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  I.  INTRODUCTION                                                   446
 II.  BACKGROUND                                                     447
       A. The Collapse of Reatil and the Demise of Brick-and-Mortar
          Shopping                                                   448
       B. The Art of the Deal: Difficulty in Selling Property        450
          1. The Owner Occupied and Buiit-to-Suit Predicament        451
          2. Superadequacy Concerns                                  452
          3. The Prevalence of Deed Restrictions                     453
          4. Long Term Vacancy of Big-Box Stores                     453
       C. Taxation Confusion and the Quest for Fee Simple            454
          1. From the Top: Initial Steps for a Valid Real Estate
             Appraisal                                               454
          2. Keep'em Separated: Fee Simple vs Nest Lease Markets     456
       D. The Generally Accepted Appraisal Methods                   459
          1. The Sales Comparison Approach                           450
          2. The Income Capitalization Approach                      460
          3. The Cost Approach                                       462
III.  THE DARK STORE THEORY                                          463
       A. National Litigation: Different States Take the Dark Store
          Theory to Court                                            465
          1. States that have Adopted the Dark Store Theory          466
          2. States that have Rejected the Dark Store Theory         478
          3. The Michigan Dark Store Theory Odyssey                  470
       B. If you can't Beat'em, Make'em Illegal: Legislative
          Reactions to the Dark Store Theory                         472
       C. So Who's Right?: Dark Store Theory vs Retail Reality       474
          1. Tax Assessor's Perspective on the Dark Store Theory     475
          2. Providing Clarity: Actual Viability of the Dark Store
             Theory                                                  476
      FUTURE OF THE DARK STORE THEORY                                477
       A. Texas Property Tax System                                  478
       B. Texas Case Law: Defining Market Value                      480
       C. Texas' Future with The Dark Store Theory                   482
  V.  CONCLUSION                                                     483


Benjamin Franklin once opined that in this world only two things are certain: death and taxes. (1) While this statement is as true today as it was in the 18th century, Mr. Franklin could not have fathomed the scale of modern-day tax systems throughout the various states. (2) As the states' uses of various forms of taxation continue to grow, perhaps none have seen such drastic expansion as property tax. (3)

The ever-pervasive nature of the states' property tax schemes has led thousands of private property owners to protest their property value yearly. (4) This trend is not limited to the proverbial Mr. and Mrs. Woodward protesting the value of their quaint, 3-bed, 3-bath suburban home; large-scale national retailers like Lowe's and Walmart are joining the ranks of property owners dissatisfied with their yearly ad valorem property tax liabilities. (5)

Currently, owners of functioning big-box retail stores around the nation are protesting their property tax assessments by utilizing vacant big-box buildings as comparable properties, a strategy that media outlets and appraisal districts label the "Dark Store Theory." (6) Although met with ample vilification, the continued demise of traditional retail and consumer spending habits has strengthened the Dark Store Theory's increased prevalence. (7) As a result, many states are taking the purveyors of the Dark Store Theory to court or attempting to pass legislation to ban its practice altogether. (8)

This comment discusses the mounting national debate regarding the Dark Store Theory's applicability in real estate appraisal and the subsequent challenges brought by appraisal districts, first taking a bird's-eye view of the theory in general, then specifically addressing Texas' reception of the theory, a state with one of the largest property tax systems. Part II describes the current condition of brick-and-mortar retail in the United States, narrowing in on the unique plight of big-box retailers and explaining several real estate appraisal basics. (9) Part III introduces and discusses the Dark Store Theory, highlighting the national litigation and legislative response to the theory, and ultimately recommends that the theory coincide with generally accepted appraisal methods. (10) Finally, Part IV focuses on Texas, detailing the scale of the Texas property tax system, analyzing various cases pertaining to real estate appraisal, and discussing how without legislative action, the Dark Store Theory should be seen as a viable appraisal strategy. (11)


In 1962, big-box retail was born. (12) Although the exact amount of square footage needed to be dubbed a "big-box" is not definite, this industry term typically refers to freestanding buildings containing a single retail tenant, ranging from 20,000 to 200,000 square feet. (13) That year, K-Mart, Target, and Walmart opened their first large retail stores and grew to provide a broad selection of discount goods to a growing suburban population. (14) During the early 1990s, a strong stock market and a large housing boom fueled these retailers' expansion from the suburbs and into small towns. (15) Accordingly, from the mid-1990s until the mid-2000s, big-box retail stores expanded across the United States; retailers added hundreds of locations yearly. (17) Year after year, the property value of these stores such as Lowe's, Home Depot, Target, and Walmart supplied localities with hundreds of millions of dollars in revenue derived from property taxes. (17) In turn, local governments used that revenue to finance community services such as road maintenance, fire and police departments, schools, parks, utilities, libraries, and community colleges. (18)

The current state of retail in the United States, however, has thrown a wrench into business as usual when it comes to the taxation of big-box retail space. (19) Where the status quo of big-box stores for over twenty years has been a mode of rapid expansion, recent and drastic declines in the traditional retail marketplace have left retailers searching for a "facelift." (20)

A. The Collapse of Retail and the Demise of Brick-and-Mortar Shopping

Despite the recent decline of traditional retail marketplaces, the United States' historic, and unprecedented, construction of big-box retail spaces over the past three decades led to a glut of these particular stores across the nation. (21) When the Great Recession began, it sparked the accelerated closure of retailers at a rate never seen before. (22) In the aftermath of this economic turmoil, big-box department stores remain among the most at-risk of all retailers to go bankrupt. (23) While the cause of the retail collapse provokes much discussion, analysts generally suggest that an overall change in consumer spending habits and the rise of online shopping paved the way for the demise of these businesses. (24) Urban Outfitters CEO Richard Hayne pointed out that "retailers built too many stores as internet shopping took off and are now witnessing a trend of doors shuttering and rents withdrawing. (25) Amazon's North American sales alone have quintupled from 2010 to 2016 as consumers begin to stray away from the "glitzy showrooms" of traditional brick-and-mortar stores. (26) If the trend continues on its current trajectory, the competitive force of e-commerce alone is expected to spur the closure of 20 to 25 percent of all malls over the next five years. (27)

Other large retailers share the same fate of American malls. As more and more retailers close their doors (or go "dark"), the number of vacant big-box stores continues to mount. (28) The changes to commerce over the past decade compelled big-box retailers, for the first time, to make tough decisions about downsizing their real estate portfolios. (29) Prior to 2008 and 2009, the sale of big-box retail stores was uncommon, but after that time period, there have been hundreds." Where these stores "once may have been superstores, category killers, or simply the biggest store around[,]... now they are just empty. (31) The remaining vacant spaces are utilized for nontraditional uses. (32) In addition to being demolished, one national trend is to reuse the old bigbox sites for a variety of services, such as gymnasiums, auditoriums, classrooms, churches, call centers, and municipality offices. (33) Occasionally, the mammoth vacancy left by these empty spaces is divided up and occupied by multiple off-price retailers at once. (34)

This phenomenon is not limited to retailers situated in large, metropolitan areas; small towns are feeling the effect of big-box stores' reconfiguration. (35) For example, Accenture contracted a K-Mart that had laid vacant for years in the small east Texas town of Athens (population approximately 13,000) to house a Texas Health and Human Services Department call center. (36) In an attempt to find suitable reuses for vacant big-box properties, brokers and developers have resorted to filling the space with these various alternatives rather than to national retailers, such as Lowe's, Walmart, and Target. (37) Reusing and dividing old big-boxes to accommodate various users "can be an economical way to get a store in a good[...]area" due to the hardship in finding a suitable tenant to fill the entirety of the retail space. (38)

B. The Art of the Deal: Difficulty in Selling the Property

The national trend of reusing the big-box retail space to house various alternative uses is less of a strategy as it is a necessity. (39) Although there may be some exceptions, these properties are generally located in areas of high economic activity, and the desire to maintain this productivity is high. (40) So naturally, if a big-box store shutters its doors, county tax assessors conclude that they must be vacant because they are in distress, are in bad locations, or must have lost market favor for some reason, otherwise, they would have never gone dark. (41) While this is certainly the case for some store closures, there are also situations in which the retailers just moved down the street into a newer model. (42) Additionally, while "[i]t's always possible to fill a big box with another big-box style retailer[,]... many well-known big-box players aren't interested in an existing property." (43) The reason behind this disinterest is nuanced and not as simple as throwing a new coat of paint on the building, changing the locks, hoisting up a new business sign, and making it work. (44)

1. The Owner-Occupied and Built-To-Suit Predicament

One important obstacle to the sale of big-box properties is that most of the stores are owner-occupied. (45) A property that is owner-occupied means, by way of example, that a Walmart store property is owned by Walmart; a Lowe's store property is owned by Lowe's. (46) Additionally, only four to five real users of these vacant big-box stores exist: Walmart, Target, Lowe's, Home Depot, and Costco. (47) Because each one of these retailers' use of the actual big-box building is specific to the individual retailer, each prefers to build its own, new store rather than take someone else's box and try to retrofit it for its footprint. (48)

The build of the physical structure and outward appearance of these national retailers is just as much a part of their identity as the goods they sell. This idea, known as Build-to-Suit, constitutes a construction or alteration of a property to the specifications of the property owner or tenant. (50) These bigbox "properties are never built speculatively and then placed on the market for either sale or rent." (51) Rather, they are custom built to suit the needs of a particular entity. (52) With every retailer comes a very specific design for their racking and in-store layout; (53)

For instance, Walmart and Target devote a large portion of their store space to groceries, and the store must facilitate the requisite plumbing and electrical wiring. (54) Many details go into how the buildings are specifically engineered for each individual retailer, and beyond those four or five largescale retailers, there is a massive drop in utility for buildings that are the size of these big-boxes. (55) "The fact that [these big-box stores] are never built speculatively indicates they are not one-size-fits-all" and shows the difficulty in selling the property from one large-scale retailer to the next. (56)

2. Superadequacy Concerns

In a similar vein, the concept of "superadequacy" shows how these build-to-suit big-box properties have difficulty selling in the marketplace; (57) Depreciation is made up of three components: physical deterioration, functional obsolescence, and economic obsolescence. (58) Big-boxes tend to suffer from both functional and economic obsolescence, and superadequacy usually causes this obsolescence. (59) Real estate appraiser David Lennhoff presents an analogous example of this concept in the resale of a custom home. (60) In his example, a homeowner decided that he wanted to build a racquetball court in his house, and at great expense he built it. (61) This homeowner loved the racquetball court, and it fit his need perfectly. (62) But when the homeowner finally decided to sell his house, he realized that the market would not compensate him for the money he spent on the racquetball court; it was the superadequacy--or add-on--that the market did not value. (63) To summarize the concept of superadequacy, stores end up being so large that the market hosts no demand for a space that big. (64)

3. The Prevalence of Deed Restrictions

The restrictions that sellers place on a property upon sale also plague the real estate.'- An apparent logical solution to the shuttered big-box epidemic would be for one big-box retailer to purchase a vacant big-box store instead of building a new one in the same town. (66) However, most national retailers are banned from doing so." In an attempt to prohibit a rival company from using one of their former stores, several big-box chains have used deed restrictions to ensure that their competitors cannot legally acquire the property once they vacate the premise. (68) These restrictions typically last decades and ultimately inhibit efforts to find buyers. (69)

4. Long-Term Vacancy of Big-Box Stores

As a result of these sale hindrances, shuttered big-box stores often lay vacant for extended periods of time. (70) Vacancy rates for big-box properties are unprecedented relative to the normal expectations across the retail landscape. (71) Further, local officials across the United States see these vacant stores as problems for their municipalities and are avidly enacting ordinances to abate the development of new big-box stores. (72) The catalyst for this disdain of these vacant buildings stems from the many negative externalities on communities these empty stores inflict, including, among other things, reduced property values, decrease in social capital, and loss of tax revenue. (73) Even when secondary users occupy the big-box space, their tenancy is often shortlived and rarely brings in the same economic productivity as the property's original tenant, thus perpetuating the problems stemming from vacant bigboxes. (74) Whenever a national retailer leaves their former big-box home, finding a profitable new tenant for the vacant building is not a simple enterprise. (75)

