Tax case has statewide implications
By JIM ANDERSON
IRON MOUNTAIN – Millions of dollars in tax collections are ultimately at stake as the Michigan Court of Appeals prepares to hear a case involving the Home Depot store in Breitung Township.
Home Depot is among a number of “big box” retailers in Michigan that have gotten their property tax assessments slashed by the Michigan Tax Tribunal. Breitung Township has filed a court appeal against Home Depot’s tax reduction. Oral arguments will be heard by a three-judge panel April 8 in Lansing.
Although the dispute dates back to 2009, any refunds owed to Home Depot are on hold, pending the appeal. The case carries implications statewide and a final resolution may take months or years.
“I would say it has a pretty good chance of being decided in the (Michigan) Supreme Court,” said Joe Rogina, Breitung Township superintendent.
In recent years, Home Depot and other big retailers have appealed assessments to the Tax Tribunal by challenging the “true cash value” of their properties. In most cases, according to the Michigan Association of Counties, a lower assessment is achieved by likening the value of an operating business to that of a closed, abandoned property.
The reduction for Home Depot in Breitung Township amounts to a loss of more than 50 percent in taxable value for the property, which seems to mirror many of the recent tribunal decisions for big box stores throughout the state, said Sid Bray, Dickinson County equalization director.
According to Breitung Township’s assessments, Home Depot’s taxable value for 2009 was $2,923,400; $2,914,629 for 2010; and $2,925,100 for 2011. The Tax Tribunal ruled the 94,984 square-foot home improvement store should have a taxable value of $1,450,000 for 2009; $1,330,000 for 2010; and $1,187,500 for 2011. (Taxable value in Michigan is roughly half of the market value, though it will vary because 1995’s Proposal A placed a cap on annual fluctuations.)
When differences for 2012 and 2013 are included, the loss in tax base for the five-year period amounts to nearly $8.2 million, Bray noted.
At the request of the county’s Board of Commissioners, Bray has informed local taxing units of their possible revenue losses should Home Depot prevail. Countywide, the five-year total (2009-13) is $358,811 in lost revenue, plus any interest that may have to be paid.
The biggest impact is on the Breitung Township School District, which would lose $147,467 in school operating funds from those five years, along with $37,106 in school debt levies.
Other five-year totals include Dickinson County, $50,141; Breitung Township, $33,525; Dickinson-Iron Intermediate School District, $17,470; Bay College, $8,193; Dickinson Library, $7,134; Dickinson Senior Centers and Programs, $3,277; Dickinson-Iron Health Department, $2,983; Dickinson Road Commission, $1,699; and Dickinson 911 Center, $661. Also, the state education tax disputed over the same period is $49,156.
In filing its court appeal, Breitung Township is joined by Marquette Township, which has a similar dispute with home improvement retailer Lowe’s. The cases have been consolidated and both townships are represented by Okemos law firm Fahey Schultz Burzych Rhodes PLC.
Home Depot’s concern is that its Breitung Township property was assessed at a higher rate than its current market value, said Stephen Holmes, director of corporate communications. “We’re simply following the process to vet that out,” Holmes said. “And we certainly respect the township’s right to do the same.”
Home Deport, a Fortune 500 company that reported net earnings of $5.4 billion from more than 2,200 stores in 2013, is represented by Honigman Miller Schwartz and Cohn LLP of Detroit.
Rogina said the township stands by its Home Depot assessment, which has been backed by appraiser Closser Associates Inc. of Marquette. “Basically, any time you have a new theory of appraisal it’s going to be challenged,” he said of the township’s appeal.
While the state might choose to offer tax breaks, Rogina continued, slashing property valuations by equating viable properties with shuttered ones “is not the avenue to do it.”
Local government officials also fear a multiplying effect, as other large-scale property owners could gain reduced assessments. “It has to be fair to everyone,” Rogina said, noting “mom and pop” shops are assessed at their full valuations. “It’s not the way it’s supposed to work.”
Rather than go to court, some downstate municipalities have settled assessment disputes or accepted Tax Tribunal rulings. As a result, taxable values have been significantly lowered for a number of stores, including Meijer, Wal-Mart, Kohl’s, Target, Lowe’s, Home Depot and others.
Rogina said that, to his knowledge, the Breitung/Marquette court appeal is the first to advance this far. To date, about $60,000 has been spent on the case. Dickinson County and the school district have provided a few thousand dollars in assistance and the Michigan Township Association has offered legal advice.
Bray noted the township’s appeal affects everyone.
“Our desire at the county level is to let the public know of the possible future ramifications on local budgets should the appeals court uphold this argument and this trend of large commercial/industrial appeals continues absent any change in legislation,” he said. “The net effect of declining revenues caused by these decisions can affect all taxpayers at some point.”
If the courts decide to uphold the Tax Tribunal opinion, the loss in taxable value cannot be recouped and continues into future years, he added.
A bill introduced last year by State Sen. Tom Casperson, R-Escanaba, and State Rep. John Kivela, D-Marquette, tries to stop the assessment reduction trend. However, it is stalled at the committee level. Among other things, the bill tries to incorporate the current value received from a property into its true cash value.
The Michigan Association of Counties says it is working with legislators to find an equitable and consistent way to value properties so that each business pays its fair share of taxes.
Craig Allen, Breitung schools superintendent, has followed the township’s appeal, attending several meetings of the township board. A ruling favorable to Home Depot would force the district to increase its debt millage slightly to recover the loss in debt service funding.
Meanwhile, the status of the $147,467 in disputed operating revenues from 2009-13 (and possibly more should the matter drag on) is unclear. “We might have to eat that money,” Allen said.
Going forward on the operating levy, the state’s per-pupil “foundation allowance” would offset a reduction in Home Depot’s valuation, he explained. But the responsibility for repaying past operating revenues is unsettled.
Allen, too, said the Tax Tribunal’s practice of granting reduced assessments for big box stores is worrisome. Unlike some downstate communities where numerous stores have closed, commercial property values locally are holding their own, he said.
“Looking at Detroit as being Michigan is not reasonable,” Allen said.
Jim Anderson’s email address is email@example.com.