Tax board sides with Walmart, says JoCo overcharged millions in property taxes

The Kansas Board of Tax Appeals ruled that Johnson County had overvalued Walmart and thus overcharged it for property taxes. The fallout from the ruling could be massive for local governments.

Early last year, Johnson County Board of County Commissioners Chair Ed Eilert began showing up at the meetings of other local governing bodies to issue a warning: If big box retailers were successful in arguing that their commercial properties had been overvalued by the appraiser’s office, local governments would see tens of millions of property tax revenue disappear.

County Chair Ed Eilert spoke to the Shawnee Mission School Board in February 2018 to warn about the loss of revenue county government and local school districts would see if “dark story theory” were to gain traction.

On Friday, a decision by the Kansas Board of Tax Appeals suggested Eilert’s warnings may be coming true.

In a ruling released last week, the board concluded that Johnson County had overvalued commercial properties owned by Walmart to the tune of $60 million — and thus overcharged the retailer millions in taxes.

The crux of the argument by Walmart and other big box retailers is that Johnson County used an appraisal method that penalized them for running retail operations that resulted in large sales, and that the success of a business run out of a piece of property shouldn’t reflect on the value of the property itself. Critics of the retailers’ argument often call the approach “dark store theory.”

County officials have the option to challenge the ruling, and have already requested that the board provide a more detailed explanation for its summary decision. With so much at stake — an analysis by the county appraiser in 2018 suggested the impact in Johnson County could be $133 million in lost revenue for governments — it’s possible the review and appeals process could stretch out for years and even make its way to the state supreme court.

In the wake of the decision, some county leaders were quick to criticize the board’s ruling and point out that, should the big box retailers’ arguments about valuation for commercial property hold, a huge tax burden would likely be shifted to residential property owners.

“Friday’s ruling by the Kansas Board of Tax Appeals is deeply troubling,” said first term County Commissioner Janeé Hanzlick, who represents District 4. “Retailers such as Target and Walmart benefit from Johnson County’s robust market and the hard work of our residents. They need to be partners in the county’s continuing economic success, and not shift tax responsibility to residential property owners.”

Hanzlick added that she was “alarmed that the decision by the three members of the Kansas Board of Tax Appeals is based on assessment strategies opposed by the International Association of Assessing Officers (IAAO) – the leading authority on appraisal methods,” and that she called “on the Kansas legislature to end the use of the ‘dark store’ appraisal strategy.”

Other members of the board took to social media to comment on the ruling. District 1 Commissioner Becky Fast said on her Facebook page that if the “dark store” appraisal theory holds, it would “have a huge impact upon the county including all #JoCo school districts, cities, and fire districts resulting in a loss of millions of dollars…And if it’s not collected from the large multinational retail companies then who pays for streets, schools, and libraries? All of us that are left, and that means residential property owners.”

Not all members of the board of county commissioners were critical of the ruling, however. Mike Brown, who represents District 6 in southwestern Johnson County, said on his Facebook page he agreed with the board’s ruling, but noted that “it does put the taxing jurisdictions of Johnson County in the position of transferring the heavy tax load on to residential property tax payers” to cover the shortfall.

Brown argued that it was time to look at “cutting the cost of government” to address the revenue loss.

“I’ve been telling County Managers Office staff this was coming for 2 1/2 years so no one is, or can say they are, surprised… they’ve known what was possibly coming and they didn’t prepare. Let the pain begin,” Brown wrote.

In comments sent to the Shawnee Mission Post Monday morning, Brown said that the Walmart decision was likely the start of a cascade of rulings in favor of retailers, and that those rulings will force the county to make hard choices about services.

“The ever-escalating cost of a government that gives people nearly everything they want has been hidden in the cost of every banana, tire and t-shirt bought at a Walmart in Johnson County,” Brown said. “The disingenuous charade of masking from the taxpayer how much government was growing – and costing- is going to be fully exposed as we discuss less dollars to provide services. This situation was created by a select group and it will get much worse as many other subsequent cases will be overruled by [Board of Tax Appeals].”