Big-box vacancy has become such an important issue because the realworld sale prices of these stores show that the actual market value of these properties is significantly less than what the retailer originally spent to build them. (76) Sales prices are in the range of $25 to $40 a square foot, whereas construction costs can be multiples of that. (77) For example, a Lowes's might have cost $10 million to build, but its resale value might be worth just $3.5 million once it has become a shuttered big-box store. (78) These plummeting prices have several ramifications, and the realm of property taxation is no exception. (79)

C. Taxation Confusion and the Quest for Fee Simple

Before analyzing the impact the current status of big-box stores has on property taxes, it is important to first understand the basics of real estate appraisal, the duties and activities of appraisal districts across the nation, and what exactly a commercial appraisal entails. (80) Surprisingly, the most common errors in valuing big-box retail properties stem from a misunderstanding of appraisal fundamentals. (81)

1. From the Top: Initial Steps for a Valid Real Estate Appraisal

In its most basic form, the task of property tax evaluation is to determine the most competent data to ascertain the land and building's market value if it were to sell on January 1 of that year. (82) To determine this value specifically for yearly ad valorem property taxation, many states utilize appraisal districts and tax assessors to levy and collect local taxes. (83) Once collected, the property tax proceeds are used to finance various enterprises, including, among other things, schools, road maintenance, parks, and police departments. (84)

The first step for an appraisal district is to determine the highest and best use of the property. (85) Invariably, this involves valuing "the land as though it were vacant and the property as it is improved." (86) For a use to qualify as a property's highest and best use, it must be legally permissible, financially feasible, physically possible, and maximally productive. (87) A property's highest and best use is finally chosen from various alternative uses to determine its most profitable use that would result in the maximum value of the property. (88)

Once a property's highest and best use is calculated, the appraiser then determines market value. (89) Analyzing the numerous appraisal districts across the nation displays that a majority of states levy property taxes according to a fee simple market valuation. (90) Market value, as commonly defined, is the price that a property should be worth in an open and competitive market under conditions necessary for a fair sale, with both the buyer and seller acting knowledgeably and prudently and assuming the property value is not affected by outside stimulus. (91) Essentially, the sale of property must have been an arm's length transaction for the final sale price to represent the true market value of the property. (92)

Fee simple, on the other hand, continues to be misapplied or mis-defined. (93) A very rudimentary definition of fee simple is that it is "the most comprehensive estate in land....'IPJerpetual." (94) However, the Dictionary of Appraisal of Real Estate provides a very clear, workable explanation of what fee simple entails in the realm of property tax evaluation: "Absolute ownership unencumbered by any other interest or estate, subject to only the limitations imposed by the governmental powers of taxation, eminent domain, police power, and escheat." (95) Corresponding with these various definitions, case law from multiple states continues to clarify the parameters of fee simple and what sticks should be included in a complete bundle, specifically within the context of leased commercial properties. (96) Typically, when analyzing big-box retail, this core bundle of rights consists of the rights to: occupy the property, mortgage an interest, sell an interest, and to give away an interest. (97)

2. Keep'em Separated: Fee Simple vs. Net Lease Markets

Distilling these principles down to the context of real estate transactions provides a picture of a fee simple market, which involves the sale of the land, the building, and nothing else. (98) As a general understanding, when the fee simple interest of a leased, income-producing property is valued, there is a presumption that the property is available to be leased at markets rates. (99) Any lease on the overlying property should be incorporated into the fee estate and restored to its corresponding market value. A lease should never increase real property's market value of its fee simple estate; any value that exceeds a fee simple estate is attributable and directly linked to that particular lease agreement. (100) Any lease that does not represent an arm's length transaction often does not present a reliable proof of market rent, and such a transaction should likewise be eliminated as a viable comparable. (101) In sum, the fee simple market lines up with fundamental appraisal guidelines by valuing the entirety of a property at its unencumbered, fee simple market value. (102)

However, another market exists called the net lease market. (103) For various reasons, it is often more advantageous for large-scale commercial tenants--like Home Depot or Walgreens--to lease the property rather than own it. (104) This is achieved with a "build-to-suit sale/leaseback." (105) With this particular arrangement, a national creditworthy tenant--like Walmart--buys a site and builds a custom big-box building, sells the property, and then subsequently enters into a long-term lease (often twenty years) on that particular property. (106) Recognizing how a sale/leaseback agreement develops, however, shows that this arrangement fails to represent the fee simple market value. Subsequent purchases by investors depict only the attractiveness of the lease--terms, rental amounts, and tenant--not how the market would otherwise value the fee interest of the real estate. (107) Investors ultimately benefit from the above-market value of the big-box retailer lease by ensuring the likelihood of a profitable return on their investment and acting as an outside stimuli to the property's value. (108) So at its core, the net lease market exists outside the realm of the natural marketplace and represents an investor-driven distortion of true market value. (109)

The existence of these two separate markets introduces a problem with commercial big-box property appraisal, and, more specifically, with understanding the context surrounding the given real estate valuation. (110) When the appraisal is for purchase price purposes, the valuation involves an opinion of what an informed purchaser would be willing to pay for the lease-encumbered property. (111) However, appraisal for tax or condemnation purposes generally requires an opinion of the fee interest's market value. (112) This divergence in assessment goals helps show the difference between the appraisal concepts market value and value in use. (113) Market value, defined above, examines how much an informed buyer would pay for the specific property if it had been on the market for a regular period of time and calls for the assumption of a willing seller and a transaction. (114) On the other hand, value in use analyzes the current use, regardless of the highest and best use of a property. (115) Usually a custom-built property will have a higher value in use than market value, which makes sense due to the specifically tailored nature of these buildings. (116) Confusion of these terms leads to a flawed application of fundamental appraisal concepts, ultimately compromising the credibility of property assessment. (117)

D. The Generally Accepted Appraisal Methods

When attempting to determine the market value estimate of a big-box property's fee interest, each of the three traditional valuation approaches are applicable: the sales comparison approach, the income capitalization approach, and the cost approach. (118) The utility of any particular approach relies on the availability of data, legal rules, and the specific regulations of a particular jurisdiction. (119) Understanding how and when to appropriately utilize these methods in the big-box real estate market is essential to obtaining an accurate valuation of fee simple. (120)

1. The Sales Comparison Approach

In calculating a property's market value, an appraiser's goal is to determine the most probable price the particular property would sell for under specified conditions. (121) Accordingly, when market value is sought, sales comparison becomes a favorable valuation approach. (122) The key to precise application is the recognition of comparables that match the components of the value being sought. (123) An appropriate sales comparison will look at properties that share, among other things, arm's length market transactions, sales that are close in time, the geographic relevance of the sales, and similar property rights. (124) So when specifically valuing a big-box store's fee simple interest by this approach, fitting comparables are similar properties sold at their fee simple interest. (125) It follows that the optimal comparable sales would be sales of empty big-box properties. (126)

Using vacant big-box stores as comparables to appraise an occupied store provides appraisers with the most competent data when determining the appropriate market value of fee simple. (127) By comparing big-box properties to similar properties that are vacant and available, and making various adjustments to compensate for the differences between the two properties, appraisers are best equipped to determine a property's true market value as if it were sold in a private transaction. (128)

Occasionally, net lease transactions are the only available comparable sales of big-box properties. (129) Under these circumstances, in order to find appropriate comparable data, appraisers sometimes have to utilize sales springing from the second-generation usage of these properties--for instance, the reuse of a Walgreens as a call center. (130) If these were not distress sales (131) and share the identical highest and best use, then they will be considered "credible evidence of the subject [property's] market value." (132) However, using these sale/leaseback transactions as comparables would provide an unreliable indication of fee simple market value due to its inflated market sale price. (133) Because sale/leaseback transactions are generally financing transactions and between related parties, a price paid for the sale/leaseback comparable is typically established upon a financial transaction and is not indicative of its fee simple value. (134)

2. The Income Capitalization Approach

Income-producing property is generally purchased as an investment, and the real estate's earning power, from an investor's point of view, becomes the crucial element affecting property value. (135) The income capitalization approach--or income approach--serves "as a valuation method that explicitly incoiporates the income generating potential of the property." (136) While the majority of big-box real estate is owner-occupied, many are leased. (137) To utilize this approach correctly, appraisers collect data regarding its three major ingredients: operating expenses, potential gross income, and overall capitalization rate. (138)

The first step is to determine the property's market rent. (139) Historically, the measurement of market rent is the most contested issue in tax assessment litigation involving the valuation of a big-box store's fee simple interest via the income approach. (140) With big-box stores, it is important to utilize the market rent in assessing a value and not the rent from build-to-suit arrangements, where lease payments generally include some form of profit and financing terms. (141) Unfortunately, many of the leases available in the potential data pool are based on a particular rate that has been inflated by the original tenant's custom-construction specifications. (142) Despite this issue, an appraiser can determine a property's market rent rate if he established the property's applicable percentage rent and typical sale value. (143)

Since determining the operating expenses is generally not a problem, the next step is determining an overall capitalization rate. (144) Although there are several different factors to consider, the preferred method for developing a capitalization rate is derived from comparable sales. (145) However, much like the problem encountered when utilizing the sales comparison approach, transaction prices for occupied big-box properties are established on "the inplace lease to the original tenant and the rent being paid by that tenant, which is a function of the build-to-suit cost of construction." (146) Extracting a capitalization rate from these sales would provide a much lower-than-normal rate and would be inappropriate to use in formulating an opinion as to the fee interest's market value. (147)

Despite these obstacles, the income capitalization approach aids in solving the big-box property appraisal problem. (148) Big-box stores, however, are an interesting breed of building; the modern-day danger of closure makes their acquisition a risky venture for any would-be purchaser. (149) These stores can often lay vacant for years once their original tenant vacates, decreasing the likelihood that a purchaser would get a return on their investment. (150) Addressing the risk, capitalization rates generally become increasingly higher for big-box retail space. (151) The best application of this approach is to carefully analyze second-generation lease sales and extract their overall capitalization rates in order to obtain a firmer grasp on fee interest's market value. (152)

3. The Cost Approach

Utilizing the cost approach is appropriate when the improvements on the property serve as the highest and best use of the land. (153) Under this approach, the fee simple value is calculated by adding the cost of improvements to the land value, minus depreciation. (154) The cost approach has three components, which can each be supported by solid market data: depreciation, cost new (construction costs to either replace or reproduce the building), and site value. (155) When it comes to custom-built properties, depreciation becomes difficult to calculate as these properties almost always have specific features that the market will not be willing to pay for. (156) The cost approach does not seek to calculate how much the entity for which a build-to-suit property was built would be willing to pay for the property, but it aims to ascertain the amount that the market is willing to pay. (157)

Despite the cost approach's widespread utilization, real estate appraisers agree that this approach is ill-suited in the valuation of big-box stores because of issues surrounding the quantification of overall depreciation. (158) Since the income capitalization approach requires all depreciation to be deducted from replacement costs, appraisers typically utilize the data obtained through the income or sale's comparison approach to quantify functional and economic obsolescence. (159)

With these appraisal techniques in hand, various taxpayers battle against the myriad of appraisal districts across the nation in an attempt to lower their property tax burden. (160) Over the past decade, however, this age-old fight between property owners and the state took a turn, heightening the stakes in determining the value of big-box stores. (161) The next part will highlight this new fight and discuss the viability of a new strategy utilized by big-box retailers called the Dark Store Theory.


