
Big-box retailers are slashing their property taxes through a legal loophole - clumsysmurf
https://www.citylab.com/equity/2018/11/property-tax-dark-store-theory-retail-apocalypse-walmart/574123/
======
cperciva
I wouldn't call this a "loophole"; I'd call it property taxes working exactly
the way they're supposed to work.

I mean, they're _property_ taxes, not _business_ taxes -- isn't it obvious
that they should be based on the value of the property, not based on the
success of the business which uses the property.

~~~
nkurz
Why do you feel that that the "value of the property" should be defined by
what another party is willing buy it for after it has closed rather than than
the amount the current owner is willing to sell it for while it is open? Both
strike me as reasonable positions, and thus a compromise value between the two
seems like it might be most fair.

~~~
Matticus_Rex
My parents love their home. They wouldn't sell it at 30% above market value.
Should their property taxes be based on what it's worth to them, or what it's
worth on the market? What it's worth on the market is a semi-objective
measure, while worth to the owner is highly subjective.

Calculating the tax basis value based on what the owner would sell it for has
numerous problems even outside that subjectivity. It penalizes businesses for
success in a way that promotes looting the company to artificially lower the
business value. Aside from the deadweight loss involved, it artificially
promotes the type of behavior firms like Bain are already criticized for.
Also, it's highly subject to system-gaming. What is the incentive of a firm to
actually accurately value it at what they would sell for while it was open?
The only way it works is to enforce some draconian policy that _requires_ them
to sell if someone ponies the cash (a la Posner and Weyl's proposition in
Radical Markets).

~~~
__jahh
the fa makes the point that what makes a store successful it's location in the
flow of a city's life and so the boarded up ones are going to be least
productive junctions. The property is worth more because it's the property
that is there and NOT the one that is 5 miles further in the under occupied
suburbs.

~~~
Matticus_Rex
Exactly, but the extent that's the case, it's captured in the market value.

------
danielvf
Now there’s plenty of room to argue that the stores are asking for too much
now, but fundamentally the towns have been breaking the law, which is why the
stores are winning the court cases.

“As of 2017, the city had valued that store at $11 million, a number based on
what the property had cost the owner to buy back in 2001, plus the added value
of renovations over the years, adjusted at the going rate of depreciation.”

However, that’s not the way properties are supposed to be valued by state law
- it is supposed to be based on the resale value. And there’s a terrible
market for used big box stores.

~~~
cmiles74
I have to disagree that the town's have been breaking the law. You can
criticize their choice of comparable properties but it doesn't strike me as
illegal or necessarily dishonest. However it seems like maybe we need an
entirely new way to valuate these properties...

When a home is assessed we look at similar houses (similar in size, number of
bathrooms, garage, etc.) These are features that have teal and tangible value
for people in the market for a home. People agree these are valuable things.

It sounds like much of the value of these properties isn't really part of the
properties themselves. Instead we're seeing the value in the I improvements to
the property _around_ the store: what was once empty land now has a four lane
road, electric lines and other utilities constructed solely to support these
stores. Is it fair to turn around and argue that this value isn't enjoyed by
these big box stores?

That seems to be their logic: the Home Depot has value, but not much: it's a
shoddy square box full of shelves. Yet the municipality spent a lot of money
on infrastructure to support this store that they can't afford without these
taxes.

~~~
0xffff2
Surely the resale value of the property takes into account the level of
infrastructure surrounding the property, which would mean that a valuation
based on resale value prices in those improvements at their market value.

~~~
cmiles74
After reading the article, the impression I came away with was that they were
choosing "comparable properties" that were recently re-sold big box sites. It
seems that the municipality's appraisers take the infrastructure around the
site into account whereas the appraisers for the big box stores are not.

~~~
ams6110
Each party's appraiser comes up with a value favorable to its customer? You
don't say!

~~~
cmiles74
I think it's weird in this case that the methodology on each side is so
drastically different. IMHO, the missing piece is clear rules on how to
compare large crappy properties that only warehouse stores are interested
in... Everyone used to agree on methodology but now the large chains are
changing their minds.

Similar to the Amazon HQ2 saga, providing tax breaks to these companies isn't
worth it in the long run; that practice should probably cease.

------
milesvp
There's a simple solution here. You tell me what you think your property is
worth. And I can force you to move out today for that price. This might still
be a loss for the county tax assessors, but it will at least keep these stores
honest. Maybe we even include all the inventory and fixtures in that deal to
keep the companies even more honest, since a competitor can almost turnkey the
operation at that point (though the logistics of resupply can't be
understated).

~~~
WalterBright
I've suggested to the tax assessor that I'd be happy to sell my property to
him at significantly less than the value he assessed it at. He was not amused,
but I did get the assessed value lowered.

