TRAVERSE CITY — Garfield Township Assessor Amy DeHaan said she's skeptical of the arguments store owners make when challenging their taxable values, especially when they try to make a "dark store" claim.

Garfield Township has some properties for which reuse is a challenge, DeHaan said. But others recently were purchased for millions, and national chains are opening and building new stores with tens of thousands of square feet of retail, she said.

Yet some store owners seeking to lower their property's taxable value by pointing to comparable sales of similar properties are making questionable comparisons, she said.

"What they send me when I ask them for some kind of backup for their valuations, what they think it's worth, they always send me closed stores," she said.

One owner of a free-standing retail building wanted to compare their property to those in failing malls downstate, she said.

Store owners statewide successfully challenged their tax assessments by similar means — comparing their buildings to vacant ones, often with deed restrictions that prevent future owners from returning them to their prior use, said Chris Hackbarth, Michigan Municipal League director of state and federal affairs. Such restrictions artificially depress the market for empty stores, he said.

"They self-impose limitations that reduce the highest and best use opportunity for that site, so they've really created a loophole for themselves," he said.

State Sen. Ed McBroom, R-Waucedah, argued letting big-box store owners exploit that when challenging their tax assessments effectively creates a separate set of rules for them versus small retail and homeowners. He's introduced a set of bills that would end the practice.

It can be hard to find comparable properties for large retail buildings as is, said Amy Drumm, Michigan Retailers Association vice president of government affairs.

The advocacy organization opposes the bill, largely because it would effectively eliminate an approach for retail store owners to challenge their tax assessments, Drumm contended.

That could lead to higher assessments for every property owner if that option is closed to them, she said. And she believes these stores in many cases already are over-assessed.

"So when you you set principles at one end, it doesn't really matter what way you do it, it's going to apply to valuations overall," she said.

The "dark store" valuation theory dates to 2010, and store owners have often obtained millions of dollars in reductions to a building's assessment. That saves them hundreds of thousands on their tax bills while denting revenues for local governments, schools and other taxing entities. Court of Appeals judges tackled the practice in what's become a major case for local governments fighting against such appeals.

Appeals court judges in 2016 agreed that Wisconsin-based hardware retailer Menard Inc. cannot claim that deed restrictions for a property's future use don't negatively impact that property's sales price, as the company contended in challenging Escanaba's tax assessment.

Judges wrote that any future owner would necessarily pay less for a building that must be repurposed, and that such deed restrictions limit prospective buyers to those expecting a lower price.

McBroom said that court's ruling leaves an opening for his bills, which would restrict how property owners can use the comparable sales valuation method in tax tribunal cases.

Those restrictions would include barring comparisons to properties with private deed or covenant restrictions that affect the store's "highest and best use" as compared to the property that's the subject of the tax challenge.

The relationship between deed restrictions and sales price isn't so clear-cut, Barr contended. She noted these restrictions vary case by case, and properties with and without such clauses have sold for similar prices before.

Barr called the proposed law changes creative attempts to address local governments' funding and pension liability woes, and not the first.

But McBroom called the claim a "red herring," he said. Changing the law would have no affect on the assessments of properties whose owners don't appeal their valuation, nor would it retroactively affect property owners who have successfully mounted "dark store" challenges.

Nor did McBroom buy the Michigan Retailers Association's argument that the law would violate the state constitution or overly restrict the assessment appeal process, he said. He called it a "blatant unfairness" that the owners of a new store can point to an older, empty and unsold store in an economically depressed area as a comparable property.

"My obligation as a legislator is to make sure that our communities and people are treated fairly, and this is clearly not fair and it needs to be rectified as quickly as possible," he said.

It's also unfair to local governments that pay for the services and infrastructure these stores use, Hackbarth said.

Traverse City commissioners in July agreed to chip in $3,000 to help Escanaba keep up the fight after Appeals Court judges sent Menard Inc's challenge back to the Michigan Tax Tribunal and the state Supreme Court declined to hear an appeal.

City Attorney Lauren Trible-Laucht said she's unaware of any property owners using a "dark store" argument to challenge their assessment. Nor does she think there are many properties in city limits where the owners could make such an argument. But it's still an issue worth resolving, she agreed.

"I think that if you ask pretty much any local unit of government in the whole state of Michigan, you're going to get an answer that they'd like to see it resolved," she said.

DeHaan said she's had some success in arguing against "dark store" assessment challenges, or at least finding agreements for smaller-than-requested reductions. She agreed that Garfield Township, the region's hub for big-box retail, stands to lose a lot if these challenges continue.

"If it doesn't happen, everybody is going to be coming in and saying, 'Hey, our property isn't worth what you say it's worth because you're assessing us as a functioning, operating store when you could be comparing us to that store across town that's closed and isn't selling,'" she said.

The ASSOCIATED PRESS contributed to this report.

City Government Reporter