Utilizing the three generally accepted appraisal methods, appraisal districts throughout the United States attempt to calculate the market value of the various properties located within their taxing districts. (162) However, the duties of tax appraisers have become increasingly difficult in the valuation of big-box retailers. (163) Despite the decades-long existence of big-box stores, retailers have recently started applying a particular strategy to reduce their property tax burdens, leaving appraisal districts and state governments scrambling for responses. (164) Around the dawn of the Great Recession, bigbox chains started shifting their tax disputes to revolve around what comparable sales are now most applicable to use when appraising their property given the increased pool of data from the sale of vacant big-box stores. (165) In other words, the owners or retailers that occupy these large plots of property consider the recent trend of big-boxes selling for significantly less than the cost of construction as an appropriate set of market data to utilize when attempting to pinpoint their true market value for tax purposes. (166) At the heart of this new strategy is the contention that using vacant properties as comparable sales for the valuation of big-box stores is viable under generally accepted appraisal methods. (167)

Conversely, the property tax assessing community argues that if the bigbox store were owner-occupied at the start of the year, then stores that were closed at the start of the year should not be used as comparable properties to show market value. (168) The label that tax assessors and appraisal districts gave the approach to valuation used by these big-box retailers is rather ominous: The Dark Store Theory. (169) Proponents of this theory argue that the responsibility of appraisal districts is to value the fee simple interest of the properties within their taxing district, not what the property can fetch on the net lease market and that considering only occupied stores as comparables instead results in a valuation of a property's leased-fee. (170)

Fear of the potential tax ramifications the Dark Store Theory's adoption would bring sparked a national debate over whether the Dark Store Theory is workable under the generally accepted appraisal methods. (171) Framed as a tax loophole, the primary concern of some tax assessors and appraisers is that using the sales of vacant properties as comparables would lead to lower valuations of big-box commercial properties, thereby injuring local communities by decreasing their tax bases. (172)

There is some merit to their contention. Property tax often accounts for a substantial percentage of a state's entire tax revenue, and decreased valuations of big-box stores, generally appraised in the millions, has the propensity to shift the tax burden onto homeowners. (173) Following this narrative, media outlets have characterized the strategy as threatening, using various headlines such as: "How Big-Box Retailers Weaponize Old Stores" and "SinisterSounding Dark Store Theory is Corporate Welfare." (174) In arguing against the Dark Store Theory, tax assessors' primary contention is that valuing an occupied big-box store as-if-vacant is a hypothetical condition and likewise renders the use of vacant comparables inappropriate. (175)

Unquestionably, the previous decade introduced a plethora of new data shedding light on what the market deems the appropriate price for the sale of a big-box store. (176) However, a splintered understanding of how this data should be implemented in calculating property tax values often results in companies and tax assessors utilizing the courts to settle their grievances. (177)

A. National Litigation: Different States Take the Dark Store Theory to


Across the nation, big-box retailers have begun to litigate the viability of implementing the Dark Store Theory when assessing their properties. (178) Recent jurisprudence has shown that there is little-to-no uniformity amongst the states on whether or not to adopt the Dark Store Theory. (179) The Dark Store Theory has received significant traction in Indiana and New York. (180) Conversely, states like Wisconsin and Iowa tend to decline application of the Theory's principals. (181)

1. States That Have Adopted the Dark Store Theory

An example of these legal disputes in Indiana involved the big-box grocery store Meijer Stores. (182) Believing their property-tax assessments were too high, the 158,114 square-foot retail supermarket in Richmond, Indiana filed petitions for review regarding their taxes from 2002 to 2005. (183) During the review hearing, Meijer used the sales of vacant or abandoned Lowe's and Walmart stores to secondary users as comparable data to calculate its own market value. (184) The Indiana Board of Tax Review rejected this comparison analysis, reasoning that the sales to secondary users were not truly comparable because Meijer had not established what another Meijer, or similar retailer like Lowe's, would be willing to pay for the subject property. (185) Meijer subsequently appealed this decision to the Indiana Tax Court. (186) Here, the tax court held that these sales of vacant stores were appropriate because the comparable properties and the subject property were both being used for a sufficiently similar retail use. (187) Importantly, the Indiana Tax Court recognized the sale of abandoned big-box stores to secondary users as viable data to utilize with a market value-in-use appraisal. (188)

In 2016, the Tax Court of Indiana reaffirmed its holding in Meijer Stores. (189) Here, a Kohl's in Kokomo, Indiana employed a similar argument to the one raised by Meijer and used the sale of several "dark boxes" across the Midwest as comparables. (190) The Howard County tax assessor argued that the stores utilized by Kohl's were not appropriate comparisons, in part, because the vacant boxes do not "have any utility to either the original owner or another owner/user 'in the same retail tier[.]'" (191) The tax court ultimately found

Kohl's argument (192) persuasive and held that a sales comparison valuation that relied on the sales of vacant big-box stores was appropriate in establishing a property's market value for tax purposes. (193)

Similarly, New York recognizes the Dark Store Theory's applicability in determining ad valorem property tax values. (194) In challenging its 2008 and 2009 tax values, an appraiser for an occupied and operational Home Depot store in Queensbury, New York utilized the cost and income capitalization methods to determine the fair market value of the property. (195) The appraiser for Home Depot relied on the use of both vacant big-box stores and big-box stores that were leased by second-generation users. (196) The New York Supreme Court adopted Home Depot's values, and Queensbury appealed. (197) Queensbury's principal argument was that Home Depot's appraisal did not utilize truly comparable properties and targeted the fee simple value of unleased properties. (198) The appellate court held in favor of Home Depot, reasoning that their appraisal rationale of "excluding properties subject to buildto-suit leases" was plausible and their comparable properties were "superior" to those utilized by Queensbury. (199)

2. States That Have Rejected the Dark Store Theory

Opposite these states, Wisconsin rejects the Dark Store Theory altogether : (200) In 2009, the City of Wauwatosa assessed a department store owned by Bonstores Realty One, LLC at $25,593,300. (201) Despite Bonstores's contention that the fair market value of its property was only $11,000,000, the Wauwatosa's tax review board upheld the City's assessment. Bonstores subsequently brought suit arguing that their tax assessment was excessive, but the circuit court ruled in favor of the City. (202) On appeal, the Court of Appeals of Wisconsin focused on Bonstore's use of "dark" comparables within its sale's comparison approach. (203) The Court of Appeals echoed the lower court's finding that the vacant stores were not apples-to-apples comparisons to the subject property because Bonstore's department store was not dark, has yet to go dark, and shows no sign that it would go dark. (204) The court agreed with the City's appraiser that dark store sales were not appropriate because their highest and best use is different from an operating store. (205)

Iowa joins Wisconsin in rejecting the Dark Store Theory. (206) In Soifer v. Floyd County Board of Review, the state's seminal case on the issue, Sam and Barbara Soifer, owners of a McDonald's fast-food restaurant in Charles City, Iowa, argued that the assessed value of their property from 2003 to 2005 was excessive and inequitable. (207) One of the Soifer's appraisers used four building sales in his sales comparison approach, all of which had originally been franchise restaurants, but none were sold to fast food restaurants or continued to operate as fast food restaurants after their sale. (208) Iowa's Supreme

Court concluded that Soifer's calculation resulted in an undervaluation because "the sales prices did not completely capture the value of the properties in their present use." (209) Providing support to its argument, the court relied on the Iowa Administrative Code, which "requires an assessor to 'classify and value property according to its present use and not according to its highest and best use.'" (210) Deciding that property should be valued according to its present use, the Iowa Supreme Court reversed the judgement of the court of appeals and reinstated the judgement of the district court in favor of the appraisal district. (211)

The holding in Soifer led to a preference in Iowa to consider the sales of occupied properties over vacant properties in big-box retail cases. (212) In 2011, Hy-Vee Food Stores, Inc. (Hy-Vee) challenged the property tax assessment for one of its properties in West Des Moines, Iowa. (213) The comparables chosen by Hy-Vee in its appraisal "had been vacant, were re-purposed for a different use upon sale, [and] were much smaller in size and located in different retail markets" than the subject property. (214) The Dallas County Board of Review argued that Hy-Vee's comparable sales were not sufficiently analogous, in part because they were vacant at the time of sale. (215) Additionally, the Board of Review relied heavily on occupied sale/leaseback transactions, arguing that their expert had adjusted those comparables. (216) The Court of Appeals of Iowa concluded that "[i]n focusing on property that matched Hy-Vee's business [i.e. operating grocery stores], the Board's expert fulfilled his obligation to 'classify property according to its present use and not according to its highest and best use.'" (217) By ruling in favor of the Board of Review, the court solidified its stance against considering vacant stores as a type of comparable data. (218)

3. The Michigan Dark Store Theory Odyssey

Out of all the states that have started to litigate the Dark Store Theory, Michigan has perhaps been the most proactive. (219) Beginning in 2010, the Michigan Tax Tribunal (220) set a precedent within the state by accepting bigbox stores that had either gone dark or were sold to secondary users as comparables to operating stores. (221) From 2010 to 2013, the Dark Store Theory gained further traction in Michigan Tax Brunal hearings accepting the Dark Store Theory as a valid appraisal technique. (222) Further, the Michigan Court of Appeals affirmed this string of administrative decisions by echoing the Tribunal's general sentiment--that the use of vacant big-box sales comparables is proper and sufficiently considers the existing use of these properties in their fee simple value. (223)

Despite these early successes, in 2016, the Michigan judiciary began to stray away from the application of the Dark Store Theory. (224) After the Michigan Tax Tribunal ruled in favor of the home improvement store Menards, the City of Escanaba appealed to the Michigan Court of Appeals. (225) In its refutation of Menards' valuation, the City of Escanaba argued "that properties with deed restrictions should not be compared to the subject property, which had no use restrictions in place" and failure to make adjustments compensating for these restrictions distorted the building's highest and best use. (226) The Michigan Court of Appeals ultimately agreed with the city and found the data relied upon by Menards to be inadequate due to the failure "to fully account for the effect on the market of the deed restrictions in those comparables." (227) Specifically, under the sales-comparison approach, the court found that deed-restricted comparables could not indicate the property's highest and best use because the pool of "potential buyers of the comparables [was]... limited to buyers willing to accept the use restrictions." (228) Following the appellate court's judgment, Menards appealed to the Supreme Court of Michigan. (229) After hearing oral arguments, the Michigan Supreme Court denied Menards' writ of certiorari, stating that it was "not persuaded that the questions presented should be reviewed by this Court[,]" and, for now at least, shutting the door on the Dark Store Theory in Michigan. (230)

Despite the ongoing battle throughout the states, and a growing negative sentiment surrounding the Dark Store Theory, big-box stores--and their property tax attorneys--trudge forward. (231) Big-box retailers continue to pursue the Dark Store Theory's application while states look for effective roadblocks to inhibit its adoption. (232) In an attempt to preempt further litigation, several states are turning to the legislature to clear up any uncertainty future court decisions might bring. (233)

B. If You Can't Beat'em. Make'em Illegal: Legislative Reactions to the Dark Store Theory

Under the guise of "fairness," state legislatures across the nation are promoting mandates to ensure that commercial retailers cannot employ the Dark Store Theory in any further property valuations. (234) However, similar to the varying outcomes of the courts, whether or not the bills are adopted are matters of uncertainty. (235)

Indiana has been actively trying to pass property tax reform regarding the Dark Store Theory. (236) In 2015, the state legislature enacted a statute that applied "special rules for determining the true tax value of 'commercial nonincome producing real property, including sale-leaseback property[.]" (237) The text of the statute singled out "any commercial non-income producing real property, including sale-leaseback property" that was less than ten years old. (238) Importantly, the new statute disallowed the above-mentioned property types from utilizing certain comparables in their valuations for property tax purposes, including buildings that: (1) have been vacant longer than one year from the assessment date; (2) have significant deed restrictions; (3) were sold to a secondary user and used for a different purpose than its original tenant; and (4) were not sold at an arm's length transaction. (239) Corresponding with this provision, the Indiana legislature passed another statute that same year instructing any appraisal done for a big-box retail building to be assessed under the cost approach without considering the sales-comparison approach. (240)

The mild success brought from the 2015 legislative session in restricting big-box appraisal methods was short lived. (241) Not one year later, legislation was proposed concerning the constitutionality of this legislative mandate (242) Ultimately adopted. House Bill 1290 repealed both of the above-mentioned provisions, replacing them with new requirements: (1) any classification of property must include a "market segmentation" analysis; and (2) the consideration of comparables from a different market or submarket from the subject property's current use is prohibited. (243) Despite House Bill 1290 lessening the restrictions on big-box appraisal techniques, Indiana remains committed to codifying limitations within its tax code that would curb the Dark Store Theory within their state. (244)

Similarly, the Michigan senate introduced legislation in an attempt to prohibit the Dark Store Theory's application within the state. (245) During the 2015 legislative session. Senate Bill 524 was proposed, requiring that the true cash value of buildings like big-box stores be determined by the highest and best use of the property in its continued use. (246) The intent of this bill was to essentially "prohibit the consideration of vacant big box properties in establishing the taxable market value of occupied big-box properties." (247) In the same session, the Michigan House of Representatives introduced a complementary tax reform bill. (248) House Bill 4909 aimed to prevent deed restrictions that would otherwise prevent occupancy or utilization of a property. (249) In effect, the bill would prohibit a big-box store like Target from placing a deed restriction that would preclude the use of the property for any similar big-box store with a similar use. (250) Given the potential sweeping effect these pieces of legislation would have on Michigan's tax scheme, neither of the two bills were passed. (251)

The increased push for legislative fixes shows a recognition that: (1) states are becoming more trepid in relying on the courts to solve the dark store issue; and (2) without a constitutional amendment or a statutory change to a state's tax code, using vacant or second-generation comparables in appraising commercial property can be seen as logical and in line with the generally accepted appraisal methods. (252) The reactions from the various states mirror the continued divide throughout the country and the lack of uniformity in valuation of big-box stores. (253) The next section will discuss the rationale behind both the appraisal districts' and big-box retailers' interpretation of the Dark Store Theory and clarify whose understanding more closely coincides with the generally accepted appraisal methods.

