For a seemingly abstruse issue, the so-called dark-store loophole in state law received a resounding rejection when it was put on the ballot this past November. In referenda held in 23 counties, cities, villages and towns throughout the state, the dark-store loophole was voted down by a majority of the people who showed up to polling places on Tuesday, Nov. 6. On average, 78.65% voters answered “yes” to ballot questions asking if the loophole should be closed. The rejection vote was far bigger in individual places. In Dane County, for instance, 91.79% of voters called for ending the loophole, as did 89.59% in the nearby village of DeForest, 89.5% in Sun Prairie and 87.88% in Glendale.
Since the referenda were all non-binding, they will result in no actual changes to state law, but legislators in Madison are already taking notice. So, then, what exactly is the “dark-store loophole”? To critics, it’s an unfortunate wrinkle in Wisconsin’s tax system that unfairly shifts taxes onto homeowners and non-retail businesses. Rather than via state law, the loophole originated in the Wisconsin Supreme Court’s 2008 decision in the case of Walgreens v. City of Madison.
The case bore directly on how local assessors calculate the property values of retail stores for tax purposes. The Supreme Court found that local assessors should be calculating these values not merely by trying to learn what a particular building might be generating in lease income, or how much it cost to build; instead, they should be taking into account the sales prices of similar properties, even if those properties were vacant, or “dark,” at the time of the sale.
Critics of the loophole argue that it has allowed big retailers to pay far less than their fair share of property taxes. Thriving stores see their tax bills reduced every time a nearby vacant building once used for retail is sold for a fraction of what its value had been when it was a going concern.
Loophole opponents say they aren’t out to pad local governments’ budgets. Since local officials are prohibited by state-imposed caps from raising property taxes beyond a certain amount every year, eliminating the dark-store loophole would not bring in additional money. Groups like the League of Wisconsin Municipalities instead claim they’re merely after fairness. The league has long noted that, when the dark-store loophole lets a retailer like Walgreens lower its tax bill by a certain amount, it’s not as if local governments’ need to collect money diminishes proportionally. Rather than forgo revenue, local officials meet their budgetary needs by turning to other types of taxpayers. Homeowners and smaller businesses find themselves having to pick up the slack.
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Who Pays?
The result is a shift in who pays for local government. The League of Municipalities estimates that homeowners in Wisconsin now shoulder 68% of the total property tax burden. Jerry Deschane, executive director of the League of Wisconsin Municipalities, said such facts should be persuasive in themselves. The recent referenda results merely underline the point for state lawmakers.
That’s not to say it will be easy getting something passed in the Wisconsin Legislature. In the state’s most recent legislative session, strong bipartisan support for bills meant to close the dark-store loophole was not enough. One piece of legislation had 84 legislative sponsors from both sides of the political aisle, yet it was never given a vote on the floor of the state Assembly or Senate.
One of the biggest defenders of the dark-store loophole has been the business lobbying outfit Wisconsin Manufacturers & Commerce (WMC), which spent $407,800 to lobby the state legislature in the first six months of 2017, the most of any such group. Cory Fish, director of tax policy at WMC, said the recent referenda results were far less damaging to WMC’s case than many might believe. For one, Fish said, it’s obvious the ballot questions were phrased in a leading way. In West Milwaukee, for instance, the question put to voters started with the words: “Should the state legislature protect residential property taxpayers by preventing commercial and manufacturing property owners from using tax loopholes that shift an ever-increasing tax burden to homeowners who already pay 68% of the statewide property tax levy…?”
“The referendum results were exactly what you would expect with such biased questions,” Fish said. He also quibbled with the League of Wisconsin Municipalities’ figures. Fish conceded that homeowners do pay about 2/3rds of all property taxes in Wisconsin but said the league fails to note that about 2.5% of the total burden has shifted to businesses in the past 10 years.
All this is not to say Fish and others at WMC don’t think the current system can be improved. On Tuesday, Dec. 11, a legislative study committee released draft proposals calling for a series of reforms that are at least close to something WMC could support, Fish said. Among other things, the legislation would require businesses to furnish more of the sort of information that assessors could use to assess a property according to its income and let municipalities share with counties and schools the cost of defending property assessments that are challenged.
Fish also questioned the League of Wisconsin Municipalities’ advertising tactics. He said the group sent out a letter to municipalities soliciting money that was eventually used to pay for a large online ad campaign. “All of it was taxpayer dollars,” Fish said. But even a heavyweight like WMC might not exercise enough influence to get its way on this issue. Members of both parties, including some of the most conservative Republicans, still favor closing the dark-store loophole, and Governor-elect Tony Evers has said he would sign legislation doing just that.
Brian Sikma—a spokesman for state Sen. Duey Stroebel, a Republican from Saukville—said this coming legislative session could very well be the time when the dark-store loophole is closed forever. Deschane said that he and others at the League of Wisconsin Municipalities similarly like their chances. “Although, with the legislature, you never want to say it’s a slam dunk,” he said. “There are still people putting a lot of energy into trying to say, ‘There’s nothing to see here,’ which defies all common sense.”
