Township officials considering appeal in big box stores tax case

MARQUETTE – Marquette Township officials are weighing whether to pursue a Michigan Supreme Court ruling in the wake of a recent appellate court decision siding with big box retailers in their tax valuation methods.

In its 18-page decision issued Tuesday, the Michigan Court of Appeals affirmed previous Michigan Tax Tribunal decisions on cases involving Marquette and Breitung townships.

The tax tribunal had decided in those two cases – and several others involving other big box retailers across the state – that occupied and operating retail stores must be valued as though they are vacant and for sale or so-called “dark stores,” which have been converted to some other use.

That idea was based on examples from southeast Michigan provided by appraisers indicating that when big box stores are sold they are converted to another use, demolished or investors will spend considerable money reconfiguring the space.

The two townships jointly sought relief from the appellate court.

Township attorneys argued the stores should be valued considering existing use, present economic income and the land and structures at the time of tax assessment.

“The tribunal found in favor of the taxpayers in both cases and rejected the townships’ assessments of the subject properties,” the appellate court opinion stated. “Though raised in a variety of ways, the central issue is whether the tribunal improperly valued the owner-occupied properties as vacant and available, rather than occupied. We conclude that the tribunal properly valued the fee simple interest, and we affirm.”

If the ruling stands, local units of government will have to refund thousands of dollars in tax revenue to the big box retailers, which in the court case included the Lowe’s Home Improvement Warehouse in Marquette Township and a Home Depot store in Breitung Township.

“We’re seriously considering appealing that,” Marquette Township Manager Randy Girard said. “We still think we have a solid case.”

Girard said his recommendation to the township board will be to apply for leave to appeal the case to the supreme court, which would decide whether to hear the case. Girard said Friday that Marquette Township officials had not yet discussed the potential appeal with Breitung Township.

He said the townships would seek funding from other affected entities to proceed. Marquette Township has spent about $250,000 on its legal defense of the case so far, Girard said, with a $12,000 contribution from the Marquette County Board. No other entities have contributed funds. Girard estimated a supreme court challenge would cost about $50,000.

Marquette County Administrator Scott Erbisch said county officials are very disappointed with the appellate court ruling.

“It has been our position that there has been a flawed interpretation of the tax law which is improperly lowering the properties values,” Erbisch said. “The concern now is will this interpretation of the tax law be able to be applied to other commercial properties that are not big box stores?”

Girard said unless the high court overturns the appellate court decision, all the affected tax collecting units in the area would have to refund tax revenue to the retail stores for 2012, 2013 and 2014 and then budget for lost revenues in the future.

For the current year, Girard said Marquette Township would have to refund about $74,000 and Marquette County an estimated $150,000. Since the original cases were filed, several additional stores in Marquette Township have sought new tax valuations under the “dark stores” theory, increasing potential tax revenue losses to local governmental units.

“The impact is much greater than the original $600,000 we projected,” Girard said.

Girard said if taxing units cannot absorb the losses, services will likely have to be cut. He said the outcome of the case has statewide impact.

After the tribunal’s ruling, Marquette Township was ordered to pay Lowe’s more than $447,000 in tax revenue and interest for 2010-2012.

State lawmakers representing Marquette County said they were continuing efforts begun in 2013 to find a legislative remedy for the problem.

“I was certainly disappointed to hear of the court of appeals decision … especially because of the profound, adverse economic impact that this expanding and troubling practice that businesses throughout the state are now engaging as it is stripping away precious tax dollars from our local units of government and our schools,” said state Sen. Tom Casperson, R-Escanaba. “I have already consulted legislative policy advisors to begin to work through the court’s opinion to fully understand the rationale behind the decision and determine what course of action we can now take legislatively.”

Casperson said he and state Rep. John Kivela, D-Marquette, “remain committed to finding a legislative solution that ensures that big box stores are not receiving special tax treatment and that they are not able to avoid paying the taxes to essential public services, services (upon) which these very businesses rely.”

Kivela agreed with Casperson that the ruling was disappointing.

“I will continue to work with my colleagues in the Legislature to find a solution as this jeopardizes our local communities and schools,” Kivela said.

Casperson outlined what the legislation he envisions would hope to accomplish.

“Now that the court has ruled, we must recommit to finding an equitable legislative solution to ensure that some legal loophole does not pave the way for these businesses to avoid being treated just like every other hard working taxpayer in the U.P., as our communities and every other hardworking taxpayer is deserving of just that,” Casperson said.

John Pepin can be reached at 906-228-2500, ext. 206.