Homeowners Pay More as Public Companies Contest Property Taxes

 

Across the United States, publicly-held, multi-billion dollar corporations contest local personal property and real estate taxes as they battle municipalities over their share of local taxes. Over the past decade, wins at tax appeal boards and the courts have reduced big-box store assessments by millions of dollars. Electric utility Eversource has withheld half of its tax payments as annual abatements and appeals wend their way through the legal system.

Meanwhile, cities and towns are squeezed by the drop in tax revenue–a difference that is levied to homeowners and small business owners.

Eversource Energy Pays Reduced Tax Bill as Legal Fight Continues

Eversource Energy (ES) is a public utility holding company valued at nearly $30 billion, doing business in Massachusetts, Connecticut, and New Hampshire. For the last 10 years, Eversource has been challenging personal property tax bills on the equipment it owns in 87 communities around the state of Massachusetts. According to a letter sent by the Massachusetts Municipal Association (MMA) and the Massachusetts Collectors and Treasurers Association (MCTA) to Eversource in March 2021, the company owes those municipalities more than $47 million. 

The biggest chunk, $44 million, is owed to the City of Springfield. Meanwhile, Springfield is charging close to $9,500 in interest every day.

In April of 2021, Worcester reached an $8 million settlement with Eversource for several years of unpaid personal property taxes in the interests of “a better working environment for the future”.

Last November, the City Council of Pittsfield denied a request by Eversource for a new utility pole, to be co-owned with Verizon, over unpaid property taxes. Eversource owes the city approximately $4.6 million in back taxes plus interest.

Towns are not immune. Montague is owed nearly $700,000, with daily interest accruing to the tune of $235. At Shelburne’s October 13, 2021, Select Board meeting, a Board member expressed concern over the “non-payment of personal property taxes by Eversource”. 

The letter to Eversource Energy management by the MMA/MCTA points out the utility has not prevailed at any point in its decade-long quest to lower its local tax burden. Further, the authors note the company itself characterizes its pursuit of legal redress in the courts as “futile” in a filing with the Department of Public Utilities.

Why then does Eversource continue its fight against paying its full share of local personal property taxes, even as large fines accrue? According to state law, appeals of personal property taxes require payment of “at least one-half” of the tax bill, giving Eversource a hefty discount as long as the appeals process lasts. Perhaps, as the above-referenced letter suggests, the utility hopes to pressure communities into settling for a reduced amount and, possibly, settlement language that favors the utility in future tax years.    

“Dark Store” Theory Enables Big-Box Retailers to Score Deep Property Tax Discounts

Another phenomenon that has gained momentum nationally over the past decade is the emergence of a “dark store” theory of property valuation used heavily by big-box retailers like Lowes (LOW), Home Depot (HD), Walmart (WMT), and Target (TGT). Repeated tax appeals on these properties have cost many communities millions of dollars in revenue in states such as Michigan and Indiana. According to Bloomberg CityLab, this technique has been utilized by these and other multi-billion dollar corporations in a minimum of 21 states over the past 10 years–including Massachusetts.

Dark Store Theory, Explained

In 2010, Michael Shapiro, a tax attorney from Detroit, blazed the trail for dark store appeals by winning a 50% valuation reduction for the mega-retailer Target Corporation. Shopping center closures during the Great Recession fueled a downward spiral of property values that bolstered the dark store theory. As the economy recovered, big retailers abandoned closed stores, opting to build new ones–a situation that further depressed values.

The essence of dark store theory is the premise that an active, profitable store should be assessed the same as an abandoned store. The closed store, the argument goes, should be the basis for assessment based on comparable real estate sales. Often, these companies ask for a valuation reduction of 50% or more on their operative stores, which are generally assessed at several million dollars. 

Corporate rules are often cited by these retail behemoths who sometimes use both sides of the argument in defense of their position. For example, deed restrictions placed on the properties by the owners limit the sale of the property to buyers that do not compete with the seller. This depresses sale prices, the argument goes, as well as the valuation of active stores with the same restriction. When assessors note this artifice has the effect of lowering sale prices, the big-box owners claim it has little impact on resale values.

Communities Fight Back, but the Problem Still Smolders

While there is nothing wrong with individuals or businesses appealing their tax assessments, dark store theory’s one major weakness is highlighted in a Massachusetts Appellate Tax Board (ATB) case brought by Lowes against the Town of Dartmouth. The Board ruled against the retailer for fiscal years 2012 through 2014 noting that often stores are closed due to poor performance in a certain location or because of corporate downsizing. When the original owner, a first-generation retailer, abandons the store, it becomes a second-generation site and is subsequently inhabited by entities like church groups and flea markets. Often, this situation is due to deed restrictions placed on the property by the original owner or the obsolescence of the abandoned building, making it a poor comparable for a new and profitable retail store. 

Some states have passed legislation to limit the effects of dark store appeals. New York State passed a law in 2020 tightening assessment guidelines and Maine was considering language to require stores over 20,000 square feet to be assessed using their current usage. Michigan, Indiana, North Carolina, and Wisconsin are proposing similar legislation.

A mini-industry has sprung up among those representing big companies in these appeals cases. The Institute for Professionals in Taxation, a non-profit educational association for tax professionals representing business interests in the U.S. and Canada, offers yearly workshops on various tax subjects in collaboration with the American Bar Association. The Institute’s Spring 2021 Advanced Tax Virtual Seminar featured a segment titled, “The Assessors’ Dark Store Conspiracy Theory Revisited…Again” promising to explain “this radical conspiracy theory” and “the role of the IAAO (International Association of Assessing Officers) in the inception and spread of this dramatic deviation from generally accepted appraisal practices.” For 2022, more of the same is on tap, with an agenda item offering updates on this “controversy artificially generated by assessors” and the ability, after attending this lecture, to “push back on the use of this theory in property tax cases” and to “utilize application of this theory to other property types.”

According to a 2018 report by S&P Global Ratings, dark store tax appeals are likely to continue and spread beyond the big box clientele. Hopefully, local governments will prevail in their battles with wealthy corporations because if they do not, it will be the residential taxpayer making up the difference. 

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