In a recent op-ed in the Kenosha News, Scott Manley from the Wisconsin Manufacturers & Commerce Association (WMC) argued that the dark-store issue is an attempt by local governments to raise more revenue. This could not be farther from the truth. Municipal officials are asking the Legislature to close the dark store loophole and reverse the Walgreen’s court decision to avoid having more of the property tax burden shift from commercial and manufacturing property to homeowners and small businesses.
Unfortunately, WMC convinced legislative leaders to kill the assessment reform legislation that had overwhelming bi-partisan support in the Legislature this session. The dark store bill had 84 co-sponsors (63 percent of the Legislature). The Walgreen’s reversal bill had 61 co-sponsors (46 percent of the Legislature). If the bills had been scheduled for votes, they would have passed both houses by wide margins.
Manley contends that cities and villages “have a self-interest in assessing property higher because it means they can collect more taxes.” This statement reveals a fundamental misunderstanding about property taxes in Wisconsin. State law strictly limits a community’s ability to increase property taxes. Even if the assessed value of a particular property were increased, the total amount of taxes collected by the community stays nearly frozen under state law.
Higher assessments do not equate to more tax revenue. Assessments determine who pays what portion of the tax levy, not the size of the levy.
The dark-store loophole and the Walgreen’s decision shift more of the burden of paying for local services from one group of taxpayers to another. Currently, residential property owners pay $68 of every $100 of the statewide property tax levy, a share that has grown dramatically over time. In 1970, homeowners paid only $50 of every $100 that a community needed to pay for services. For comparison, homeowners in Minnesota still pay only 50 percent of the property tax levy. Shifting more of the burden on to Wisconsin homeowners is not sustainable.
Assessors are required to assess property for property tax purposes at its fair market value. The best evidence of the fair market value of a property is usually a recent arms-length sale price of that property. There is an odd exception to this rule created by the Wisconsin Supreme Court in a 2008 decision involving a Walgreen’s store. The exception requires assessors to value property that is leased to a single business at half of the recent sale price of that property. For example, Walgreen’s and CVS typically lease their store space. The buildings leased by Walgreen’s and CVS are popular investment properties and typically sell for $4 million to $8 million depending on their location. Yet, these properties are required to be assessed for property tax purposes at $2 million to $4 million. The League of Wisconsin Municipalities and a majority of state legislators think that isn’t fair to other property tax payers. That’s why we are asking the Legislature to end this court created exception.
The property mentioned by Mr. Manley in his column provides an example of how single tenant commercial properties benefit from the Walgreen’s exception. The property is leased by Badger Meter and was recently sold for 37% more than it had been assessed for tax purposes. The property had been assessed at $9.66 million; it sold for $13.3 million. Both the buyer and seller are sophisticated real estate investors with a keen understanding of property value. The property is in the Village of Mount Pleasant, future home of FoxConn. It is a valuable property.
Yet, the renter of the property is complaining that if the Walgreen’s reversal legislation were to pass, the new sale price of the building will cause the property taxes to go up.
Yes, the taxes on that property probably should go up, just as they would for any locally owned main street store, a sixteen-unit apartment building, or a lakefront cottage if recent sales prices of those properties accurately reflect property values in that market segment. That’s what state law ordinarily requires. That’s what’s called uniformity. It’s also called property tax fairness.
We will work with legislators again next session to try to restore common sense and fairness to the property tax assessment process. Maybe next year homeowners will win.
Jerry Deschane is Executive Director, League of Wisconsin Municipalities