoo.

I'm standing in the parking lot of a former Menards hardware store. The company closed this box a couple of years ago and opened a bigger one across town. The facade's a blank. The parking lot's empty. There's a couple of lights on inside, but otherwise it's pretty dark.

LINDA TERRILL: Well, first, there really is no dark store theory.

MANN: That's Linda Terrill, a tax attorney in Kansas who argues that the term is a misnomer and based on a misunderstanding of how property is assessed. Terrill says there's nothing strange about comparing empty stores to open ones. Property tax is about the building, not what's inside it, no matter how well the owner's doing.

TERRILL: if I win the lottery, the value of my house doesn't change.

MANN: Terrill says it shouldn't matter if the store is dark or not. Dave Maturen disagrees. He's a Michigan state lawmaker who says it's not that a store is dark but why it's dark that's a problem. Maybe it's the location - the vacant store sits in the part of town that shoppers have abandoned while the new store appeals its taxes from the hottest corner.

DAVE MATUREN: Certainly, the person that decided to shell out, you know, $15 million to $20 million wasn't doing it foolishly, and they had a good idea that this was a good spot and a good structure to put in place.

MANN: But Maturen says this is mostly about deed restrictions. He says when a retailer quits a store, it's often just moving down the road and doesn't want a competitor to move into its empty space. Maturen says those restrictions make this real estate hard to sell.

MATUREN: And deed restrictions may say you can't sell food, you can't sell clothing, you can't sell garden equipment.

MANN: He says it's simply not comparable to a store with no restrictions. Bexar County, Texas, the home of San Antonio, faced a tax appeal from hardware chain Lowe's. Chief appraiser Michael Amezquita says Lowe's last thought appeal. But had it been successful, other stores would surely have piled on.

MICHAEL AMEZQUITA: Target would've been in line. Best Buy would've been in line. Sears would've been in line. Local grocery chains would've been in line. Home Depot would've been in line. And then it would've - I think would've spread to other categories of property.

MANN: Causing a steep drop in revenue.

AMEZQUITA: We anticipated in the two-year period we'd have lost $850 million.

MANN: Across the country, numerous tax challenges by big-box retailers have been granted. And in many communities, battles over tax revenue from these retailers will likely continue. For NPR News, I'm Sehvilla Mann in Kalamazoo.

(SOUNDBITE OF BROKE FOR FREE'S "PANORAMA SHAMA") Transcript provided by NPR, Copyright NPR.

Sehvilla Mann joined WMUK’s news team in January 2014 as a reporter on the local government and education beats. Before that she covered a variety of topics, including environmental issues, for Bloomington, Indiana NPR and PBS affiliates WFIU and WTIU. She’s also written and produced stories for the Pacifica Network and WYSO Public Radio in Yellow Springs, Ohio. Sehvilla holds a B.A. in French from Earlham College and an M.A. in journalism from Indiana University.