February 16th, 2017
The 85th Legislative Session is now in full swing and lawmakers are hard at work in Austin addressing the important issues facing our state. As your Comptroller, there are some issues I am following particularly closely as they work their way through the Texas Senate and House of Representatives. One such issues that may have a tremendous impact on local taxing jurisdictions and anyone who pays property taxes involves so called “big-box” retailers.
The rise of big-box retailers has dramatically altered the commercial landscape. Consumers have access to lower prices made available by leveraging economies of scale and high sales volumes while smaller retailers face intense pressure to compete.
All across Texas and throughout the country, these massive stores open and close in response to ever changing economic conditions and trends in migration and development. Recently, big-box retailers have mounted a legal argument concerning property taxation that could threaten local budgets and increase the property tax burdens on other businesses or even individual homeowners as cities and counties look to replace lost revenue.
Because they are often built to suit the needs of the original owner, when big-box locations close, they may sit empty for extended periods. The legal argument the retailers are making is known as “dark store theory,” and it states that, whether they are opened or closed, these stores should be appraised and taxed the same – as if they were ALL vacant or “dark.”
Put another way, proponents of “dark store theory” argue that for property tax purposes, an open store actively conducting business is the same as a store that has been shuttered, vacated, and no longer engages in any day to day business activities. The difference between these views can be significant, often amounting to a reduction in property valuation of more than half the original value.
The impacts of this legal argument have already been felt in other states. In Michigan, local taxing units have lost about $100 million in revenue as a result of the dark store appraisal approach forcing lawmakers there to address the issue head on.
And now we are seeing “dark store theory” push into Texas as well.
Texas jurisdictions are facing an increasing number of protests and lawsuits based on “dark store theory.” Dallas, Harris and Williamson counties have all settled dark store disputes. Bexar County estimates locals could lose an estimated $850 million in property tax revenue for the 2015 and 2016 tax years should proponents of the theory be successful.
I see this as an important issue and I anticipate lawmakers will debate “dark store theory” vigorously during the current legislative session. Since it has the potential to impact residential and commercial property owners all over our state, I felt you should be informed.
I will update you as more information becomes available, and if you know of a friend or family member who would enjoy these informative notes, please forward this along. Please let them know they can sign up here to get these updates sent to them directly.
Yours in service,
Glenn Hegar