C. So Who's Right'.': Dark Store Theory vs. Retail Reality

In attempting to capture the realities of the current state of big-box retail and the effects it has on property valuation, tax assessors and property owners are at odds as to how these stores should be appraised to represent their true value in the marketplace. (254) Though both are grounded in logic, the Dark Store Theory most accurately encapsulates the true goal of ad valorem property taxation and applies a correct understanding of basic valuation fundamentals. (255)

1. Tax Assessors' Perspective on The Dark Store Theory

Tax assessors and appraisal districts' principal argument against using the Dark Store Theory is that utilizing vacant comparables in assessing bigbox stores inaccurately adjusts the highest and best use of a property and renders a poor estimate of the property's fee simple market value. (256) Additionally, they argue that big-box retailers overstate the demise of brick-andmortar retail and point to the continued construction of big-box stores as evidence of the low obsolescence of these buildings. (257) In the view of tax assessors, if a store has gone dark, then it must have failed or else the first-generation user would have never abandoned the premises. (258) Another argument raised is that because the vacant big-box stores are usually encumbered with noncompetitive deed restrictions, the pool of likely buyers is greatly diminished, and any sale renders the transaction unusable simply because the property rights conveyed are not inclusive of the entire fee simple estate. (259) Regarding the building's aesthetics and design, assessing officials tend to find that a big-box retailer's layout is not so unique that it results in substantial functional obsolescence. (260)

In the end, the assessing community believes that, for tax assessment puiposes, big-box retailers disregard the realities of the future of brick-andmortar retail and present data that shows only a hypothetical picture of how the market currently values these types of buildings; the value of occupied big-box stores in their current use, utilizing their rents-in place, ultimately reflects market value. (261) Assessing officials recommend that, in order to settle this debate, appraisers should attempt to use all three generally accepted appraisal methods to show the market's true reflection of a big-box property's worth. (262)

2. Providing Clarity: Actual Viability of The Dark Store Theory

Though persuasive, the tax assessing community's rationale is misapplied. The various appraisal districts across the country generally miss the first question in the appraisal of big-box stores: what is the standard of value? (263) If the standard and goal is to appraise property at market value, the market has clearly demonstrated that there is little-to-no demand for existing big-boxes. (264) The problem facing big-box stores is essentially the same superadequacy problem facing the homeowner who built a racquetball court in his house; if no homeowner would be taxed for more (or less) than his home could sell for, then the same principal should apply to anyone else, including big-box retailers. (265) Big-box stores are built-to-suit, not built-to-be-sold-orleased-after-construction, and the market reflects this reality. (266) Whenever the fee simple interest of an existing big-box store is sold or leased to another retailer or secondary user, the market shows that the buyer either makes substantial modifications to the building or demolishes the building altogether. (267)

Plainly, the actual sales and rents of occupied big-box properties on the net lease market overstate their true property value by factoring the supplementary value of nontaxable assets, such as long-term leases with AAAretailers like Lowe's, Walmart, or Costco. (268) These valuable leaseholds have a positive effect on the property, often increasing the purchase price due to the above-market value of the lease itself. (269) Adding the value of these intangible leases into property valuations overlooks long-standing generally accepted appraisal practices and ultimately leads to non-uniform taxation, oftentimes in violation of state constitutions. (270) Real estate appraisers should not confuse the artificially stimulated prices seen in the net lease market with what the fee simple market has determined the market sales and rents of bigbox properties to be. (271)

The baseline question regarding ad valorem property taxation of big-box stores should be: "As of the valuation date, what is the usual selling price that would be paid for the fee simple interest in the subject existing big box store property?" (272) A property's selling price is best determined from fee simple sales and market rent of similar existing properties. (273) If a big-box commercial property was available to be leased in the open market, the lessor would not be able to obtain the same kind of lease for the same kind of term in its existing condition with a national retailer occupying the facility. (274) Using vacant stores as comparables to owner-occupied big-box properties is the best way to adjust the value of an otherwise heightened rental rate and purchase price back to market levels. (275) Essentially, the advent of the Dark Store Theory is nothing new--it just involves retailers using real market data as well as real sales transactions of properties when they are sold as evidence of their real market value. (276) Highlighting the Dark Store Theory as a new innovation and labeling it with the sinister-sounding title of "Dark Store" seems to amount to nothing more than a propaganda tool used to blame perceived corporate outsiders for the shortfalls in local governments' budgets. (277)

As the ebb and flow of the rejection (or adoption) of the Dark Store Theory continues to wind through the states, one state in particular has a surprising dearth of litigation or legislative response to the encroaching theory. A state with no income tax and whose tax stream comes primarily from property taxation. (278) A state who obtains more property tax revenue than almost any other state. (279) This is in reference, of course, to the home of the Dallas Cowboys: the great state of Texas.


In Texas, property tax is king. (280) At over $49 billion annually, the property taxes assessed by local taxing units accounts for just under half of Texas' total tax revenue. (281) Just as the rest of the nation, Texas counties, school districts, cities, and other taxing units depend on property tax to fund their operations. (282) As mentioned above, Texas is distinct from many other states in the Union in that it does not levy a state income tax. (283) The sheer volume of property tax dollars obtained, blended with the state's lack of income tax, creates a particularly ripe battleground between local appraisal districts and big-box retailers to determine the applicability of the Dark Store Theory in Texas. (284) Given the scope of Texas' property tax system, it is important to understand the similarities and nuances of the state's system compared to the rest of the country before delving into the current Dark Store debate. (285)

A. Texas Property Tax System

The Texas Constitution outlines five fundamental rules for property taxes. (286) First, local officials must conduct equal and uniform taxation of all properties within their respective appraisal districts. (287) Second, all property must be assessed no greater "than its fair cash market value"--all tangible and real property must be taxed proportionally to its value. (288) Third, taxing units are prohibited from assigning different valuations to the same property; every property in a county needs to have a specific appraised value. (289) Fourth, unless exempted by federal or state law, all property within the state is taxable. (290) Finally, a property owner is entitled to proper notice of increases in his or her property's appraised value. (291)

Continuing these basic rules, Texas' Property Tax Code specifies the valuation scheme within the state. (292) The power to levy ad valorem taxes is vested locally within each county's appraisal district and extends to the boundaries of each respective county. (293) Therefore, although the state Comptroller adopts rules regarding the minimum standards for county appraisal districts, the appraisal districts are ultimately responsible for identifying and appraising all of the taxable property within their district. (294) Additionally, various taxing units, which consist of counties, incorporated cities or towns, school districts, or various other units or authorities within the state, aid in setting budgets based on the amounts obtained from their governing appraisal district. (295) Each county has an appraisal review board, who are appointed by the appraisal district's board of directors, and determine protests made by property owners against the appraised values formulated by the county appraisal district. (296) The importance of local governments in administering property tax valuation cannot be understated. Over 1,000 school districts and more than 3,000 other taxing units receive their revenue primarily from local property tax revenue. (297)

Corresponding with the majority of states, Texas appraisal districts share a common goal of determining the market value of the state's taxable property as of January 1. (298) Each measurement of market value must be determined "through generally accepted appraisal methods and techniques." (299) Among the accepted methods codified, Texas considers the cost, sales-comparison, and income approach, and uses the most appropriate method for any subject property. (300) These are the methods appraisal districts across the state utilize--from the Rio Grande Valley to the Texas Panhandle--to attain equal and uniform taxation, ensuring that no single property type pays more than its equitable share of taxes. (301)

There exists perhaps no greater determinant of a property's fair market value than the property's fee simple value. (302) Because the state Constitution mandates that property be taxed on its fair cash market value, it is important to understand how Texas courts have construed the definition affair market value and what interest the term entails. (303) This next section will analyze the seminal cases determining how Texas courts define market value.

B. Texas Case Law: Defining Market Value

Over the past few decades, "Texas courts have defined market value based on fee simple." (304) The judgments in both Cherokee Water Company v. Gregg County Appraisal District and Dallas Central Appraisal District v. Jagee Corporation solidified Texas' recognition that: (1) the leased fee of a property is separate from the fee value, and (2) a leased fee valuation is not indicative of the property's independent fair market value. (305)

The overarching issue in Cherokee Water was the determination of the fair market value of the taxpayer's property. (306) Cherokee Water, a closely held corporation, owned over 7,000 acres in Gregg and Rusk counties, which included all of Lake Cherokee and its surrounding land. (307) Only shareholders of the corporation could obtain a lease to a parcel of lakefront property (308) The lease agreements carried with them various characteristics that Cherokee argued "should have been considered as a characteristic affecting the value" of the property and lower their tax burden. (309) The Court found Cherokee's position unpersuasive and held that the Texas Constitution did not intend unleased property to be taxed at its entire market value while leased property be taxed only at the value of the lessor's interest. (310) Only if the lease-encumbered estate is exempt should the leasehold interest be valued and taxed independently from the fee interest. (311)

One year later, Jagee addressed the issue again of at what value a property subject to a lease should be taxed. (312) Jagee Corporation owned shopping center properties that were subject to long-term leases with commercial retailer K-Mart that had since become under-market-valued leases. (313) The main area of contention arose from each party's valuation method: Jagee Corporation argued that it should be taxed solely on the underlying fee, independent from the value of the overlying leases. The appraisal district countered, stating that Jagee should be taxed on the entire value of the property. (314) Essentially, Jagee wanted to remove from consideration the leaseholds' values and instead value the under-market K-Mart leases. (315) Following the standard set in Cherokee Water, the court held that the K-Marts were to be "taxed on the value of a leasehold that is subsumed within the value of the fee simple[.] (316) Further, the entire fee's value necessarily included the lesser valuation of the leasehold it contains. (317)

Taken in conjunction with one another, Cherokee Water and Jagee show the historic precedent set by Texas courts to prefer the market value of a property be based on the fee simple estate. (318) In both instances, the property owners attempted to devalue their property by arguing that their below-market leases should be considered in the appraisal district's valuation. (319) With subsuming the leasehold value into the fee estate, the courts considered the entire property and adjusted the below-market leases to represent what their actual market value would be, not just what the party at issue would pay. (320) The underlying rationale of this maneuver is to prevent property owners from taking advantage of a lease that is not reflective of the property's market value.

