ELLSWORTH — The State of Maine Property Tax Review Board has denied the city’s request to dismiss an abatement appeal by Walmart, according to documents filed on Jan. 29
That decision could eventually result in city assessors lowering the retailer’s property valuation and cutting its tax bill.
In 2018, lawyers representing Walmart filed an abatement request with the city for the 2017 tax year asking that the property value of the store be cut in half, from $20.1 million to $10 million. The lower assessed value would have halved Walmart’s $361,000 yearly tax bill.
The state board’s denial of the city’s request to dismiss the case, a unanimous 4-0 vote in favor of Walmart, is based largely on a question of timing. When attorneys for the company failed to send City Assessor Larry Gardner an appraisal of the property by an extended deadline, Gardner considered the request for an abatement denied. However, he did not send a written decision to Walmart’s attorneys indicating that was the case. Walmart then appealed to the local appeals board and, finally, to the state.
“Before the hearing, yet to be scheduled, is now this mediation phase,” said Gardner in an email.
The American was unable to reach Walmart for comment before press time.
Ellsworth is not the first municipality in which the company has sought an abatement.
“Ellsworth’s Walmart assessment of $20 million is the second highest valuation in the state, behind Scarborough, according to Walmart,” said Gardner, “Scarborough was at $23 million and has settled on a reduction of 11.7 percent. Bangor was at $19 million and has settled on a reduction of 11.4 percent.”
He continued: “We are not at that point yet of actual percentage figures being suggested, but I imagine somewhere in that ballpark is probably what Walmart will suggest.”
An 11 percent reduction in the company’s annual tax bill in Ellsworth would mean a loss of roughly $43,000 for the city at this year’s tax rate (the company is slated to pay $390,941 in taxes for fiscal year 2020). It would also mean reduced revenue for the city going forward and possible back payments.
The next step will be mediation between the city and the company’s lawyers.
A large company challenging its property assessment isn’t new. But in recent years, many retailers have been basing their challenges on the “dark store” theory of taxation, which asserts in part that big-box retail locations are so specially built that once the businesses leave them, the properties won’t be worth much to anyone else. Basically, attorneys for the retailers argue, the stores are meant to be built and then discarded, not repurposed.
Even if their appeals are ultimately denied, getting a town into mediation or a settlement may be enough to get the value lowered by even a small percentage, which could mean thousands of dollars in yearly savings for the businesses.
Scarborough has faced a nearly identical situation to Ellsworth in recent years, after Walmart attorneys filed a $10-million abatement request in 2017 that would have roughly halved the then-value of the $20-million Walmart Supercenter in the town, according to previous reporting in The American.
Scarborough’s Town Assessor David Bouffard denied the request, a local board of appeals backed him up and Walmart took the case to the state, which ordered Scarborough officials to attend mediation with Walmart’s lawyers. Bouffard said last April that might mean hiring outside legal help, at the expense of taxpayers. Agreeing to an abatement could mean the loss of revenue going forward and reaching back into town coffers to pay back the company. While the case was ongoing, Walmart also filed another request appealing its 2018 taxes, said Bouffard, requesting a $9.1-million reduction.
“It’s kind of hard to deal with that when the other one is still ongoing,” he said.
State lawmakers heard testimony last Thursday on a bill that would prohibit large retailers from employing “dark store” theory.
“This bill is an attempt to head off that strategy of gaming the system by clarifying the valuation law at the state level,” said Rep. Ryan Tipping (D-Orono), who is sponsoring the bill. As the state’s assessment law is written now, he argued, it is “vague” and creates “opportunities for tax avoidance.”
The legislation would apply to retail stores with more than 20,000 square feet. It would add language to the state’s definition of “just value,” which would require assessors to consider the property’s “highest and best use” when determining how much the property should be worth, rather than looking at how much a similar vacant property would sell for.
But at the hearing last Thursday, President of the Maine Retail Association Curtis Picard argued that, rather than being undervalued, “The reality is that retail property is being over-assessed.”
Picard continued: “The reality is that large-format retailers are unique, single-use facilities, which have very few prospective buyers. Unlike most homes, which tend to increase in value over time, these unique facilities are worth less than the cost of construction in the marketplace.”
That’s in part because companies often restrict via deed covenants how the property can be used in the future, including limiting the space “from ever being used by any other business that might even remotely compete with them,” said Gardner last year.
Gardner said in an email this week that the bill is “Better late than never, but even if legislation is passed, it will not stop Walmart from fighting any new law on the grounds that it may be unconstitutional. We have very smart legislators here in Maine. I trust they will consider how our state constitution is grounded.”