Marquette County, others offer support to Escanaba in dark store battle

MARQUETTE — Marquette County and other local governmental units are contributing to Escanaba’s fight against dark stores — active big box retail stores that are assessed as if they stand empty and vacant, substantially reducing their taxable value.

Escanaba is seeking $200,000 from other municipalities to aid with a Michigan Tax Tribunal hearing that will “determine, once and for all, the treatment of big box appeals in Michigan,” a letter from Escanaba City Manager Patrick S. Jordan to all Michigan municipalities states.

The municipality is seeking support from others because costs associated with the hearing are significant, the letter says, as successful preparation will “require access to expensive database and significant expert research and analysis.”

The upcoming Tax Tribunal hearing is “an opportunity that will likely never reoccur for any local unit litigating against a big box or similar property,” the letter states, noting the “city appreciates that it is fighting on behalf of all other taxing units in the state.”

Marquette County Board Chairman Gerald Corkin said Marquette County is contributing $10,000 to Escanaba’s fight, as he feels the matter is of major importance. Losses have been substantial at home, as well as across the state, he said.

“It’s really hurt,” he said. “I know in the state it’s probably approaching 100 million dollars already that’s been lost throughout Michigan.”

The Upper Peninsula has been hit particularly hard by the issue due to the generally smaller tax bases, Corkin says.

He estimates Marquette County has lost “in excess of a half-million dollars” from the dark store issue.

A cost not included in this figure, Corkin says, is the money spent challenging the big box store appeals to the Michigan Tax Tribunal when the stores are seeking a decrease in valuation — as well as the money lost when a municipality enters into a stipulation, making a mutual agreement with a store to reduce the store’s taxable value.

“(The local units) don’t want to challenge some of these appeals and they just stipulate them out between the two parties,” he said, noting “it’s another factor that is driving down the tax base.”

He says he’s been disappointed to see legislation addressing the issue stall — a bill was passed in the Michigan House of Representatives by a large majority, but has not moved out of the Senate Committee on Finance since September.

The dark store valuation theory is based on the specialized buildings that house big box stores — the theory suggests the stores should be assessed as vacant properties because they generally can’t be used for other retail purposes after they are vacant.

However, the reason the buildings can’t be reused for retail purposes after they’re vacated is largely due to deed restrictions imposed by companies that own the big box stores — many of these deed restrictions prohibit the building from being used by other big box retailers.

The dark store valuation theory has been used for many successful appeals of valuation to the Michigan Tax Tribunal, leading to major decreases in taxable value for big box stores across the state.

In the case of Menards in Escanaba, Menards won an appeal through the tax tribunal in 2014, which resulted in a three-year adjustment to Menards’ property value for the 166,196-square-foot building — the 2012 value dropped from $48.43 to $20 per square foot; the 2013 value from $49.54 to $21; and the 2014 value from $50.88 to $22, a May 14 Escanaba Daily Press article states.

However, the tribunal’s decision in Menards v. Escanaba was reversed by the Michigan Court of Appeals, which questioned the dark store theory.

Menards attempted to appeal this decision in the Michigan Supreme Court, but in October, the court declined to hear the case.

The Michigan Tax Tribunal has been ordered to hold a remand hearing, which “must make a new determination of value after the parties are allowed to present additional evidence,” a Michigan Supreme Court summary of Menards, Inc. v. City of Escanaba states.

The case is now headed to a Michigan Tax Tribunal hearing, where both sides will present additional evidence on deed restrictions, as well as the cost-less-depreciation-approach, a method used to determine property value.

According to Jordan’s letter, the city of Escanaba must provide a “comprehensive study of the Dark Store Theory” and extensive evidence for the hearing — which makes the preparation for this hearing much more complex, time-consuming and costly than a typical tribunal case.

With the costs and large-scale implications of the case for other units across the state, many have contributed.

“There’s a good response from the counties to step forward and do what they can do to help,” Corkin said. “I think it’s well over 50 grand that will be coming in from counties just here in U.P.”

The letter from Jordan states Escanaba is carefully considering what the implications for contributing local units might be if a settlement is offered.

“Other local units would then be forced to litigate the meaning of the Menards decision without the benefit of precedent in the tribunal that the forthcoming remand hearing could have established,” the letter states. “Because of the impact of a settlement on other local units, the city will refund all contributions if it settles this case.”

Corkin says Marquette County won’t give up — if the hearing doesn’t have the desired outcome, he says it will keep working toward resolving the issue.

“We’ll just keep after it until it gets resolved because it’s not going to go away and it’s something that needs to be corrected,” he said. “When something’s wrong, you don’t just give it up, you keep after it until it gets resolved.”

Jordan could not be reached for comment before press time.

Cecilia Brown can be reached at 906-228-2500, ext. 248. Her email address is cbrown@miningjournal .net.