“Dark store theory” has cost Michigan cities millions. It faces new challenges.

In the spring of 2004, a vice president from the Wal-Mart Real Estate Trust signed a development agreement with Houghton city officials that laid out conditions for the retail giant to expand an existing store in the southeast end of town into a Walmart Supercenter.

The city would sell Walmart a half acre; give the company $300,000 to cover the cost of wetland mitigation work, including relocation of Huron Creek; and agree to provide long-term environmental monitoring of the surrounding wetlands and drainage systems.

Walmart, for its part, agreed to a $1[ads1].95 million increase in the taxable value of the property.

Except 13 years later the dealer decided it was paying too much.

Walmart asked the Michigan Tax Tribunal in 2018 to reduce the store’s taxable value to less than $4 million, a decrease of $700,000 that would put the valuation lower than it had been in 2005 when the Walmart Supercenter opened. In 2021, while the case is still pending, it filed a new petition asking for a taxable value of just over $3 million.

It provided a now-familiar and hugely successful argument from big box retailers: that the store was best assessed not as the site of a successful business, but as what it would be worth empty.

The so-called “dark store” argument has saved retail giants hundreds of millions of dollars in Michigan property taxes over the past decade alone. It has cost cities, counties, libraries and fire departments and other local government units the same amount, leading to cuts in staff and services.

It has survived a decade of complaints from municipal leaders, legal challenges and several attempts by lawmakers to address the problem through legislation.

But the Houghton case has a difference from other cases, the signed development agreement that specified a property tax increase, and the case may be a test of the limits of the dark store theory.

The city is not only fighting the reassessment, but has filed a lawsuit against Walmart Real Estate Business Trust in federal court, alleging breach of contract.

“You see this time and time again throughout the state, where these communities with these big box stores, they welcome them into the community, they look to them for jobs and shopping experiences and economic development and they build roads, and they put in water lines and sewer lines, and they do all these things,” said Houghton City Manager Eric Waara. “And then another arm of that company comes in and says, ‘Well, you know, we’re going to exploit this loophole in the Michigan tax code.'”

“It’s wrong,” he said.

Walmart, for its part, said in a statement that it is committed to the Houghton community, but added that “like any property owner, we believe our property should be valued just like anyone else’s. When we get a property tax bill, it should reflect the value of the land, bricks and mortar rather than the value of our business operations.”

Dark store theory

The Dark Store theory was born in part out of the 2008 recession.

Big box stores closed. The massive buildings that housed them had few other obvious uses, and in some cases restrictions on selling the buildings to competitors put in place by the companies themselves reduced the number of potential buyers. They often sold for much less than they had cost to build.

Michigan law allows appraisers to determine the value of a property in three ways: based on replacement cost less depreciation, based on the income a property generates and based on sales of similar properties.

Retailers began to argue that empty store sales were the best indicator of what their properties were worth. The Michigan Tax Tribunal generally agreed.

“What else are you going to use?” said Carl Rashid Jr., a property tax attorney with Dykema who has represented big-box retailers. “These buildings are not being sold while they are open and operating.”

“I certainly can’t fault any assessor for trying to rate these properties at above and below market values,” he added. “I mean, they, they look at it and they say, ‘It costs x million dollars to build these things.’ How can it only be worth so much on resale?’”

But retailers have won cases, arguing that even brand new stores are worth less than they cost to build.

Menards held a grand opening for a new store outside of Kalamazoo in the fall of 2015, complete with a chainsaw cutter, former Detroit Lions players and the brother of the chain’s founder.

But before the store had even opened, the company filed a petition with the Michigan Tax Tribunal, claiming the property, assessed at more than $12 million in 2015 based on land and construction costs, was worth just $5.6 million. The two sides eventually settled on a value just under $7.5 million.

Menards has filed two more petitions since, the latest seeking to reduce the assessed value to $6.75 million.

