Dark Store Theory Fight Continues in Kansas City

In Johnson County, officials have decided they’re right about how much their big-box stores actually owe in taxes. Those same stores are working to pay less in property tax, and are using some unique approaches to reduce their tax burdens. The dark store fight has been popping up across the country, most recently in Arkansas. That could save them money, but it could also reduce the revenues available for government services and schools. Unfortunately, the Board of Tax Appeals, the Court of Appeals, and the Kansas Supreme Court have all sided with the big-box stores, and against Johnson County. Still, the county persists in its belief that its way of determining the stores’ taxes is correct.

The county could really end up in trouble if the courts don’t change their rulings because there’s potential for Johnson County to lose upward of $80 million in revenue. The alleged ruling under Kansas law is that commercial real estate can be assessed based on the value of the land and the buildings on it. But Johnson County says that the value of the business should also be factored into the property tax determination. Valuations have risen most sharply for stores like Walmart, where an 85 percent increase took place from 2015 to 2017.

In June of 2019, the Board of Tax Appeals ruled that Johnson County had overvalued Walmart by $60 million, and that’s not the first case the county has lost. Before that, they also lost five other, similar cases where they had used revenue and business value as part of the determination for the amount of property tax the commercial property owners should pay. Attorneys representing Walmart have likened the problem to a person winning the lottery, in the sense that winning doesn’t make the house the person lives in worth more. On the flip side of that, bankruptcy doesn’t make someone’s house worth less in value.

The fight continues in Johnson County, with the county banking on the millions of dollars in revenue it has received from property taxes. If the county is ordered to return those funds or stop collecting them, that could cause serious problems for schools, community services, and the overall operating budget. But it would be a significant victory for holders of commercial property in that county.