I'd vote for a system where the government was obliged to purchase property at
a 25% discount to what they assessed it at, if the owner chooses to sell it.

~~~
sokoloff
I've suggested that before as well. I think the figure should be more like
10-15%, but otherwise agree that keeps a town assessor honest in a more
straightforward manner than the current "appeal to the same board that
originally assessed you too high" tends to.

------
yonran
It sounds like the big box stores themselves are validating the Strong Towns
interpretation that towns have invested far too much public infrastructure
compared to the property value of the big box stores
([https://www.strongtowns.org/journal/2017/11/3/big-box-
stores...](https://www.strongtowns.org/journal/2017/11/3/big-box-stores-are-
costing-our-cities-far-more-than-we-ever-imagined)). Perhaps these towns could
zone every big box store for subdivision and redevelopment so that the stores
will have to pay taxes based on the upzoned value. As an added benefit, the
stores will be encouraged to use the land more productively.

~~~
analog31
Indeed, a possible compromise is that if the property is to be taxed as an
empty store with no customers, then it should be supported by the
infrastructure needed for an empty store with no customers.

~~~
ars
> then it should be supported by the infrastructure needed

What specifically? The store pays for water and electric. The only thing I can
think of that the city supplies is the road network.

And restricting the road network would be a very foolish thing for the city to
do - they would just be harming themself.

~~~
nickpsecurity
Maybe toll roads or an extra tax for these types of properties if they're
active rather than derelict. Price them so that the companies will choose to
pay tax instead.

------
AdrianB1
This american system of paying for city services via property taxes instead of
consumption or equal share is very strange when looking from abroad. If the
city needs policemen, firefighters and teachers, as the article describes,
then the city should split the bill to the number of citizens and not to how
much they can rip off them. The property is not a city investment, so the city
does not deserve any revenue from it. If the city did some investment, that is
a cost to reimburse, of course, but not milking the property.

~~~
sokoloff
If 8 people live in a 1500 ft^2 house and 1 person lives in a 10,000 ft^2
mansion, is the city really providing 8x the value to the former for police
and fire protection?

~~~
ams6110
8 lives to save in the former, if the house is on fire, vs. one to save in the
latter.

~~~
dwild
It's not the cloud that'll save theses 8, there's no on demand scaling for the
fire department. On both situation, there'll be enough staff there to save at
least 8 peoples, thus incurring the same cost. It's probably much quicker too
to secure a 1500 ft house than a 10 000 one. I remember once we got a fire
alarm at my job once and it took quite a bit of time for them to make sure
everything was alright.

------
Paul-ish
This is perhaps another argument in favor of a land value tax. The value
assessment can still be disputed, but at least it is on the unimproved value
of the land.

------
jtlienwis
I live hear in Wisconsin. I tend to side with the big box stores. Lots of
empty space around that indicates their store properties are not that valuable
on the open market. As for the municipalities, they are in way too many things
that they should not be into. Like running the electric and gas utilities,
water utilities etc. Civic centers and so called industrial parks that turn
them into real estate developers. Scores of government employees trying to
attract businesses by handing out freebies to companies that would have come
to their town anyway. Stick to doing street repair and snowplowing and quit
your bitching.

------
MikeGale
If the stores are hurting and channel that into destroying the communities
that support them, something is going to change.

Communities vanish, big stores are destroyed, the old smaller outfits come
back, Amazon takes over, whatever???

~~~
zanny
Nothing comes back. You are left with a husk where anyone still living there
travels dozens of miles to get groceries. Its becoming a legitimate problem
across the country, especially when the population that often chooses to stay
are retirees who often shouldn't even be driving.

------
joe_the_user
It's astounding that you wind-up with stores which seem to intend to give
nothing what-so-ever back to their communities. What is the long term plan
here?

~~~
RA_Fisher
They help distribute low-priced goods. Lower priced goods broaden
accessibility and thus help the poor. If you're not poor or don't interact
with the poor much that might be easy to miss.

~~~
bilbo0s
This can't be reiterated enough.

These store provide a lifeline for a certain segment of the population.
Without these stores, one store in particular, there would be a lot of
instability in society as we transition from a mostly middle class society to
something a bit more bipolar.

Inequality is real, and these kinds of stores go a long way towards making it
tolerable. Now I can't put a dollar value on that, but it has to be worth
something.

~~~
iainmerrick
Are they not also one of the causes of that transition?

~~~
bilbo0s
Not really. Walmart did not make the factories go away for instance.

Now what Walmart _did_ do was to take advantage of the economic detritus left
in flyover country as productivity gains and outsourcing started to eviscerate
the jobs landscape. But Walmart was not the _cause_ so much as they came along
after and capitalized on the ruins.

~~~
throwaway080383
I disagree. It's a cliche at this point that when Wal-Mart enters a town, all
the mom and pop stores close up. The profit margins from distributing these
goods now contributes to $WMT rather than staying in the local economy.

~~~
sokoloff
The presence of Walmart also helps the low-income members of a community by
providing a one-stop shop for low priced, generally acceptable quality goods.

When I graduated from college and had my first job and apartment, a relatively
large amount of my income was spent at the local Walmart. It was a godsend for
me at the time. What I didn't spend at all those too inefficient to compete
mom and pop stores was money that I could use to pay off student loans, rent,
utilities, and still have a little money left over to save up an emergency
fund.

------
amelius
Abusing legal loopholes is very much like hacking, and should therefore be
just as punishable.

~~~
AnthonyMouse
I support your policy proposal of repealing the CFAA.

