5 Questions with Sarah Austin: A Tax Avoidance Strategy Big Box Retailers Love

September 15, 2022

A white woman with glasses and short brown hair, wering a maroon sweater over a black and white top. She is smiling.
Sarah Austin/Contributed photo

A decade ago, we wrote about the ways Walmart avoids paying billions in property, income and sales taxes, undercutting the very revenue streams it touts as alleged reasons for communities to embrace the retail giant.

It still does all of those things, but this piece will focus on one: Its continued use of challenging the values of its properties to reduce its property tax bill. One way it does this by arguing its stores should be valued the same as an empty building, with lights out. It’s the cynical practice referred to as the “dark store” theory.

But empty buildings don’t make $573 billion in revenue, as Walmart did in its most recent fiscal year.

So groups in Maine, buoyed by excellent investigative journalism, pushed back – and won.

In 2019, the Maine Center for Economic Policy (MECEP) released a report that found Lowe’s, Best Buy, Walgreens and Sam’s Club and most of all Walmart were aggressively working to reduce the assessed value of their properties in the state. At risk were many millions in local community revenues. State. Rep. Ann Matlack introduced legislation to ensure the big box retailers in Maine are assessed the same as other open facilities.  

Earlier this year, that legislation went into law.

The bad news is, Walmart and other big-box retailers continue using this tactic in communities across the United States, exploiting communities without the money to engage in a prolonged and expensive legal battle (when a community denies, the powerful company appeals).

The good news is, communities have the power to stop it when they unite with allies equally opposed to corporations shifting taxes they owe onto other residents and business owners.

I asked Sarah Austin, MECEP’s director of policy and research, about the successful effort and what other communities can learn from it.

Sarah Austin answered my questions from Maine by email. 

Q: How did you learn stores in your state were using the dark store theory? It strikes me it would be so easy for companies to do it quietly, asking for assessments a site at a time.

A: You are right that this is an issue that can easily slip under the radar. While property tax records and abatement request are public, few people ever request to see them. I learned about dark store theory from some great local reporting on this issue. Kate Cough, who was at the Ellsworth American at the time, had reported on the town of Ellsworth’s fight with retailers trying to use this tactic and she began asking other town assessors about their experience with these types of requests and uncovered that many towns were dealing with them.   

Q:  How did you and others involved set about to change the practice? It’s not prohibited now, from what I understand, but it’s much harder.

A: Rather than directly ban the practice, which would have been impossible to do without running afoul of constitutional rules and a taxpayers’ right to appeal, Maine took an approach of codifying the long standing industry practice of assessors — that all three methods of appraisal should be considered to value a property (editor’s note: construction costs, income generated through rent or lease and potential sales price). That gave property tax appeals courts clearer law to go off – box store retailers could no longer argue their property assessment should be lowered based on a narrow view of market value.

Q: What’s the impact of a big-box retailer having their property assessed at a lower rate? Is it reasonable to say, well, that company is creating a lot of jobs and generating a lot of taxes for the community and the space couldn’t be used for anything else so they should pay less in taxes.

A: Dark store theory is not a publicly sanctioned tax incentive program with metrics for job creation. It’s a loophole that box stores have created with the help of lawyers who know that submitting property tax appeals requests is a low effort activity that, spread across a franchise’s many locations, will yield enough success to make it worthwhile. 

Not every appeal succeeds, but for what might be as little as a few hours to fill out an appeal form per store, the stores and the lawyers that represent them can find success in states where the laws aren’t clear and towns don’t have the resources to be tied up in a potentially multi-year dispute over property valuation. This comes at a price to local services and ultimately pushes property taxes costs onto other members of the community when stores succeed with big valuation reductions. 

Q: How can other communities model your effort, if they’re seeing retailers doing the same thing and want it to stop?

A: Reporters are a huge asset in doing the record requests from assessors and bringing the issue to the attention of other community members who likely have no idea it is happening. Assessors were essential in informing the bill that ultimately passed here in Maine to make sure that it didn’t have adverse effects on other property types and that it would actually have the intended effect of making dark store appeals less likely to succeed. And lastly, because many states have constitutional rules governing property taxes, finding a bill sponsor who is willing to be a strong advocate on the issue while also being scrupulous about making sure that the bill passes constitutional muster is a must. In Maine, we have Representative Ann Matlack to thank. 

Q: What do you think we’ll see over the next five years when it comes to companies using this tactic, and will the pandemic (which drove so many people online to shop) factor into it?

A:  I think box stores will continue to do this so long as their numbers game approach of putting in a bunch of appeals is still able to find success. The ways the pandemic has affected box retailers though is such an interesting wrinkle. The basis for dark store theory is that a box store is already obsolete and old technology that no one wants, yet the pandemic has exploded innovation in retail with stores investing in new technology and redesigning space to marry online shopping with brick and mortar stores with the physical location supporting online sales as a way to save on shipping costs. So I think it’s more important than ever to be making sure we are assessing these properties fairly since they clearly aren’t going away.

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