Background and Major Points on Real Property Tax Valuation of Retail Operations

Local governments in Michigan are pushing legislation that would dramatically change the valuation approach of Real property. In an effort to disparage large retailers who have legitimately and successfully challenged over-assessments on their Real Property (buildings, land etc.), locals have coined this effort as “dark store” legislation. Their efforts to blame taxpayers (who were over-assessed to begin with) for “cuts to services” sends a bad message to all taxpayers. Every legislative proposal on this issue put forward by local governments to date would impact EVERY taxpayer! 

To date, local officials have advocated major changes to the General Property Tax Act as well severely restricting property rights by eliminating the use of deed restrictions. More current efforts focus on tying the hands of the Michigan Tax Tribunal in hearing cases by mandating that the MTT ignore accepted appraisal principles and valuable appraisal data (HB 5578.) Not only would the cost of appeals increase to taxpayers, but this legislation will likely result in inequitable treatment of properties between taxpayers, which violates Michigan’s constitutional requirement for uniformity among taxpayers. 

Truth Squad

  1. “Dark stores” is just another way of saying vacancy. When valuing properties during the assessment process, assessors and appraisers routinely look to vacant properties for comparison purposes. This is not a “new” concept as local officials contend and whether the property is vacant (or not) is not, in and of itself, indicative of the value. 
  2. The use of deed restrictions is generally the most controversial aspect of this debate. But to prohibit their use is an offense to general property rights. The Michigan Chamber will not defend the indefensible, but as of now, the majority of court cases have come down in favor of taxpayers. Locals are asking you to make assumptions about real estate markets, contract law, and sellers intentions which may or may not result in accurate tax assessments. We strongly caution you against taking this bait. Deed restrictions do not necessarily devalue the property; they are but one variable in what should be looked at in totality of the assessment or sale of a property. 
  3. Local governments have unsuccessfully claimed that the only accurate and fair way to assess large retail operations is to look at the “cost” to rebuild valuation approach. However, any buyer considering the purchase of a building (whether it is retail, industrial, commercial, residential) will very likely have to renovate and overhaul the property due to aesthetics, remediation, or functionally obsolete features. Simply assessing on a value based on the “cost to rebuild identically” ignores the fact that a willing buyer of that specific property would likely be unwilling to pay full price for something that needs significant work. 
  4. Local governments claim that the “value” of the company should be considered (i.e. the fact that it may be profitable, or have a lot of merchandise for sale.) However, that is irrelevant in the valuation of real property! Otherwise that would be considered an income tax, something Michigan already imposes. Worse – this lays bare some of the true motivations of many local governments; over-tax these companies because they are profitable. This mindset is alarming and should be a red flag for every taxpayer in Michigan! 

As it relates to cases before the Michigan Tax Tribunal, valuation evidence is the responsibility of the parties - not the MTT! The MTT exists to hear tax appeals objectively, impartially and without bias. But the proposed legislation (HB 5578) creates bias by setting rigid, suffocating criteria to value property which would ultimately exclude/preclude certain approaches to value. This is a very perilous path to go down – with serious implications for all taxpayers – not just retail job providers.  

Local governments are trying to legitimize their over-assessments and lack of persuasive evidence before the MTT by making scapegoats out of job providers who have successfully challenged their over-assessments and the MTT.

HB 4397 has been introduced and is currently in the first chamber committee. The Michigan Chamber is urging lawmakers to reject this jobs killer. 

For questions on this issue, please contact Dan Papineau at dpapineau@michamber.com or (517) 371-7669.