Understanding how and by what standard the courts determine market value is vital to understanding how Texas property tax law could (or should) turn out in the encroaching Dark Store battle. Although the stage seems to be set for lengthy litigation, property tax disputes with national big-box retailers tend to settle before a jury even has a chance to make a determination. (321) Oftentimes due to the high legal costs associated with litigating property tax issues, counties across Texas simply do not have the financial means to pursue the matter past the protest stage. (322) This next section will pick up where the Texas courts have not tread and analyze the future viability of the Dark Store Theory within the Lone Star State.

C. Texas' Future with The Dark Store Theory

The Dark Store Theory presents the direct converse of the problem seen in Cherokee Water and Jagee: how to properly tax properties encumbered with above market leases. (323) Maintaining legal continuity and consistency necessitates that Texas follow the judgments of previous case law and subsume the leases of big-box commercial property into the fee simple estate. (324) Once this step is taken, the state's constitution is clear--property taxation must be determined in accordance with the property's fair market value. (325) Additionally, as apparent from generally accepted appraisal standards, the most effective way to determine a property's fair market value is to ascertain how the marketplace values that particular piece of property. (326) The fee simple market simply does not attach significant value to the sale of big-box stores like it did in a pre-Recession world. (327) Adherence to both the Texas Constitution and the Texas Property Tax Code requires that any judgement by a Texas court striking down a big-box retailer's utilization of the Dark Store Theory should be overturned. Holding otherwise represents a disregard to the current statutory and constitutional duties required by appraisal districts within the state. (328) Ultimately, the Dark Store Theory coincides with the current construction of Texas' property tax system by utilizing generally accepted appraisal methods to obtain the true fee simple value of big-box stores. (329)

If Texas decides to outlaw the Dark Store Theory, the power to do so resides in the legislature, not the courts. (330) A clear, black-letter reading of the Texas Constitution and Property Tax Code shows that the Texas legislature authorizes big-box retailers to protest their property tax value by utilizing the Dark Store Theory. (331) Nowhere in the Taxation and Revenue article of the Texas Constitution or the property tax code is the use of vacant comparables forbidden. (332) Further, neither of these two sources currently require big-box stores to be valued under a different appraisal methodology than other properties across the state. (333) For Texas' property tax laws to change, courts must allow the state legislature to be the catalyst in clarifying the state's stance on the Dark Store Theory. (334) Until that happens, Texas courts should recognize the Dark Store Theory's viability given the confines of the state's property tax system.


As the retail apocalypse rages on across the nation, the value of the once almighty big-box industry continues to plummet. (335) With big-box stores shuttering and selling at rates never before seen, national retailers are utilizing this new data to reflect the current market value of their properties. (336) Despite the tremendous amount of vilification and outcry against the Dark Store Theory, it remains consistent with appraisal districts' goals of determining the market value of properties and the generally accepted appraisal methods. (337) Undoubtedly the expansion of the Dark Store Theory's application is a growing concern for local taxing units, as it has the propensity to dwindle their tax revenue stream. (338) This concern, however, does not automatically make an otherwise viable appraisal technique unpractical. (339)

As states continue to litigate the applicability of the Dark Store Theory, Texas has perhaps the most to gain (or lose) with its adoption. (340) A property tax powerhouse, the Lone Star State thrives on the massive collection of local property tax and would surely see a revenue shift with the Dark Store Theory's adoption. (341) However, without adjustments to either the Texas Constitution or Property Tax Code, courts must respect the applicability of the Dark Store Theory and step aside, allowing lawmakers to determine whether or not the technique should continue to be utilized. (342)

Without question, this is an extremely divisive issue with potentially great tax repercussions. (343) Analyzing the generally accepted appraisal techniques and how they correspond with the majority of state constitutions and property tax codes, the Dark Story Theory stands as a constitutionally permissible tax strategy. Ultimately, the decision to adopt the Dark Store Theory is simple: fee simple. (344)

Stephen W. Grant

(*) J.D. Candidate, May 2019, Texas Tech University School of Law; B.S. in Communication Studies, University of Texas at Austin, 2015. This comment is dedicated to the brilliant minds at Popp Hutchcson--thank you for your inspiration and guidance in helping me form the overall vision for this comment. To all my family and friends for being a beacon of encouragement. And to Texas legal legend, and my perennial mentor, Broadus Spivey -thank you for instilling in me a love for this profession and creating the greatest foundation for my legal career.

(1) See Fred Shapiro, Quotes Uncovered: Death and Taws, FREAKONOMICS (Feb. 17, 2011. 1:30 P.M.).

(2) See generally United States Census Bureau, State Government Tax Collections: 2015, AMERICAN FACTFINDER (Sept. 23, 2016), (depicting the statc-by-state ad valorem tax revenues).

(3) See Property Tax Revenue 1977 to 2015, TAX POLICY CENTER (Oct. 18, 2017), From 1977 to 2015, the amount of property tax revenue collected by the states increased seven-fold. See id.

(4) See generally Property Tax Assistance, TEXAS COMPTROLLER, (last visited Jan. 23, 2018) (providing a general overview of the property tax scheme in Texas).

(5) See Ashley Schieck, Valuation of Big-Box Stores and the Dark Store Theory--A Changing of the Tide? M REAL ESTATE TAXATION 128 (2017).

(6) See id.

(7) See id. at 129.

(8) See infra Part III(A),(B).

(9) See infra Part II.

(10) See infra Part III.

(11) See infra Part IV.

(12) See David Charles Lcnnhoff, Valuation of Big-Box Retail for Assessment Purposes: Right Answer to the Wrong Question, 39 REAL ESTATE ISSUES 21 (2014); Tim Wi I math & Pat Alesandrini, Thinking Outside the Big Box, FAIR & EQUITABLE 3 (Nov. 2015), ("Typically, [big-box] stores exceed 100.000 square feet and are located on 15- to 20-acres sites.").

(13) See J.L. Cherwin Jr. & Virginia M. Harding. New Tenants for Big Boxes, PROB. AND PROP., at 37 (2010); Telephone Interview with Mark Hutcheson, Managing Partner, Popp Hutcheson (Sept. 13.2017) [hereinafter Mark Hutcheson Interview] Mark Hutcheson is the Managing Partner at the Austin-based property tax firm Popp-Hutcheson. Renowned in the property tax community, Mr. Hutcheson serves on the Institute for Professionals in Taxation's (IPT) Board of Governors and is the Chair of IPT's CMI Designation Committee for Property Tax. POPP HUTCHESON, (last visited Jan. 31,2018).

(14) Lennhoff, supra note 13, at 21.

(15) Id.

(16) Mark Hutcheson Interview, supra note 14.

(17) Al Norman. How Big Box Stores Shift Their Property Taxes Onto Homeowners, HUFRNGTON POST (June 27, 2017, 7:36 PM). d96; Joyce Juaer et al., "Dark Store Theory" and Property Taxation, TEXAS COMPTROLLER (Feb. 2017),

(18) J uaer et al., supra note 18.

(19) See Michael Cappctta & Stephanie Ruhle, Retail Wreck? Over 1,000 Stores Close in a Single Week, NBC NEWS (June 3, 2017, 12:36 PM), "Industry analysts have been sounding the 'retail apocalypse' alarm for the past few months." Id. (emphasis added).

(20) See id. "Retailers really need to think outside the box on how they want to appeal to consumers to get them back into the [stores.]" Id.; Mark Hutcheson Interview, supra note 13.

(21) See id. "Retailers really need to think outside the box on how they want to appeal to consumers to get them back into the [stores.]" Id.; see Mark Hutcheson Interview, supra note 14.

(22) Derek Thompson, The Great Retail Apocalypse Of 2017. ATLANTIC (Apr. 10, 2017), The United States has 40 percent more retail space per person than Canada--five times more than the U.K. and ten times more than Germany, hi.

(23) Kim Bhasin, Retailers are Going Bankrupt at a Record Pace, BLOOMBERG (Apr. 24, 2017, 11:00 AM),

(24) Id.

(25) See Chris Tomlinson, Retail Workers Will Be the Next Unemployment Crisis, Hous. CHRON. (July 3, 2017, 11:18 AM), Shop-pers spent $40 billion in e-commerce in 2016 and show a bigger inclination to spend money on entertainment, restaurants, and technology than on clothing and accessories. Id.

(26) Id.

(27) Id. Amazon's sales in North America grew from $16 billion to $80 billion over the last ten years, three times the yearly revenue of Sears. Id.

Lauren Thomas, Another Bad Week for Retail: Store Closure and a Possible Bankruptcy, CNBC (June 2, 2017, 5:53 PM),

(28) Sarah Hoban, Thinking Outside the Box, CCIM, (last visited Sept. 21, 2017).

(29) See Denise Lee Yohn. Big-Box Retailers Have Two Options if They Want To Survive, HARV. BUS. REV., (June 22, 2016). (As a result of the growth of e-commerce. "big box retail must shift its strategy..."); Mark Hutcheson Interview, supra note 14.

(30) Mark Hutcheson Interview, supra note 14.

(31) Hoban. supra note 29.

(32) See id.

(33) See id.

(34) Paige Yowell. Shopping Centers Face Challenge to Refill Empty Spaces Left by BigBox Stores That Have Closed, OMAHA WORLD-HERALD (Mar. 2, 2017). (discussing a closed K-Mart in Omaha, Nebraska to be occupied by a Burlington. T.J. Maxx. Sierra Trading Post, and a Home Goods).

(35) See Cristin Ross, Athens Call Center Still On Schedule, ATHENS DAILY REV., (June 7, 2006).

(36) See id.

(37) Hoban, supra note 29.

(38) Id.

(39) Id.

(40) See Sarah Schindler, The Future of Abandoned Big Box Stores: Legal Solutions to the Legacies of Poor Planning Decisions, 83 UNIV. OF COLO. L. REV. 471, 478-84 (2012) (describing various alternatives to maintain the former economic productivity of a big-box facility).

(41) See id. at 489-91; Mark Hutcheson Interview, supra note 14.

(42) See Patricia E. Salkin, Municipal Regulation of Formula Business: Creating and Protecting Communities, 58 CASE W. RES. L. REV. 1251, 1277 (2008). A store might change its prototype from a 160,000 square foot store to a 180.000 square foot store, or vice versa. Mark Hutcheson Interview, supra note 14.

(43) Hoban, supra note 29.

(44) See Hoban, supra note 29; Schindler supra note 41, at 502-10.

(45) See Mark Hutcheson Interview, supra note 14.

(46) See Owner-Occupant. INVESTOPED1A, (last visited Jan. 27, 2018).

(47) See Dwight H. Merriam, Symposium 2005: Breaking Big Boxes: Learning from the Horse Whisperers, 6 VT. J. ENVTL. L. 7, 7 (2005); Mark Hutcheson Interview, supra note 14.

(48) Hoban. supra note 29; Mark Hutcheson Interview, supra note 14.

(49) Hoban. supra note 29 ("The look and the prototype of their stores is so much a part of their image that they can't afford to do it in an old asset.").

(50) See Lennhoff, supra note 13, at 21-32.

(51) Id. at 26; see Emek Basker, et. al., Supersize It: The Growth of Retail Chains and the Rise of the 'Big Box' Retail Format, 21 J. or ECON. AND MGMT. STRATEGY 541,541 -82 (2012) (describing the amount of research over economic sales activity that goes into determining a retailer's return).

(52) See Lennhoff, supra note 13.

(53) Mark Hutcheson Interview, supra note 14.

(54) Id.

(55) Id.

(56) Lennhoff, supra note 13, at 26. Although vacant large-scale big-box retail buildings can be retrofitted to the needs of another user, rarely are the new users a national commercial retailer. Cherwin Jr. & Harding, supra note 14, at 37.

(57) Lennhoff, supra note 13, at 28-29.

(58) Id. at 29.

(59) Id.

(60) Id. at 23.

(61) Id.

(62) See id.

(63) See id. at 23.

(64) Mark Hutcheson Interview, supra note 14.

(65) See Wilmath & Alesandrini, supra note 13 (describing the various negatives that affect timely sales of big-box stores).

