By Ishara Nanayakkara

Retailers are trying to lower the amount of property taxes they owe through a legal strategy called “dark story theory.” Dark store theory is championed by many “big box” stores like Walmart and Meijer, asserting that for tax assessment open, bustling stores are equivalent to ones that failed and closed. This means that during the assessment process, a commercial property should be compared to a shuttered warehouse rather than an open store. Companies justify this approach by arguing that stores are designed in such a specialized way that the property will lose much of its value as soon as the company leaves. They argue that these properties should be appraised according to how the next occupant may use it. 

The result is drastically reduced commercial property taxes. These tax reductions directly impact state and local governments by reducing revenue. Local governments are most heavily affected as property taxes are one of the largest sources of revenue. This tax revenue is used to finance public services such as schools, roads, parks and police and fire departments. Schools will feel the greatest impact because of their heavy reliance on property tax revenue. 

State and local governments view dark store theory as harmful and are taking steps to counter it. Schools in Texas were at risk of losing close to $900 million in 2016. Texas policymakers are discussing a bill that values properties as fully functioning rather than obsolete. Gov. Tony Evers of Wisconsin hopes to “close the dark store loophole” with his budget proposal. Michigan state and local governments have lost roughly $100 million in revenue and been forced to cut funding for road maintenance and employee benefits. 

There also have been legal disputes in several states. A common dispute is whether properties should be valued at the market rent (the expected rental value compared with similar properties) or the contract rent (what the lessee actually pays) of a leased property. 

Court Decisions 

There is no consistent pattern in state supreme court decisions because decisions are based largely on individual state law. Most legislation passed or proposed involves creating guidelines or standards to assess property values. The examples below detail a few key court decisions made in the past 15 years. 


Meijer contested the valuation of a property in Wayne County, claiming it to be functionally obsolete. Meijer argued there was a limited number of buyers due to the size of the property and the availability of other big box properties. The Indiana Board of Tax Revenue rejected this argument. But the Indiana Tax Court reversed the board’s decision, citing insufficient market-based evidence to dispute Meijer’s appraisal.  

Meijer also disputed the government valuation of another property in Marion County (assessed at between $15 and $20 million) claiming the value was between $7 and $11 million. The assessments differed on the appropriate list of comparable properties. The Indiana Board of Tax Revenue approved Meijer’s proposed reductions in value based on a finding that Meijer provided stronger evidence. 


The state supreme court reviewed a court of appeals decision in Johnson County. The lower court had upheld the Kansas Board of Tax Appeals’ decision to lower the assessed value of certain Walmart and Sam’s Club stores. The supreme court overturned the original decision of the  Board of Tax Appeals. 


Menards was valued by the city of Escanaba at $8 million. The company claimed the store was worth approximately $3.3 million. Menards compared the property to eight others in the area. The city objected that these properties were not comparable. Menards also asserted the building was functionally obsolete.  

The Michigan Tax Tribunal found in favor of Menards. But the Michigan Court of Appeals reversed this judgement on a finding that the property was not functionally obsolete.  


Meijer contested an assessment of a new property, arguing its value was $9.5 million rather than $13 million. The Ohio Board of Tax Appeals found the original tax assessment appropriate and the state supreme court affirmed.  

The supreme court described the issue as a “fundamental dispute” over valuation methodologies. The assessors compared the disputed space to similar, new spaces. Meijer claimed the new store did not add much market value since it was not adaptable to the needs of potential buyers. For this reason, they used several abandoned Kmarts for comparison. The courts found the new store was in a “growing and flourishing” location and could not be accurately compared to vacant buildings.  


This dispute involves assessing stores built under contract by third-party developers and then leased by retail stores. Walgreens maintained two locations with 60-year leases which obligated the company—rather than the developer/owner—to pay property taxes. The city of Madison considered Walgreens’ lease payments as a form of income (i.e., “income approach”). Walgreens argued those payments significantly exceeded market value because the lease payments reflected additional expenses associated with the initial sale-lease transaction including construction, land purchase and financing.  

Lower courts decided in the city’s favor, but the Supreme Court of Wisconsin reversed. The court referred to Section 70.32(1) of the Wisconsin Statutes which stated properties should be assessed “in the manner specified in the Wisconsin property assessment manual.” This manual states the assessors should use market rent rather than contract rent. The justices concluded that the power to determine the appropriate methodology for valuing property for taxation purposes lies with the legislature. 

State Legislation Addressing Dark Store Theory 

The table below provides examples of legislation addressing dark store theory. Please note that this is not a comprehensive list. 

State Bill Status Summary 
Indiana Senate Bill 436 Passed 2015 Requires tax assessors to use the “cost approach” (what it would cost the property renter to build the store) in valuing big box stores over 50,000 square feet. 
Indiana House Bill 1290 Passed 2016 Reversed Senate Bill 436 
Michigan House Bill 5578 In Progress Proposes the establishment of detailed standards for the Michigan Tax Tribunal including restrictions on the use of vacant properties as comparables.  
New York Senate Bill S5715A Passed 2021 Established standards by which assessments should be made in order to assist court decision making. This legislation requires that comparable properties be similar in size, usage and location, among other characteristics.  
Texas House Bill 27 In Progress Proposes that for a property to be comparable for assessment, the property must have the “same highest and best use as the subject property.” This limits the use of vacant properties as comparables as these stores are not at their full potential. 
Wisconsin   s. 70.32(3)  Property must be valued using the actual or best information that the assessor can obtain at full value which could ordinarily be obtained at private sale.  

See Also: Shedding Light on Dark Stores 

Recommended Posts