In a big loss for Johnson County, the Kansas Board of Tax Appeals ruled Friday that the county had overvalued Walmart and Sam’s Club properties by $60 million, charging them millions too much in taxes.
This is the latest in an ongoing legal battle between Johnson County and large retail stores to determine the proper way to measure the value of commercial real estate. At stake is tens of millions of tax dollars for schools and services. The case is one of a number filed by Target, Home Depot and other big-box stores in the county to challenge their property tax appraisals, which rose sharply from 2015 to 2016.
A final decision could be years away, as appeals could go all the way to the Kansas Supreme Court.
The order Friday was a summary decision, and both sides asked the board for a more detailed explanation. That will be provided in the next few months.
“We know what the answer is, and in 90 days we’ll know how exactly they got to where they are,” said Linda Terrill, the lawyer for Walmart.
Terrill argued that Johnson County used an incorrect appraisal method for 2017 property taxes. They said Johnson County improperly attempted to account for the value of the business as well as the property. This had the result of inflating taxes for successful retail businesses, she argued.
Some critics have denigrated this idea, calling it the “Dark Store” argument. Those critics say it’s false to pretend the stores are shuttered to measure their property value. But Walmart’s lawyer think that’s an unfair characterization.
“If you win the lottery on Monday, your house isn’t suddenly worth more on Tuesday,” Terrill said. “And if you file bankruptcy on Wednesday, your house is still worth exactly the same thing.”
In the Friday decision, the board endorsed Walmart’s suggested method of appraisal.
Paul Welcome, who retired this month as county appraiser, said in a legislative hearing last year that the county reconsidered commercial valuations after one property sold for several million dollars more than the county had expected. He said he commissioned outside studies that led to the change in methods that increased big box retail property values countywide.
Dozens of other large retail stores are also challenging their appraisals in Johnson County with similar arguments as the Walmart case. If the county’s appraisal method is dealt a killing blow in an appeal, it could ripple out to others and ultimately lead to the loss in each case of millions for the county in property taxes.
Jody Hanson, the communications director for Johnson County, said Friday afternoon that officials were still reviewing the board’s decision.
But in February, after the tax board made a similar ruling in favor of Target, Johnson County Commission Chairman Ed Eilert said he was worried.
“Every taxing jurisdiction in the county would be negatively impacted. And it’s a big, big number,” he told The Star then. “And if it’s not collected from that class of property, who pays? All of us that are left, and that means primarily residential property.”