(66) Id. at 7; see J.L. Cherwin Jr. & Harding, supra note 14, at 39.

(67) Wilmath & Alesandrini, supra note 13, at 7.

(68) Id:, see Schindler, supra note 41, at 502 ("[M]any big box leases have clauses that expressly disallow a competitor from leasing space after it is vacated").

(69) Mark Hutcheson Interview, supra note 14;.see Wilmath & Alesandrini, supra note 13, at 7-8.

(70) See Schindler, supra note 41, at 484-87. On average, empty big-box wait twelve months before another tenant fills its space. See id. at n.55

(70) See Schindler, supra note 41, at 487.

(72) See id. at 489.

(73) See id. at 491-92.

(74) See id. at 501-03; Cherwin Jr. & Harding, supra note 14, at 38.

(75) See Schindler, supra note 41. The difficulty in finding a new tenant for big-box stores is further exacerbated by the decreased demand for big-box retailers. See id.

(76) Mark Hutcheson Interview, supra note 14. Tangible assets include just the land and buildings. Id.

(77) Id.

(78) Shannon Pettypiece, How Big-Box Retailers Weaponize Old Stores. BLOOMBERG BUSINESSWEEK (Dec. 8,2016,8:47 AM),

(79) See Schindler, supra note 14, at 491-96; infra Part III.

(80) See generally INTERNATIONAL ASSOCIATION OF ASSESSING OFFICERS, ASSESSING AND THE APPRAISAL PROCESS (5th ed. 1974) (describing the process required to formulate a valid real estate appraisal).

(81) Lennhoff, supra note 13.

(82) Mark Hutcheson Interview, supra note 14; see Judy S. Engel & Lynn S. Linne, Dark Store Theory--How to Slop It from Coming to a State Near You!, INSIGHTS (Willamette Management Assocs., Or.), 2016, at 58, Market value can be called several different things--fair market value, true market value, actual market value--but the terms all refer to the same value. See Schieck, supra note 6, at 129.

(83) See Engel & Linne, supra note 83; see also EDITH J. FRIEDMAN, ENCYCLOPEDIA OF REAL ESTATE APPRAISING 1024-32 (Revised ed. 1968) (examining the structure of various states' property tax scheme).

(84) See Wilmath & Alesandrini, supra note 13, at 3 (referencing the various entities that depend on local property taxation in order to operate).

(85) Schieck, supra note 6, at 129.

(86) Understanding the Appraisal, APPRAISAL INSTITUTE (2013) 109_(1).pdf, at 10. For example, the highest and best use of a pasture in a growing community may not be a pasture for horse grazing but a subdivision with multiple homes or condominiums. See Highest & Best Use Study. HADDOW & COMPANY, http://www.haddowandcompany.eom/uploads/5/5/l/3/55135301 /highest-andbest-use-ex.pdf.

(87) APPRAISAL INSTITUTE, supra note 87, at 10.

(88) Id:, see Or. Broad. Co. v. Dep't of Revenue, 287 P.2d 689 (Or. 1979); Jan K. Gubcn et. al., Realistic Appraisal Techniques of Large Income-Producing Properties. 18 REAL PROP. PROB.&TR.J.20,21 (1983).

(89) See APPRAISAL INSTITUTE, supra note 87, at 10: Schieck, supra note 6, at 129.

(90) See Engel & Linne. supra note 83, at 57.

(91) See 55 Fed. Reg. 34219 (codified as 12 CFR [section] 1608.2) (Aug. 22, 1990). Implicit in the definition of market value is that it represents the sale price in a hypothetical sale in which both parties are acting in their own best interests without coercion, imperfect information, or excess pressure to sell. Id. See FRIEDMAN.SUPRA note 84.

(92) See Kathy Dorr ct.a\.. Determining Value; Factors and Methods, 87 0HIOJUR.TAX'N 3D. [section] 623 (2017). An arm's length transaction must (1) be "voluntary", (2) be "in the open market", and (3) "involve parties acting in their own self-interests." See Shiloh Auto., Inc. v. Levin, 881 N.E.2d 227, 232 (Ohio 2008).

(93) See Lennhoff, supra note 13, at 23 (providing clarification on how fee simple needs to be defined when discussing property taxation).

(94) Fee Simple. A DICTIONARY OF MODERN LEGAL USAGE (2d ed. 1995).

(95) Engel & Linne, supra note 83, at 57 (quoting Dictionary of Real Estate Appraisal. 5th ed. (Chicago: The Appraisal Institute, 2010), 79); see AMERICAN INSTITUTE OF REAL ESTATE OF APPRAISERS ET.AI..,RF;AL ESTATE APPRAISAL TERMINOLOGY 102 (ByrlN.Boyce, Ph.D. ed., Revised ed. 1981). "A fee simple interest is one without limitations to any class of restrictions." Id.

(96) See Cherokee Water Co. v. Gregg Cty. Appraisal Dist., 801 S.W.2d 872,875-76 (Tex. 1990) (holding that fee simple entails the full value of a property and not based upon individual characteristics affecting its market value such as leases); Meijer Stores, L.P. v. Smith. 926 N.E.2d 1134, 1137 (Ind. T.C. 2010) (reasoning that using a vacant Walmart and Lowe's as comparable was an accurate description of fee simple evaluation).

(97) David Charles Lennhoff, You Can't Get the Value Right If You Get the Rights Wrong, THE APPRAISAL J. 60,61 (2009).

(98) See Mark Hutcheson Interview, supra note 14; Mark Hutcheson, Retail Centers Get Equal Treatment Through Fee-Simple Valuation Method, PROPERTY-TAX.COM, (Mar. 2003), t-Equal-Treatment-Through-Fee-Simple-Valuation-Method.htm (explaining the importance of fee simple valuation in commercial appraisals).


(100) See id.

(101) See id. at 466.

(102) See supra notes 98-100. 101; see FRIEDMAN, supra note 83, at 22-23.

(103) Mark Hutcheson Interview, supra note 14. The net lease market is effectively an investor market to purchase properties with long-term leases in place with triple-A creditors as tenants who provide a monthly cash flow to the property owner. Id.; see Thomas W. Hamilton. Valuing the Leased Fee Simple Estate: The Answer for Ad Valorem Taxation Issues, 40 REAL ESTATE ISSUES, NO. 1. 2015, 19-20 (describing the difference in the fee simple and net lease market).

(104) Lennhoff, supra note 98. at 61.

(105) Id. A sale/leaseback is "a financing device where property is sold by its user-owner who, at the same time, enters into a lease agreement with the buyer stipulating that the userowner has continued use of the property." AMERICAN INSTITUTE OF REAL ESTATE OF APPRAISERS ET. AL., REAL ESTATE APPRAISAL TERMINOLOGY 213 (Byrl N. Boyce. Ph.D. ed., 1981).

(106) See Lennhoff, supra note 13, at 37.

(107) See FRIEDMAN,supra note 83, at 672-73; Lennhoff, supra note 13, at 27.

(108) See Alvin L. Arnold, Sale-Leasehack Market: Driving Deals, 48 MORTGAGE & REAL EST. EXECUTIVES REP. (2016); FRIEDMAN, supra note 83, at 672-73.

(109) See id. When a transaction occurs on the net lease market, lease and property values rise, in part, because the retailer is gaining both a landlord and a new business partner. Id.

(110) See David Charles Lennhoff, You Can't Get the Value Right if You Get the Rights Wrong, THE APPRAISAL J., 60,61 (Winter 2009) ("Although appraisals of commercial properties are sometimes obtained for purchase price purposes, more often they are for other users such as condemnation and tax assessments") (emphasis added).

(111) Id.


(113) See AMERICAN INSTITUTE OF REAL ESTATE OF APPRAISERS ET. AL.. REAL ESTATE APPRAISAL TERMINOLOGY 160-61,252 (Byrl N. Boyce, Ph.D, rev.ed. 1981); FRIEDMAN,supra note 84, at 672-73 (describing the differences between applying a market value and value in use appraisal standard).


(115) See id. al 252; Lennhoff, supra note 98. at 61.

(116) Lennhoff, supra note 98, at 61.

(117) See, e.g.. Home Depot, U.S.A. Inc. v. Assessor of the Town of Queensbury, 129 A.D.3d 1427, 2428 (N.Y. App. Div. 2015) (rejecting a build to suit lease as an acceptable comparable because of its inadequate reflection of actual market value); see also Lennhoff, supra note 13, at 22, 31.

(118) See INTERNATIONAL ASSOCIATION OF ASSESSING OFFICERS, ASSESSING AND THE APPRAISAL PROCESS 38-40 (5th ed. 1974); AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS , supra note 114, at 42. The sales comparison approach, income capitalization approach, and cost approach are the three appraisal approaches that have traditionally been used to derive indications of property value. Id.


(120) See FRIEDMAN, supra note 84, at 10-12 (Revised ed. 1968). See generally HENRY A. BABCOCK, APPRAISAL PRINCIPALS AND PROCEDURES 193 (1968).

(121) See WILLIAM S. SHKNKEL, MODERN REAL ESTATE APPRAISAL 4 (Bonnie Lieberman ed., 1978).


(123) See Lennhoff, supra note 13, at 26.

(124) See AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS, supra note 113, at 314-17.

(125) Michael B. Shapiro. The Logical and Proper Determination of The True Cash Value of Big Box Stores, APTC (July 13, 2015),

(126) See Lennhoff, supra note 13, at 26.

(127) Mark Hutcheson Interview, supra note 14; see Lennhoff. supra note 13. at 26 (explaining how vacant comparables encapsulate the true value of fee simple for big-box stores).

(128) See Lowe's Home Or., Inc. v. Township of Marquette, No. 314111-314301. 2014 WL 1616411. at *14 (Mich. Ct. App. Apr. 22, 2014).

(129) Lennhoff, supra note 98, at 62. Net lease properties arc found in the net lease market as sale/leaseback properties. See generally Lennhoff, supra note 13, at 21.

(130) See Lennhoff, supra note 98, at 62.

(131) Distressed Sale, INVESTOPEDIA, (last visited Jan. 18, 2018). A distressed sale is a sale that involves a seller performing under undue duress where the conventional market conditions are not present. See id.

(132) See Lennhoff, supra note 98, at 62.

(133) See id.

(134) See Shapiro, supra note 126.

(135) See FRIEDMAN,supra note 84, at 360-63.

(136) Lennhoff, supra note 13, at 27; see AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS,supra note 113, at 334.

(137) See Lennhoff, supra note 13.

(138) See SHENKEL, supra note 122, at 206.

(139) See AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS, supra note 113, 333-36. To determine market rent, adequate market data must be gathered that shows the price "a willing lessee would pay a willing lessor to occupy the space." Lennhoff, supra note 98, at 62.

(140) See Shapiro, supra note 126.

(141) Id. (Except by accident, "[r]ental terms from build-to-suit leases and sale/leaseback transactions would not reflect market rent[.]"); see Schieck, supra note 6. at 129.

(142) See AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS, supra note 113, at 352-59 (explaining the methodology behind determining rent rates for investment properties). Second-generation purchasers of custom-built commercial properties are not willing to pay for the original construction's features, effectively limiting the available comparables. Lennhoff. supra note 98, at 62.

(143) See Lennhoff, supra note 98. at 62 ("Percentage rent is expressed as a certain percentage of the typical sales for the type of tenant best suited to the particular real estate.").

(144) See id. at 62-63; INTERNATIONAL ASSOCIATION OF ASSESSING OFFICERS, ASSESSING AND THE: APPRAISAL PROCESS 80-82 (5th ed. 1974). The capitalization rate--referred to as tap rate--is the rate of return on commercial real estate based on the income the property is anticipated to generate. Capitalization Rate, INVESTOPEDIA, (last visited Jan. 18, 2018).

(145) See Guben, et al.. supra note 89,31-32; see also GENE DILMORE,THE NEW APPROACH TO REAL EST ATE APPRAISING 127-31 (1971) (analyzing the various factors involved in determining capitalization rates).

(146) See Lennhoff, supra note 98, at 63.

(147) See id.

