County Update: Hanzlick says ‘dark store theory’ rulings by state tax board threaten financial stability

Commissioner Janeé Hanzlick.

Each week we provide a member of the Johnson County Board of County Commissioners the opportunity to share an update on what issues are catching their attention. This week, we have a column from District 4 Commissioner Janeé Hanzlick, whose district includes much of central Overland Park.

Johnson County is a great place to live and raise a family because of the award-winning schools, quality government services, outstanding parks and libraries, and safe neighborhoods. Johnson County is successful, in part, because of the shared responsibility among residential, commercial and retail property owners paying property taxes to support essential infrastructure, public safety, and quality of life services. Unfortunately, recent actions by the Kansas Board of Tax Appeals threaten this balance, and the Johnson County Board of Commissioners is taking appropriate and responsible action to protect residential property owners and the County’s financial stability.

The Board of Commissioners has recently come under criticism for allegedly “ignoring” the potential financial implications of rulings by the Kansas Board of Tax Appeals that reduce the appraised value of big box retail stores – the “dark store” issue. In actuality, most of the Commissioners have been actively discussing and implementing strategic responses to protect residential property owners and county services. The County Commission is fighting for fair appraisals to prevent residents from facing increased property taxes. There are several factors that impact the Commission’s actions.

  • First, the ruling by the Board of Tax Appeals in favor of the big box retailers is not the final judicial decision. Johnson County is appealing the cases to the Court of Appeals and potentially to the Kansas Supreme Court – a process that could take 2-3 years or longer. It would be premature to consider any settlements or to assume that the appeals will be upheld.
  • Second, the appraisal methods on which big box retailers base their appeals do not reflect accepted industry standards. Professional appraisal organizations like the International Association of Appraising Officers and the Appraisal Institute do not consider the “dark store” and “hypothetical lease” appraisal methods to be credible. In some other states facing similar appeals, courts have rejected the validity of dark store and hypothetical lease and they have upheld standard appraisal practices.
  • Third, while the potential financial impact of the current appeals is not insignificant, it is also not insurmountable. Johnson County’s current potential loss is $13 million – an amount that is manageable within the County’s current reserves of $98 million. Cities in Johnson County face potential revenue loss of about $14 million. Education in Johnson County would bear the greatest impact, with over $35 million in potential losses to the school districts and community college.

The greater concern is if the Board of Tax Appeals continues to use the “dark store” and “hypothetical lease” methods, and these methods expand to apply to other classes of commercial property, like offices and warehouses, it will leave residential property owners to make up for the loss. I, and other of my colleagues on the Board of County Commissioners, are committed to fighting for fair appraisals, fair property taxes for homeowners, and the continuing quality of life in Johnson County.