May 01, 2019 - 2:30pm

A ‘Dark Store’ Grab for State and Local Tax Revenue


Former Executive Director, Congressional and Public Affairs

“Tax Day” – you know, the annual time around which millions of Americans bow to the necessity of filing a federal income tax return – provided the appropriate occasion to once again celebrate the passage of the Tax Cuts and Jobs Act (TCJA), the first fundamental rewrite of the Federal tax code since 1986. Tax bills were lower for most, the tax filing itself was much easier for almost everyone, and the economy was given a bit more freedom to grow, create jobs, and raise wages. Unfortunately, the same principles are not always informing policymakers in revenue-hungry state capitals and city halls around the country. Case in point: the so-called “dark store loophole.”

The debate currently underway in Wisconsin and Michigan, and perhaps coming to a state near you, pits a long-established (since 1893 in Michigan) property taxation principal vs. overzealous local taxing authorities. Often when businesses are targets of over-assessment of their property tax liability, they have won their appeals. In response, local authorities have resorted to this new approach because, given the outcomes, some policymakers are seeking to write new rules.

Taking more tax dollars from local business   

The issue is ultimately a simple one – assessing the value of a business-owned property for tax purposes. The value should be determined by what the property would sell for on the open market, according to generally accepted theory. But absent an actual sale, the value has to be estimated, and there are generally three methods for doing so – comparable sales, cost, and income.  Some taxing authorities want to severely limit, or even eliminate, the comparable sales method.

Suppose a vacant or “dark” property is sold, thus providing a market price. Assuming the property is in its essentials comparable to another local property currently in use, then the market price of the formerly vacant property should be a suitable proxy for the market value of an active property. The issue in determining the value of a property is not what the property is worth to its current occupant, but what it is or would be worth to a new occupant, thus whether the comparable property is vacant or busy as a beehive is and should be irrelevant. It is this observation some tax authorities want to ignore.

As this handy myth/fact sheet from Wisconsin Manufacturers & Commerce (WMC) explains, the proposed reform would increase taxes on local manufactures and small businesses, homeowners, and on retailers. Reform advocates gripe about an unfair revenue shift to homeowners from businesses, but clinical trials reveal otherwise. Over the past decade, the Wisconsin Department of Revenue found a net 2% statewide property tax burden shift in the other direction, from homeowners to businesses. WMC and the Michigan Chamber of Commerce have been rightly fighting these potential revenue grabs in Madison and Lansing, respectively.

Driving away business owners and economic growth

Sometimes the revenue hunters go too far, leading to popular efforts to repeal the tax increases and heaping political peril upon their creators. This was the case recently in Cook County (which includes Chicago), as the author of a countywide beverage tax – since repealed – was walloped in her bid to become Chicago’s next mayor. As the Chicagoland Chamber noted upon repeal of the tax, “Chicagoland businesses and consumers have faced a cumulative impact of new taxes, fees and regulations which have taken their toll. This was the tipping point.”

In Philadelphia, PA, home of the nation’s first “soda” (or is it pop?) tax, a city councilwoman recently introduced a bill that will gradually phase the tax out. As Gene Barr, CEO of the Pennsylvania Chamber of Business & Industry explains:

This duplicative (beverage) tax has shown to be a financial burden for both consumers, who the tax is getting passed onto, and employers. Taxes that single out particular industries drive customers to other areas, which can lead to business closures and a loss of revenue that is difficult to overcome.

Barr should know; he’s been leading efforts in Harrisburg for years to stave off another duplicative tax, this one on Pennsylvania’s robust shale oil and gas industry - a sector that has already generated over $1.7 billion in tax revenue for the Commonwealth. Of course, shale energy production continues to flourish in neighboring states, like Ohio. Capital, much like customers, goes where appreciated.

Looking forward

Tax authorities are commonly on the hunt for new revenue sources, often with little concern or care for the consequences to local businesses and workers.  Just as the switch from Daylight Savings Time and back are supposed to remind us to check our home fire detectors, Tax Day and Election Day provide useful reminders to take stock of where your state stands in terms of pro-growth tax policy. A couple good resources are the Council on State Taxation and the Tax Foundation’s State Tax Policy Center.

If the tax authorities seek to restrict the use of vacant properties for comparable sales estimates, then chances are their view on pro-growth tax policy doesn’t score very high.  Have you elected pro-growth stewards of your state’s taxpayer dollars, who, first, do no (tax) harm, or have you elected individuals always on the lookout to liberate a buck from your wallet?

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About the Author

About the Author

Former Executive Director, Congressional and Public Affairs

Ben Taylor is the former executive director of the U.S. Chamber of Commerce’s Great Lakes Regional Office.