Attorneys representing the Manhattan Home Depot store were granted an appeal of 2018 tax valuations based on the controversial hypothetical lease fee value argument – a loophole in the law that allows big box retailers to be appraised as a vacant or “dark store.” It’s the first appeal in which the Kansas Board of Tax Appeals has ruled against Riley County, which now must refund more than $151,000 in taxes and interest for 2018, 2019 and 2020. (Brandon Peoples/KMAN)
The Kansas Board of Tax Appeals ruled in favor this week of the Manhattan Home Depot store on its 2018 appraisal from Riley County.
In its summary judgement, the board ruled Riley County must refund over $150,000 to the home improvement retailer, which appealed its appraisal using the hypothetical lease fee value approach (or dark store theory), which argues big box stores should be valued as vacant. Riley County Appraiser Greg McHenry says it’s the first time the county has lost such an appeal.
“We came away from the hearing thinking it went very well. Our attorney did a great job. We had a fee appraisal done on the property in addition to our value in appraisal. When we got the results back, it’s not what we expected and not what we hoped for,” he said.
In 2018, Riley County valued Home Depot at just over $6.4 million, while attorneys for the retailer argued its value should be $4.07 million, a reduction of 40 percent. The board sided with Home Depot, meaning the county must refund the difference in taxes owed plus interest, which includes taxes applied through 2020.
McHenry says the ripple effect will impact the mill levy, which is divided three ways between the school district (just under 50 percent), the City of Manhattan and Riley County.
“In effect, the school district feels a little more of the burden than the city and the county but in all three cases, a portion of those funds are being refunded, plus interest,” he said.
School district officials commented about the results Wednesday, during its bi-monthly school board meeting. Board member Katrina Lewison says big box retailers are hurting the very taxpayers who support them.
“This should make all of us really angry because essentially the business, these big box stores are getting a huge break, and they’re passing the taxes on to the people and it’s just not good for the community, or the people in our community,” she said.
Assistant Superintendent Eric Reid says because the issue doesn’t generally grab much attention from the public, it may come as a surprise later in the year.
“It’s one of those things if you’re not paying attention and you don’t know why, it’s going to hit you in August when everybody approves their mill levies and they’re going to say why did the city, county and school district do this,” he said. “If we don’t get something done in these next few months of the session, we’re going to be stuck with what we have and be limited in how we do this.”
Two bills in the Kansas Legislature, HB 2402 and SB 222 would eliminate dark store theory as a tool for appraising properties. Neither have moved on to subcommittee review.
Local officials worry the ruling could set a precedent for other future retailers to follow suit. Several other big box stores, including HyVee, Bed Bath & Beyond, Target and the two Walgreens stores are awaiting tax appeal cases, which are backlogged.
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