(148) See id.

(149) See supra Part 11(A); see also Brian J. Rogal, Big Box Retail Sees Jump in Cap Rates. GLOBEST (Feb. 2, 2017), rates/.

(150) See Telephone Interview with Daniel Smith, Principal. Popp Hutcheson (Jan. 18, 2018).

(151) See id.; Rogal, supra note 150.

(152) See Lennhoff, supra note 98, at 63.

(153) See AMERICAN INSTITUTE OF REAL ESTATE APPRAISERS, supra note 113, at 441-42. 444-45.

(154) See SHENKEL, supra note 122, at 161-73 (discussing the step-by-step directions of applying the cost approach).

(155) See id. St 173-76.

(156) See Lennhoff, supra note 98. at 63.

(157) See id.

(158) See Shapiro, supra note 126.

(159) See id.

(160) See Guben, et a]., supra note 89, at 31-32.

(161) See generally Schieck, supra note 6 (describing the negatives associated with perpetually vacant big-box stores and potential solutions to the current big-box landscape).

(162) See Engel & Linne, supra note 83. at 58. As a brief review, a valid determination of fee simple requires "that the property is valued assuming absolute ownership unencumbered by any other interest or estate, such as a lease or mortgage"--that the property is valued on its value-in-exchange.Id. Value-in-exchange is the "market value underthe value-in-cxchange premise; assumes the property sold separate and apart from any other asset." Appraisal Institute. Market Value in Use, APPRAISAL INSTITUTE 1, 51 (June 23, 2017), in_Use_6.10_1030a.pdf.

(163) See Engel & Linne, supra note 83 (analyzing the rise of the Dark Store Theory and the responses of various appraisal districts across the nation).

(164) Id.

(165) See Wilmath & Alesandrini, supra note 13; see also Juaer ct al., supra note 18.

(166) Mark Hutcheson Interview, supra note 14; see Pettypiece, supra note 79.

(167) See Schieck, supra note 6, at 128.

(168) Mark Hutcheson Interview, supra note 13. However, as mentioned earlier, this line of reasoning is not without its Haws. Big-box retailers may leave a location for other reasons besides a poor economic environment. See id.

(169) See id.; Judy S. Engel & Lynn S. Linne, The Dark Store Theory and Other Lies the Government Told. BLOOMBERG BNA, (Aug. 9, 2017).

(170) See Schieck. supra note 6, at 128.

(171) See Pettypiece, supra note 78.

(172) See Engel & Linne, supra note 83, at 59. For example, in Texas, Bexar County (home of San Antonio) expected to lose $850 million in taxes over the course of two years had the Dark Store Theory been adopted. Sehvilla Mann, Taxes, Big-Box Stores and the 'Dark Store Theory', NPR (Nov. 23,2017,5:08 AM), /2017/11/23/566213142/taxes-big-box-stores-and-the-dark-store-theory.

(173) See Juaer et al., supra note 18; Norman, supra note 18.

(174) See Pettypiece. supra note 78; Glenn Hegar, Commentary: Sinister-sounding dark store theory is corporate welfare. STATESMAN (Mar. 30, 2017, 12:01 AM), 1 vRxtR0411YKA


(176) See Mark Hutcheson Interview, supra note 13.

(177) See Wilmath & Alesandrini. supra note 13, at 3.

(178) See Engel & Linnc. supra note 83, at 57.

(179) See Matter of Home Depot U.S.A. Inc. v. Assessor of the Town of Quecnsbury, 129 A.D.3d 1427, 1429-30 (N.Y. App. Div. 2015) (holding that utilizing vacant big-box stores under the sales comparison approach is an sufficient way to determine the market value and fee simple of a property); Lowe's Home Centers, Inc. v. Holman, Appeal No. 06-34040 (State Tax Comm'n of Mo. June 6. 2008) (declining to consider vacant Lowe's properties as cornparables to find the true market value); Stinson v. Trimas Fasterners. 923 N.E.2d 496,498-99 (Ind. T.C. 2010) (finding in favor of using vacant retail stores as comparables in Indiana); Bonstores Realty One, LLC v. City of Wauwatosa, 839 N.W.2d 893. 902-03 (Wis. Ct. App. 2013) (concluding that dark store sales were not considered appropriate in Wisconsin due to the store's different highest and best use); Soifer v. Floyd Cty. Bd. of Review. 759 N.W.2d 775 (Iowa 2009) (finding that valuing a occupied big-box retail store is more preferential than a vacant and dark store for purposes of property tax); Prieb Properties. L.L.C.. Docket 2004-3806 (Kansas Bd. of Tax Appeals June 8, 2007) (holding that a proper analysis of fee simple includes comparable sales of vacant buildings).

(180) See Engel & Linne, supra note 82; Town o/Queensbury, 129 A.D.3d at 1429-30.

(181) See Bonstores Realty. 839 N.W.2d at 904-05; Soifer, 759 N.W.2d at 793.

(182) Meijer Stores Ltd. P'ship. v. Smith, 926 N.E.2d 1134, 1137 (lnd. T.C. 2010). Indiana's tax code calls for property taxes based off of a property's "true tax value," or its market rate. See IND. CODE [section] 6-1.1-1-3(a)(2) (2018),

(183) Meijer Stores, 926 N.E.2d at 1 135. The appraised values assigned to Meijer's property by the county appraisal district from 2002 to 2005 ranged from $10,956,800 to $12,132,000. Id.

(184) Id. at 1137. Utilizing this data would show that this Meijer store's market value-inuse was only $6,300,000. Id. at 1135.

(185) Id. at 1137.

(186) Id. at 1135.

(187) Id. at 1139.

(188) See id.

(189) Howard County Assessor v. Kohl's Ind. LP, 57 N.E.3d 913,919 (Ind. T.C. 2016).

(190) See Kohl's Ind.. 57 N.E.3d at 914-15; see also Meijer Stores Ltd. P'ship. v. Smith, 926 N.E.2d 1134,1137 (Ind. T.C. 2010).

(191) See Kohl's Ind., 57 N.E.3d at 915-16. The county's appraiser argued that the use of dark boxes as comparables determined the property's market value, not its market value-inuse. Id.

(192) See id. at 915. Kohl's appraiser argued that the dark big box stores were suitable comparables because: I) their sales prices mirrored solely the real property's value; 2) the properties were all sold for continued retail use; and 3) comparable big box properties were commonly sold in the market. Id.

(193) Id. at 919.

(194) See Matter of Home Depot U.S.A. Inc. v. Assessor of the Town of Queensbury, 129 A.D.3d 1427. 1429-30 (N.Y. App. Div. 2015).

(195) Matter of Home Depot, 129 A.D.3d at 1427-28. Where the Queensbury's tax assessor valued property at $8,737,000 for both 2007 and 2008, Home Depot's appraiser valued the property at $5,000,000 and $5,050,000. respectively. Id.

(196) Id. at 1429. The appraiser for Home Depot: 1) used the sales of several vacant bigbox stores situated outside the taxing districts; and 2) used second-generation lease properties as comparables. Home Depot's appraiser concluded "that the sale and lease of large retail stores on the open market" as opposed to sales encumbered by long-term leases were more indicative of true market value; see also Mcijer Stores Ltd. P'ship. v. Smith, 926 N.E.2d 1134, I 137, 1139 Ind. T.C. 2010); Howard County Assessor v. Kohl's Ind. LP, 57 N.E.3d 913, 919 (Ind. T.C. 2016).

(197) Matter of Home Depot. 129A.D.3dat 1428.

(198) Id. at 1429. The Town of Queensbury "used two big-box store sales encumbered by long-term leases in [its] sales comparison analysis" to value Home Depot's property.

(199) Id. at 1429-30. The court effectively rejected build-to-suit leases as acceptable comparables because they are above market value.

(200) See Bonstores Realty One, LLC v. City of Wauwatosa, 839 N.W.2d 893 (Wis. Ct. App. 2013); HAMILL, supra note 195, at 532. Wisconsin levies property tax based on a property's full value, which looks at recent arms-length transactions of the property and reasonably comparable properties.

(201) Bonstores Realty, 839 N.W.2d at 895.

(202) Id.

(203) Id. at 901 ("[Bonstore's appraiser] defined 'dark' as 'a period of time where the stores is not operating.").

(204) Id. The Court of Appeals of Wisconsin followed the circuit court's finding that Bonstore's dark comparables were all, in one way or another, distressed, and therefore did not reflect at true representation of their market value. Id.

(205) Id. at 904-05.

(206) See Soifer v. Floyd Cty. Bd. of Review. 759 N.W.2d 775, 782-83 (Iowa 2009). Iowa taxes property at their fair market value. HAMILL, supra note 195, at 162.

(207) Soifer, 759 N.W.2d at 778. The Floyd County appraisal district valued the property at $352,990. The district court dismissed Soifer's appeal, but the court of appeals was convinced "that the market value of the property was far less than the assessed value" and reduced the amounts to $230,000 for each of the years in question. The Supreme Court of Iowa granted further review.

(208) Id. at 786.

(209) Id. at 790-91.

(210) Id. at 779 (referencing the Iowa Admin. Code. r. 701--71.1(1)). Notably, the Iowa Administrative code actually reads: "The assessor shall classify property according to its present use and not according to its highest and best use." Iowa Admin. Code r. 701--71.1(1)). The statute is silent about actually valuing property in accordance to its present use.

(211) Soifer v. Floyd Cty. Bd. of Review, 759 N.W.2d 775. 792-93 (Iowa 2009).

(212) See Hy-Vee, Inc. v. Dall. Cty. Bd. of Review, 2014 WL 4937892, at *5 (Iowa Ct. App. 2014).

(213) Id. at *l-2. Hy-Vee's property was assessed by the Dallas County Assessor at $12,979,690--Hy-Vee appraised the property at $6,489,845. The Dallas County property tax review board affirmed the Dallas County Assessor's assessment and the district court affirmed. Hy-Vee timely appealed.


(215) Id. at *2 ("Hy-Vee's experts... believed the best use of the property would be continued use as a retail space (such as large commercial retail), whereas the Board's expert... opined the best use would be continued use as a grocery store.").

(216) Id. at *4. The court determined that the reliance on the sale/leaseback transaction was not in error.

(217) Id. at *5.

(218) Id. at *1; see also Soifer v. Floyd Cty. Bd. of Review, 759 N.W.2d 775, 792-93 (Iowa 2009).

(219) Spearheaded by Detroit-based property tax attorney Michael Shapiro, Michigan is considered the originator of the Dark Store Theory. See Shannon Petty piece, How Big-Box Retailers Weaponize Old Stores. BLOOMBERG BUSINESSWEEK (Dec. 8, 2016),; see generally Sehvilla Mann, Taxes. Big-Box Stores and the 'Dark Store Theory', NPR (Nov. 23, 2017, 5:08 AM). https://www.npr.Org/2017/l/2 3/566213142/taxes-big-boxstores-and-the-dark-store-theory (highlighting Michigan's role in the creation and ongoing debate of the Dark Store Theory).

(220) From the Michigan Tax Tribunal's website: "The Tribunal is an administrative court that hears tax appeals for all Michigan taxes. LARA TAX TRIBUNAL, (last visited Jan. 11, 2018). Most of the Tribunal's appeals involve property tax[.]" Id.

(221) See Target Corp. v. City of Novi, No. 345523, 2010 WL 5648726, at *12--13 (Mich. Tax Trib. Sept. 23, 2010). The Michigan Tax Tribunal determined that, due in part to the economic crisis of 2008, "[t]hc highest and best use of the subject property... is as a retail store which is different than its current use as a Target store." See id. at *8, *13. With the increased amount of big box retailers going dark, the sales of vacant stores are a viable representation of a property's true cash value.

