Commentary: Sinister-sounding dark store theory is corporate welfare


When you’re the state’s tax collector, you quickly learn there’s no end to human creativity when it comes to avoiding taxes.

No one likes paying taxes, including me. But I have a significant problem when large corporations and their lobbyists try to manipulate the tax system to lower their property taxes, especially when hardworking Texans face property tax bills that continue to rise year after year after year.

I’m particularly alarmed by a recent development in the time-honored field of tax dodging, which, if left unchecked, will leave Texas homeowners taking on more of the burden of funding local government. This threat is called dark store theory, and if that has a sinister ring, well, it should: it could shift billions of dollars in cost to homeowners to fund our cities, counties and schools.

Dark store theory primarily concerns the property taxation of “big-box” stores, the giant department stores, hardware sellers and other outlets that dominate so much of today’s brick-and-mortar retail space. In Texas, county appraisal districts usually appraise these retail properties according to their “current highest and best use,” which in practice means appraising them as operating locations. That’s the pattern nationwide as well.

The dark store theory of property valuation, as championed aggressively by many big-box retailers, says these properties should be appraised and valued the same whether they’re operating or not. Yes, you read that correctly — they want all big-box properties appraised for property tax as if they were vacant or “dark.”

Why? Proponents argue these locations are difficult to sell because they have little appeal to subsequent buyers. And it’s true that after a big box store has operated and made profits for some years, they sometimes close and sit vacant for months or years before the building is repurposed or just torn down. The trouble is, the stores claim, these buildings are built for specific retail operations and aren’t easily adaptable to other uses. And the owners, moreover, generally refuse to sell or lease closed locations to their rivals, which is why you’ll never see a closed Lowe’s reopen as a Home Depot.

In other words, due to their own business decisions, big-box companies often build stores that aren’t easy to sell if they close — and as a result, they want all of their properties, open or not, to be appraised as if they were closed. With this tax dodge, large companies are trying to lower their property value to anywhere from half to a quarter of their “current highest and best use” value.

If that sounds crazy, it’s because it is.

If homeowners tried to make similar arguments — that their houses are too “special” to sell easily — they’d get nowhere with their appraisal districts. But the large retailers have tax consultants, lawyers and lobbyists, so they keep pushing and eventually bully their way to lower values and lower taxes, leaving the rest of us to pick up the tab.

The scary part is this “theory” has actually gained some traction in Texas, with recent protests in Dallas, Harris and Williamson counties as well as other areas. A Lowe’s tax protest based on dark store theory in Bexar County has already cost the county at least $300,000 in legal fees. Bexar County estimates protests of this kind could cost its schools alone $850 million for the 2015 and 2016 tax years.

You have to abandon all common sense to take dark store theory seriously. But court decisions don’t always follow common sense.

My office recently did some estimates for the Legislature in connection with a bill that would lock in the “current highest and best use” basis for commercial appraisals. We found extensive acceptance of dark store theory in this state could cost our local governments $2.6 billion annually within five years, including nearly $1.2 billion in lost school property taxes — and rip another $703 million a year away from the Foundation School Program, which provides most state aid for our schools.

So that’s $3.3 billion a year the big boxes would take away from our schools, fire and police departments, parks, libraries, utilities, community colleges and road crews, to ease the pain of their own business decisions. When the burden is shifted to homeowners, it will amount to an increase of $311 annually for every home in Texas.

Right now, lawmakers are grappling with ways to reduce the soaring cost of property taxes on Texas homes. But lawyers and lobbyists for major retail interests are doing their best to ensure your bill goes up.

Dark store theory would slash funding for vital services or shift a large part of the property tax burden to homeowners. There’s no two ways about it.

Let’s call this what it is, folks: Dark store theory is corporate welfare of a particularly ugly kind.

Texas legislators are well aware of the danger here. I hope they take firm action against this outrageous idea.

Glenn Hegar is the Texas Comptroller of Public Accounts.



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