City rejects offer in ‘dark store’ dispute
ESCANABA — At Escanaba’s regular meeting Thursday, council rejected an offer from Menards to settle an ongoing tax battle that began in 2014 when the retailer won a state appeal that significantly lowered its property value.
Menards claimed the store’s value should be based on a closed and empty building — or “dark store” — and the Michigan Tax Tribunal granted the appeal, spurring more local retailers to file appeals to have their property values lowered, too.
As a result of the tax tribunal ruling, Escanaba had to adjust the Menards 2012 property value for its 166,196-square-foot building on 18 acres from $48.43 to $20 a square foot; the 2013 value from $49.54 to $21 a square foot; and the 2014 value from $50.88 to $22 a square foot.
While the city, county, Bay College, public schools, and other agencies were forced to reimburse property taxes to Menards, Escanaba continued to file appeals with the support of other tax-receiving entities despite high legal costs.
Most recently in October, the Michigan Supreme Court denied an appeal from Menards requesting the justices reverse a lower court ruling, which had favored the city earlier this year.
The Michigan Court of Appeals had ruled the state tax tribunal “committed an error of law” in how it re-assessed the value of the local Menards store, which lowered the city’s tax assessment on the property by more than 50 percent.
Following the Michigan Supreme Court’s denial to take on the Menards appeal, the Michigan Court of Appeals remanded the case back to the state tax tribunal to allow the two parties to present more testimony on the Escanaba Menards’ property value.
The Court of Appeals ordered the tribunal to hear more evidence on deed restrictions, which limit what buyers can use vacant stores for, and hear more evidence regarding the cost-less-depreciation-approach, which is one method used to determine property value.
“After allowing the parties the opportunity to present additional testimony in light of the deficiencies identified in this opinion, the tribunal shall make an independent determination of the property’s true cash value using correct legal principles,” stated the Court of Appeals.
Since the Supreme Court’s denial, negotiations have been ongoing between the city and Menards with no real progress, said Escanaba City Manager Patrick Jordan on Thursday afternoon, also noting a similar case with the local Shopko store remains unresolved.
At a closed session during Thursday’s meeting, council members continued to discuss the pending litigation regarding the Menards property value.
Once back in open session, council approved a resolution accepting a recommendation from Jack Van Coevering — a downstate attorney representing the city in the tax tribunal cases — to not accept a recent offer from Menards, explained City Attorney Ralph “B.K.” Peterson following Thursday’s meeting.
Van Coevering has been communicating with Menards’ attorneys to reach a consensus between the two parties to avoid having to go back to the tax tribunal hearings process, said Peterson. The city presented Menards a proposal several weeks ago, which was followed by a “poor counter offer” from Menards, he said.
During Thursday’s closed session, council members discussed Van Coevering’s recommendation to not accept Menards’ recent offer, which council voted on when it went back in open session, explained Peterson.
“In all litigation, there are highs and lows with regard to resolving issues,” he commented, anticipating the next step will be for the city and Menards to each present the tax tribunal with a list of expert witnesses who will testify on behalf of each party.
“It looks like, right now, we’ll go back to the tax tribunal,” Peterson said.
Reflecting on the ongoing issue, when Menards filed and won its initial petitions with the state tax tribunal in 2014, additional local businesses and organizations filed to have the tax tribunal lower their tax assessments based on the “dark store” theory. Some cases were worked out between the property owners and the city.
Escanaba has paid more than $250,000 in legal fees on all of the above cases with financial assistance from local tax entities such as Delta County and Bay College.
State organizations which are backing Escanaba include the Michigan Municipal League, Michigan Townships Association, Michigan Association of School Boards, Michigan School of Business Officials, Michigan Association of Counties, and Michigan Assessors Association.
Escanaba is among several cities in Michigan and other states fighting the “dark store” tax theory that favors “big box” retail stores, as well as smaller businesses which are seeking the same reductions in property values.
State legislators, including Sen. Tom Casperson and Rep. Beau LaFave, have also been working to reform Michigan’s property tax system and do away with the “dark store” tax loophole, which is reducing property taxes that support colleges, schools and other service organizations.
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Jenny Lancour, (906) 786-2021, ext. 143, firstname.lastname@example.org