A state Supreme Court ruling could lead attorneys away from 'dark store' reasoning in pending Sheboygan lawsuits
Alex Garner, Sheboygan Press
Updated 5 min read
The exterior of the Taylor Drive Walmart as seen, Tuesday, August 22, 2022, in Sheboygan, Wis.
SHEBOYGAN COUNTY – Several Walmart lawsuits are pending against Sheboygan County municipalities, but a Wisconsin Supreme Court ruling earlier this year could change how they’re handled and if more will follow.
The company has filed several property assessment disputes against the city of Sheboygan, town of Sheboygan and city of Plymouth since 2017, many of which have been consolidated or are still open. A few have been settled.
Several large retailers, including Walmart, have used the “dark store” theory — which argues big box stores’ property assessments should be treated as similar but vacant properties — to lower property appraisals and taxes in municipalities across Wisconsin. Lowe’s, Menards and Walmart are a few.
The court’s opinion in a case involving Lowe’s Home Centers, LLC, and the city of Delavan rejected the “dark store loophole” as a viable argument for the company to challenge its property assessment.
Jerry Deschane, executive director of the League of Wisconsin Municipalities, said the February decision “stuck a fork in the dark story strategy.”
“We never believed it was a legitimate challenge to assessments, and we think the Wisconsin Supreme Court clarified the law in every way,” Deschane said.
Wisconsin Manufacturers and Commerce filed several amicus briefs in support of retailers using the “dark stores” loophole, including Lowe’s in this case. The organization said changing state law to allow municipalities to assess “occupied” stores at higher values compared to identical but empty stores would be unlawful.
WMC continued that the property should be assessed, not the business occupying it.
WMC spoke to the 2008 Wisconsin Supreme Court decision in part of its amicus brief, which determined assessors can’t factor in rental agreements in property evaluation, as contributing to precedence for assessments. This essentially allowed large businesses renting buildings to claim lower property values.
Lowe's also argued that previous cases, including the one in question in 2008, should be read to say the assessor's evaluation is not always correct in the initial assessment. The court rejected this reasoning, saying that for an evaluation to be determined incorrect, an objector must present sufficient evidence that shows the contrary. The assessment is not presumed inaccurate at the outset.
The recent ruling rejected Lowe’s evidence and large retailers' call for "ever-more expansive readings" of the 2008 decision, according to LWM Legal Counsel Claire Silverman in a February news release.
Are 'dark store' cases over in Sheboygan and the state?
Deschane said property owners still, and should, have the right to challenge appraisals, appealing to higher courts if necessary, but the League anticipates lawyers will stop using the “dark store” theory as the basis for their arguments in the future.
Walmart filed a lawsuit in July challenging the town of Sheboygan’s assessment of its store at 4433 Vanguard Drive, arguing it's valued at no more than $5.8 million compared to the town’s assessment of about $13.5 million. It is the latest of several filings in the past few years.
Town Attorney Michael Bauer could not comment on the pending litigation.
It is yet to be seen if Walmart will use the “dark store” theory in its pending cases against municipalities in Sheboygan County.
Lawsuits cost cities, residents and small businesses
Sheboygan was vocal on the “dark store” issue in the past.
The Common Council urged former Wisconsin Gov. Scott Walker and the state Legislature to pass legislation that would prohibit tax assessors from using a type of “dark store” theory in property assessments in 2017.
The state legislation failed to pass.
The Common Council also added a referendum to the 2019 spring ballot asking Sheboygan residents if the state Legislature should consider passing legislation that would essentially shut down the “dark stores” loophole.
More than 6,100 residents voted in favor and about 750 residents voted in opposition to the state Legislature taking action against the "dark stores" loophole, according to 2019 election results.
The city hasn’t taken any independent action to speak on the issue but has worked with the LWM.
Mayor Ryan Sorenson said the “dark store” challenges don’t deter the city from inviting large retailers into the area, but there is an understanding that property appraisals could be challenged.
The “dark store” challenges do have a large impact on a community, he added.
“It's really a matter of you have these big box stores that are able to afford big corporate attorneys to find different holes in the laws to manipulate and take advantage of,” Sorenson said.
He said the city of Sheboygan has paid out thousands of dollars in appraisal and attorney fees since the lawsuits began in 2017.
If large retailers' assessments are lowered, and thereby their taxes are, too, other small business properties and homeowners could become tax burdened.
When the city added the 2019 referendum, it said Wisconsin homeowners already paid about 68% of property taxes, a higher percentage than neighboring state Minnesota.
Residential property taxes accounted for a little under three-quarters of the equalized property tax levy value for Wisconsin in 2022, according to the Wisconsin Department of Revenue.
“It may take some attorneys a while to get the message that the dark story theory has been debunked,” Deschane said. "Just because the Supreme Court said, ‘We're not buying this,’ didn't make it illegal for an attorney to use that as a strategy."
He continued: “Over time, attorneys are going to see that it's fruitless, there's no point in doing that. But it's not illegal.”
