STATE REP. JENN Hill, D-Marquette. (Kyle Davidson/Michigan Advance)

It’s an issue that has been discussed for years, with previous attempts at a solution falling short, but lawmakers and local officials are hoping to gain passage in the next few weeks of bipartisan legislation to close what is known as the “dark stores” tax loophole.

Used by big box retailers to lower their property tax liability, the scheme allows chains to appeal property taxes assessed by municipalities to the Michigan Tax Tribunal, where they have been successfully able to argue that the vacant stores in their inventory should be factored into the market value of their stores that are up and operating.

A bill sponsored by state Rep. Jenn Hill, D-Marquette, HB 5865 is among a package of bills seeking to close the loophole she says has unfairly deprived local communities of tax dollars needed to provide adequate services.

“It’s forced our leaders to reallocate and reassess vital funding to ensure that we’re able to stay above water and having to cut these programs at our libraries, our schools and in our city programs. We know these programs and services are critical,” Hill said during a virtual press conference Wednesday trying to push the bills to a vote during the Legislature’s lame duck session.

State Rep. Julie Brixie, D-Meridian Township, co-sponsored both Hill’s legislation as well as a companion bill, HB 5868, which was put forward by state Rep. Greg Markkanen, R-Hancock. Brixie is also the sponsor of HB 5866, while HB 5867 is sponsored by state Rep. Mai Xiong, D-Warren.

Brixie argued that using the “dark stores” loophole, a big box retailer like Costco or Menards could build a $20 million facility in a community and then end up being taxed at the same rate as a shuttered Kmart, allowing them to pay less per square foot in taxes than small, family-owned stores.

Furthermore, Brixie said the retailers actively prevent closed stores from being opened by another retailer so they can continue to benefit from the loophole.

“Big box retailers, when they’re closing and leaving town, they place deed restrictions on their stores and sell them and leave the community so that no competitor can come in and reuse their store,” Brixie said. “The deed restrictions on these vacant properties, or very lowly used properties, are a separate problem that create blight, ultimately, in all of our communities because these giant stores are designed for a big box use, and they won’t allow anyone to use them as a big box anymore.”

Retailers have argued that the deed restrictions are needed as the design and layout of their stores are proprietary to their specific brand, and contend that they should be assessed as though the stores are vacant or “dark.”

The Michigan Retailers Association has opposed similar legislation in the past as a “backhanded attempt to discourage taxpayers from appealing their property assessments…(that) would slant the appeal process against taxpayers by pushing the Michigan Tax Tribunal to disregard the concept of True Cash Value, which is defined in the General Property Tax Act as the usual selling price.”

But Brixie said that in addition to the reduced revenue for municipalities, Michigan law allows the tax appeals process to look back three years, which she says leaves local governments on the hook for refunding years of taxes to stores like Meijer or Walmart.

“This can really blow holes in a city’s budget that force them oftentimes to slash public services. It’s difficult to know the exact extent of the problem because communities don’t have the resources to enter into court battles with these big box stores,” Brixie said.

Officials noted that the tax loophole also extended to all kinds of corporate entities, not just retailers.

Shane Peters is the superintendent of Bridgman Schools in Berrien County. He said that in 2022, Indiana Michigan Power Co. filed a tax appeal for their self-assessment, which the tribunal amended for 2023 and 2024.

“The legal fees that we, as entities, were paying were just becoming too costly to continue to fight. Our township did reach a settlement agreement with Indiana Michigan Power Company. It was a 12% reduction in their taxable value, which for us equates to between about a $1.2 and $1.8 million loss of revenue starting in the (20)25 tax year. So between now and June, our board of education has to look at how we reduce staffing and programs between $1.2 and $1.8 million,” Peters said.

Hill said the bill package would prohibit tax assessors from using vacant stores with deed restrictions that limit retail uses when assessing tax liabilities for open and operating stores. It will also require petitioners bringing appeals before the tax tribunal to provide appraisals at the time of filing their appeal, which she says would allow the tribunal to dismiss those appeals that failed to do so.

“We’re going to make them put skin in the game,” Hill said. “It’s really not fair that they can file for an appeal without even having an appraisal, and that puts the local governments really behind in having to then come forward and say that this is not fair.”

Hill said this would ensure that the tax tribunal considers a variety of factors when making their determination, including the actual market value, the supply and demand for the property, potential use cases, and the economic viability of the property location.

While previous attempts to close the loophole have failed, Brixie believes there is momentum on their side to try and push this through.

“The school communities are completely behind us. We have the support of so many groups. We have the Michigan Education Association, the school boards, the school superintendents, all different levels of schools that are supporting the legislation, as well as support from Michigan Municipal League, Michigan Townships Association, and Michigan Association of Counties. So some pretty important stakeholders are supporting this and asking the legislature to resolve the issue and to close the loophole,” Brixie said.

She said she expects to have a hearing in the House Tax Policy Committee during the first week of December.

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