dark store theory

State Assembly Unanimously Passes Legislation To Combat “Dark Store” Assessment Challenges

Business Real Estate

Bill Would Ensure Assessors Follow Common Sense Guidelines When Utilizing Assessment Methods

The New York State Assembly unanimously passed legislation this week that would establish clear and unambiguous guidelines for assessors to utilize when formulating assessments (A4752-C).

This bill is in response to the proliferation of the use of the “dark store” strategy by businesses, particularly big box retailers in New York. The “dark store” strategy is where commercial property owners challenge their tax assessment by using vacant stores or properties as comparable values; arguing that their value should be aligned with properties that are not in use.  The approach is expected to spread to other states and to include small retail stores, auto parts stores and fast food chains.

This strategy has succeeded in several court challenges throughout New York resulting in a sharp reduction in tax assessments for big box retailers; shifting the tax burden to homeowners.

As competition from online retail continues to grow, brick-and-mortar retailers are seeking ways to cut costs, including appealing property assessments. This strategy could stress the budgets of suburban towns and school districts including Rockland’s that rely on retail to pay the bills at a time when big boxes are closing their doors at an alarming pace.

“When big corporations skirt their taxes through high paid attorneys, homeowners foot the bill,” said Assemblyman Ken Zebroski, who introduced the bill. “The dark store theory threatens our tax base by allowing businesses to exploit the assessment challenge process by comparing the current use of a business to vacant lots. The argument, that vibrant businesses should be valued as if they are closed, is incomprehensible. This bill puts into law guidelines and standards by which assessments should be based; providing courts with common sense direction in valuing properties.”

The legislation would require that properties selected as comparable properties for an assessment must be similar in use, size, location and other characteristics. These standards are currently used by assessors in formulating assessments and by placing in law, will provide guidance for courts evaluating competing assessments.

Lawyers for big box retailers argue that their fully functioning stores should be valued the same as vacant stores when it comes to charging local property taxes. Dark store advocates want a ‘sales comparison’ approach, where a store’s value is determined by examining the selling price of comparable properties

Those amounts are much lower than the values town assessors come up with. Assessors apply a formula that relies on a potential cost per square foot, as if the stores leased the buildings. But assessors know, the stores are not really leased.

Typically stores are valued based on the purchase price of the land plus construction costs, minus any depreciation.

The dark store theory argues that approach doesn’t consider the role of “functional obsolescence” in a big box store’s value.

Assemblyman Ken Zebrowsky, a Democrat from Rockland County, introduced a bill earlier this year at the urging of the New York State Assessors’ Association and the New York State Association of Counties. It does not have a companion bill in the Senate.