Rep. Smaltz: The impact of 'dark store' property assessments

Posted by: Zach Weismiller  | Wednesday, February 24, 2016

Property taxes are administered and collected by local governments, and serve as their primary source of funding. These funds are used to pay for a number of services, including police and fire departments, and also the construction and maintenance of buildings.

There are number of ways counties can assess the value of a given property. The common approach of assessing residential homes is by sales comparison, which uses the sale price of similar properties in the same area.  Another way counties can assess property value is by using the cost approach, which is often used to determine the property value of large commercial retail stores of 50,000 square feet or more. This method appraises the property based on what it would cost to build an identical structure on the property.

In some cases, assessors or appraisers may use another approach often called the “dark store” method. Dark stores are empty or unused properties, which include retail, or big-box, stores like Meijer or Kohl’s. These properties are regularly sold at a discounted price or stay on the market longer, so their property value is considerably less than a newer store. If an assessor was to factor dark stores as a part of their property assessments, when determining the value of a newer store, it could result in unfairly reduced property taxes. In other words, when assessments do not reflect the true property value, other taxpayers have to make up the difference by paying more.

For example, in 2014 the Indiana Board of Tax Review (IBTR) ruled that Marion County had over assessed the value of a Meijer store by more than $50 per square foot, meaning that the county should have considered dark stores when making their assessment. This amounted to more than $2 million in property tax refunds. Although this case was specific to Indianapolis, the IBTR decision has had a significant impact on counties all across Indiana. In Auburn, Home Depot is seeking a reduction in their assessed valuation, and if they are successful, it will raise the rates for everyone else. If dark store valuations were to become common in property assessments, homes, farms and rental properties would pay more and counties would lose out on much-needed funds to serve their communities. The IBTR decision could also force assessors to begin lowering assessments on big-box stores to avoid receiving a large amount of appeals.

It is critical that we continue to balance the interests of Hoosier taxpayers and local governments when addressing dark store property assessments. The House of Representatives and Senate have proposed legislation that would consider an alternative approach to the way county assessors value these types of property. As we near the end of session, I hope we can work together to find reasonable solutions to curtail this problem. The tax revenue generated from these properties and others are an important source of funding for many of the services provided by our local governments.

For more information about dark store property assessments or any other issue impacting our community, contact me at (317) 232-9620 or h52@iga.in.gov.

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State Rep. Ben Smaltz serves as the Chairman of the Commerce, Small Business and Economic Development Committee. He also serves on the Public Policy Committee, Roads and Transportation Committee and the Committee on Joint Rules.  Rep. Smaltz represents all of DeKalb County and portions of Steuben and Allen counties.