Property Tax Post: Dark Stores, Property Tax and the Changing Face of the Retail Industry, Part One

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The face of the retail landscaping is said to be shifting from brick and mortar to e-commerce, but on-line shopping king may soon resurrect brick and mortar retail establishments because of the comparative ease of selling groceries and large appliances at physical retail locations, according to If this scenario plays out, Amazon may join other big-box retailers like Target or Walmart offering goods and services for sale in a neighborhood near you. As an added benefit, municipalities authorized to collect property taxes can look to retailers to pay their share of property taxes, which will fund local community services like police and fire services, libraries and public schools. It seems like a win-win for everyone, but that may not be the case for some local governments who now find themselves at war with retailers and other built-to-suit commercial establishments over what has been dubbed the “dark store theory” of property tax.

Before we get into the nitty gritty of the dark store theory and why it is fueling this discord, it’s worth exploring the means by which local governments levy taxes upon built-to suit retail or commercial properties. Unlike other tax types, most states authorize local governments, including towns, cities, boroughs, schools districts, fire districts and municipal corporations, to levy property taxes against both real and personal property. Most commonly, taxing authorities will use comparable properties to establish a taxable property’s fair market value, and all or a portion of that value may be subject to property tax. In Wisconsin, for instance, if data on comparable sales is available, “it must be used before any assessment method besides a recent sale of the specific property itself,” as the Milwaukee Journal Sentinel puts it.

Although this process seems fairly straight forward, there is a burning question that has taken the property tax world by storm, and that question is: what kind of comparables are most appropriate to determine the fair market value of operative built-to-suit retail properties? Enter the “dark store theory.”

In a nutshell, the dark story theory of taxation suggests that vacant built-to-suit properties are the best measure of market value for operating built-to-suit properties because they reflect what the value of the property would be if listed for sale in an open market, according to The National Law Review. Proponents of the theory have taken the position that specialized features of build-to-suit commercial properties make them less marketable and imposing property tax based on the value to the current user, i.e., Lowes or Home Depot, will cause the current user to overpay property taxes. Opponents take the position that the “‘assessed value of [built-to-suit property] accurately reflects the value of the highest bidder—the owner—not the value of the second highest bidder,’” according to's Texas Bureau. Nevertheless, the theory has successfully led to significant property tax reductions for big-box retail stores in Michigan and Indiana and is now making its way through Texas and Wisconsin, prompting the League of Wisconsin Municipalities to rally the state legislature to “pass legislation closing off the dark store strategy” as part of the 2017–2018 municipal agenda.

This conundrum facing big-box retailers and local governments seems to be leading to more questions than answers. Coming soon in Part Two: hear from an expert with more details on the dark store theory who can give some insight on both sides of this heated debate.

Continue the discussion on Bloomberg BNA’s State Tax Group on LinkedIn: Have you heard of the dark store theory? What kind of comparable sales do you think best reflect a built-to-suit establishment’s market value, and does market value to the built-to-suit retailer accurately reflect properties’ worth in an open market?

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