Earlier in January, the city of Wauwatosa was featured in a New York Times article. But instead of the flyover country narratives we're used to hearing in Wisconsin, the piece focused on a new tax avoidance tactic that has some municipalities worried.
It’s called a "dark store appeal," and it’s become a popular tool for some businesses looking to decrease their tax burden in the Badger State. The tactic is frequently used by big box stores and manufacturers, which argue that their property taxes should factor in how much the property would cost if it were vacant.
"They're arguing that in the marketplace — the real estate marketplace — if you have some stores that are vacant, that that is an indication of what the value of such a property would be if it didn't have a tenant in it," says Jason Stein, research director at the Wisconsin Policy Forum, which has been studying the impact of these appeals.
Since big box stores and many manufacturing spaces are designed specifically for their industry, their value as a vacant property can be lower than other commercial spaces. Stein explains that advocates on the other side, municipalities and others who stand to lose tax revenue, argue that comparing a vacant space to an occupied space is nonsensical.
"A store that is vacant, a factory that is vacant is not comparable ... to a store that is filled and doing a brisk business, or a factory that is filled and churning out widgets and making a profit on a daily basis," he summarizes.
The appeals to lower taxes on these large, commercial spaces can cost taxpayers a lot of money in legal fees, and they can also lead to higher taxes for homeowners. Stein explains that depending on the business making the appeal, the impact to the state or municipality can be significant.
"They can be significant because obviously, these properties — whether it’s a manufacturing plant or a large retail store — they can have significant amounts of property tax," he says.
For some municipalities, the loss in tax revenue can mean deciding between cutting services to the community or moving the tax burden onto other property owners.
"What you can potentially have is a situation where the taxes on a retail store go down and then they go up on homeowners and other businesses in that same city, or that same jurisdiction," Stein says.