Menards near Gull Road and North Sprinkle Road in Kalamazoo, Mich. Junfu Han


Menards was at the center of a pivotal lawsuit that addressed the limits of the dark store argument. The retailer submitted a proposal in 2014 to reduce the assessed value of the Escanaba store by about 60 percent for the previous three years.

The tribunal gave Menards most of what it wanted, despite complaints from the city that the company’s appraiser had compared the property to older buildings and buildings with deed restrictions, which the Escanaba store did not have.

But the state appeals court found some of the city’s arguments persuasive. It ordered the tax board to gather more information about how deed restrictions affected price, if it could not find sufficient evidence, to eliminate deed-restricted properties from the analysis. It asked the tribunal to take more account of value calculations based on construction cost minus depreciation.

This time the court came back with values ​​nearly $2 million higher. And about $3 million less than the city’s original assessment.

Menards argued the second time that the store’s building was largely obsolete, that it would have required significant renovations to be used by another retailer.

“And the way they underpinned this obsolescence was with the sale of vacant dark retail properties,” said James McNeil, Escanaba’s city manager and assessor. “So even though [the tribunal] kind of listened to the appellate court and didn’t value the sales comparison approach, they ended up using the sales comparison approach to support the obsolescence of the cost approach, and as a result the dark store theory continued.”

In an unpublished ruling last year, the Court of Appeal upheld the tribunal’s second round of assessments.


These days, most municipalities choose to negotiate rather than wait for a ruling from the Tax Board.

Of the 110 cases brought to court by Walmart and its subsidiaries since 2018, 93 have resulted in lower taxable values, often millions of dollars lower. All but one was a negotiated settlement. Eleven of the 110 cases are ongoing.

Local governments have looked at the tribunal’s previous decisions, said Judy Allen, director of government relations with the Michigan Townships Association. They realize that they are often up against multinational companies.

Many of them “find that it’s better to try to find a settlement than to go through the expensive appeals process and maybe not get any further,” she said.

Michigan State Senator Ed McBroom (R) during a session in Lansing, Michigan on Wednesday, Jan. 11, 2023. (Joel Bissell |

State Senator Ed McBroom represents the western part of the Upper Peninsula, where reviews of dark shops have hit local governments particularly hard.

He has previously proposed legislation that would change the way property taxes are calculated on big box stores, although the bills died in committee.

Now he’s proposing what would essentially be a run around the Michigan Tax Tribunal. Two bills McBroom introduced in January would create “county boards of review,” which would be responsible for reviewing property taxes for commercial and industrial properties valued at $600,000 or more.

Their decisions will be appealable to the circuit courts, not the court.

“There seems to be no one who is happy with the way the court is handling these cases,” McBroom said. “The board does not have the level of expertise, makes inconsistent decisions that sometimes even conflict with other judges on the board, and it just seems clear that these high-value property tax cases are outside the board’s purview.”

Several cities and counties in the Upper Peninsula have passed formal resolutions supporting the law.

The Michigan Retailers Association and the Michigan Chamber of Commerce have opposed the bills.

“Maintaining the state tax court for these cases just makes sense,” said Lead Robinson, the chamber’s director of legislative affairs and executive programming. “They have the expertise in property tax issues, and that avoids a scattered, patchwork approach. Beyond that, moving to a new local system is likely to add burdensome, costly delays that negatively impact both businesses and communities—not to mention inconsistency across the state.”


Houghton city officials have made a point of telling the public what they do for Walmart. Among other things, the shop accounts for close to 10 per cent of the city’s police calls.

They have also made a point of talking about what the city will lose if the reassessment requested by the dealer goes through.

“If the Michigan Tax Tribunal orders their reduced valuation, we have over a million dollars to retroactively pay them back because they’re suing us back to 2018…” Waara said. “The city itself would owe them over $300,000, the school system almost half a million dollars, our local veterans organization, our seniors medical care, our public library, our middle school district, everyone has to pay Walmart back.”

Other states have taken up the issue, he said. Maine and New York have both passed laws in recent years that lay out alternative methods for appraising large commercial properties.

“For some reason,” he said, “Michigan just doesn’t have the guts to do that.”

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