(222) See Kohl's Dep't Stores, Inc. v. Twp. of Frenchtown, No. 369836,2013 WL 7608182, at * 13, * 15-* 16 (Mich. Tax Trib. Feb. 22, 2013) (holding that the market value of a build-tosuit Kohl's improperly considers the long-term lease of the building as well as the tenant's creditworthiness and determining that big box retail stores available for rent are better determinants of the property's fee simple value): Ikca Prop., Inc. v. Twp. of Canton, No. 366639, 2012 WL 3139709, at *18-*20 (Mich. Tax Trib. July 18, 2012) (accepting the utilization of vacant big box stores in the sales comparison approach); Target Corp. v. City of Auburn Hills. No. 361955, 2012 WL 1473332, at *13 (Mich. Tax Trib. Apr. 24, 2012) (ruling that "leased fee" sales do not adequately establish market value when attempting to calculate fee simple).

(223) See Lowe's Home Ctr., Inc. v. City of Grandville, No. 317986,2014 WL 7442250, at *5 (Mich. Ct. App. Dec. 30, 2014): Lowe's Home Ctr., Inc. v. Twp. of Marquette, Nos. 314111, 314301,2014 WL 1616411, at *13-15 (Mich. Ct. App. Apr. 22, 2014).

(224) See Menard. Inc. v. City of Escanaba. 891 N.W.2d 1. 8-9 (Mich. Ct. App. 2016).

(225) See Menard Inc. v. City of Escanaba, Nos. 441600. 14-001918,2014 WL 7237389. at *12-*13 (Mich. Tax. Trib. Nov. 7, 2014); Menard, Inc.. 891 N.W.2d at 3, 6. Menards' appraiser's principal argument was that the subject property's highest and best use lor 2012. 2013. and 2014 tax years was "for continued use of the existing improvements as a free-standing retail building[,]" should be valued at its fee simple market value, and utilized comparables that were deed-restricted and no longer owner-occupied. See id. at 3, 8-9. The Michigan Tax Tribunal found Menard's sales-comparison viable but rejected the City's cost approach valuations. Id.

(226) Menard, Inc., 891 N.W.2d at 5 (emphasis added).

(227) Id. at 12-13.

(228) Id. at 9 ("[T]he anticompetitive nature of the deed restrictions means that the deedrestricted comparables could not be sold for their [highest and best use)."). Additionally, the court refused to reject the City's cost approach valuation due to the lack of evidence proving-or disproving--any functional obsolescence to the Mendards property in question. Id. at 12.

(229) Jenny Lancour. Supreme Court Considers 'Dark Store' Case. DAILY PRESS, (Oct. 13. 2017),

(230) See Menard, Inc.. 901 N.W.2d 901 (Mich. 2017).

(231) See Stephanie E. Cangialosi, Property Tax Post: The "Dark Store" Saga Continues. BNA. (Oct. 26. 2017),

(232) See id.

(233) See IND. CODE [section] 6-1.1-31-6(d)(2016); IND. CODE [section] 6-1.1-4-44 (2014) (repealed 2016); S.B. 524.98th Leg., Reg. Sess. (Mich. 2015); Hannah Weikel, Reilly Promotes Legislation to Curb Use of Dark Store Theory. GMTODAY (Dec. 13. 2017). (describing Wisconsin's legislative reaction to the Dark Store Theory).

(234) See Sen. Janis Ringhand. Dark Store Legislation Would Restore Property Tax Fairness in Wisonsin. THE WHEELER REPORT (Aug. 30. 2017)

(235) See Engel & Linne, Dark Store Theory, supra note 82, at 59-60; supra Part III(A) (discussing the various cases regarding the Dark Store Theory and highlighting their varying outcomes).

(236) See IND.CODE[section] 6-1.1-3l-6(d)(2016);IND.CODE [section]6-1.1-4-44(2014) (repealed2016); H.B. 1290. H9thGen.Assemb., 2d Reg. Sess. (Ind. 2016).

(237) Lawrence A. Jegen III et al.. Recent Developments in Indiana Taxation Survey 2016. 501ND.L.REV. 1403.1406(2017).

(238) See IND. CODE [section] 6-1.1-4-44 (2014) (repealed 2016).

(239) See id. "[A]n arm's length transaction is a [transaction] in which the buyers and sellers [of a product] act independently and do not have relationships to each other." Arm's Length Transaction. INVESTOPEDIA, (last visited Mar. 13. 2019). The transaction is indicative of both parties "'acting in their own sellinterest and are not subject to any pressure or duress from the other party." Arm's Length Transaction, INVESTOPEDIA, https://www.investopedia.eom/terms/a/armsIength.asp (last visited Mar. 13,2019).

(240) See IND.COM-: [section] 6-1.1-4-43 (2014) (repealed 2016).

(241) See H.B. 1290. 119th Gen. Assemb.. 2d Reg. Sess. (Ind. 2016).

(242) See id.

(243) See id.

(244) Compare IND.CODE [section] 6-1.1-4-43 (2014) (repealed 2016). with H.B. 1290, 119th Gen. Assemb., 2d Reg. Sess. (Ind. 2016).

(245) See S.B. 524,98th Leg., Reg. Sess. (Mich. 2015).

(246) See id. The bill, though never mentioning big-box stores specifically, referred to "limited use property." Id.

(247) See Engel & Linnc, Dark Store Theory, supra note 83, at 60.

(248) See id:, H.B. 4909, 98th Leg., Reg. Sess. (Mich. 2015).

(249) See H.B. 4909. 98th Leg., Reg. Sess. (Mich. 2015); Engel & Linne, supra note 83, at 57-58.

(250) See Engel & Linne, supra note 83, at 60.

(251) See id. Neither S.B. 524 or H.B. 4909 cleared their respective legislative committees. See MICHIGAN LEGISLATURE, http://www. legislature. ud-nuiqb5pty0))/miIeg.aspx?pagc=GetObject&objectname=20l5-SB-0524 (last visited Jan. 14, 2018); MICHIGAN LEGISLATURE, (last visited Jan. 14.2018).

(252) See Engel & Linne, supra note 83; see also Shapiro, supra note 126 (describing legislative reactions to the Dark Store Theory's growing utilization).

(253) See Wilmath & Alesandrini, supra note 13 (analyzing the ongoing national debate regarding the Dark Store Theory's viability).

(254) See Special Committee on Big-Box Valuation. Commercial Bin-Box Retail: A Guide to Market-Based Valuation. 1AAO (Sept. 2017). at 4-6. 17.pdf.

(255) Compare id. with Daniel Smith & James Johnson. Property Taxes Should Reflect Retail's Apocalyptic Times. APTC. (Nov. 14, 2017), and Engel & Linne, supra note 170.

(256) See Wilmath & Alesandrini, supra note 13, at 12; see also Special Committee, supra note 176, at 4-6. The 1AAO (International Association of Assessing Officers) is a nonprofit association of government assessment officials committed to providing standards and guidelines to the assessing community. IAAO'S Story. IAAO, (last visited Jan. 19,2018).

(257) See Wilmath & Alesandrini,supra note 13, at 14.

(258) See id.

(259) See id.

(259) See id.

(260) See Special Committee, supra note 176. at 4-5.

(261) See id. at 27. The IAAO states that out of all three generally accepted methods, the cost approach most reliably represents real-world economics of acquiring land to construct a big-box store and replicating investor behavior in the marketplace. Id.

(263) Mark Hutcheson Interview, supra note 14.

(264) Smith & Johnson, supra note 256.

(265) See supra notes 61 -64; Mark Hutcheson Interview, supra note 14.

(266) See Shapiro, supra note 126.

(267) See id.

(268) See Engel & Linne. supra note 170.

(269) See id.

(270) See id.

(271) See generally supra note 103 (describing the difference between the fee simple and net lease markets).

(272) Shapiro, supra note 126.

(273) See supra Party II(C).

(274) Mark Hutcheson Interview, supra note 14.

(275) See Engel & Linne. supra note 170.

(276) Mark Hutcheson Interview, supra note 14.

(277) See Engel & Linne, supra note 170.

(278) HAMILL, supra note 195. at 467: Aman Batheja. The Joys of No Income Tax, The Agonies of Other Kinds, N.Y. TIMES (May 24, 2013), see Juaer et al., supra note 18.

(279) See Juaer et al., supra note 17.


(281) HEGAR. supra note 281. The second-largest source of tax revenue was from sales tax and totaled $27385,709,242. Id.

(282) Id. at 1: Charles E. Gilliland, The Texas Property Tax System, REAL ESTATE CENTER 2 (2011), https://assets.reccntcr.tamu.edU/documents/articles/l 192.pdf.

(283) See Batheja, supra note 279; see also TEX. TAX CODE ANN. (West 2018) (referencing the recognized forms of taxation in Texas).

(284) See Glenn Hegar, Commentary: Sinister-Sounding Dark Store Theory is Corporate Wet/are, (Apr. I, 2017),; Juaeret al.,supra note 18.

(285) See generally HEGAR..supra note 281 (discussing the specifics and scale of the Texas property tax system).

(286) Id. at 1.

(287) TEX. CONST, art. VIII, [section] 1(a). The Texas legislature eliminated state-wide property taxation and relies on localized appraisal districts to determine the ad valorem tax rates across the state. See also Gilliland. supra note 283, at 2.

(288) TEX.CONST, art. VIII. [section] 20; TEX.CONST, art. VIII, [section]l(b).

(289) TEX. CONST, art. VIII. [section] 18.

(290) TEX. CONST, art. VIII, [section] 1(b).

(291) TEX. CONST, art. VIII, [section] 21(c).

(292) See generally TEX.TAX CODE ANN. (West 2018) (describing the powers and duties of appraisal districts throughout the state).

(293) TEX. TAX CODE ANN. [section]6 (West 2018).

(294) See TEX. TAX CODE ANN. [section] 5 (West 2018); TEX. TAX CODE ANN. [section]25 (West 2018).

(295) See TEX. TAX CODE ANN. [section] 1.04( 12) (West 2018); Gilliland, supra note 283, at 3.

(296) See TEX. TAX CODE ANN. [section][section] 6,41 (West 2018).

(297) Gilliland, supra note 283.

(298) TEX.TAX CODE ANN. [section] 23.01 (West 2018); See supra note 83 and accompanying text.

(299) TEX. TAX CODE ANN. [section] 23.01(b) (West 2018).

(300) See TEX. TAX CODE ANN. [section][section] 23.0101..011..012,.013 (West 2018).

(301) See TEX. TAX CODE ANN. [section][section] 23.0101,.011..012,.013 (West 2018); see also TEX. CONST, art. VIII, [section] 1(a).

(302) See Mary LaPoint, Basics of How Properly is Appraised for Ad Valorem Taxation, CALDWEI.LCAD. (When Texas appraisal districts begin to appraise properties, they recognize that '"... [i]t is the lee simple estate [that is] being appraised."): sec also Paul Pennington. Three Tests lo Determine a Fair Value: An Example from Texas, PEPENNINGTION,

(303) See TEX. CONST, art. VIII, [section] 20.

(304) Pennington, supra note 304; see Cherokee Water Co. v. Gregg Cty. Appraisal Dist.. 801 S.W.2d 872 (Tex. 1990); Dall. Cent. Appraisal Dist. v. Jagee Corp.. 812 S.W.2d 49 (Tex. Ct.App 1991).

(305) See Cherokee Water, 801 S.W.2d 872; Jagee, 812 S.W.2d 49.

(306) Cherokee Water, 801 S.W.2d at 873-74.

(307) Id.

(308) Id. at 874.

(309) See id. at 875-76. The Cherokee Water leases were renewable after one year, provided a stipulated rent, and allowed shareholders to build houses or improvements on the property. but would terminate automatically upon the transfer or sale of the stock. Id. at 874. Cherokee Water contended that since the leases are renewable by the shareholders that the corporation only holds a reversion interest and should be taxed based on the reversion interest and not the fee interest of the property. Id. at 875.

(310) See id. at 875-78.

(311) See id. at 875. If the subject leasehold does not involve an exempt property, the leasehold will be subsumed within the fee simple value of the property. See Cty. of Dall. Tax Collectors v. Roman Catholic Diocese of Dall., 41 S.W.3d 739. 744 (Tex. Ct. App. 2011).

(312) See Dall. Cent. Appraisal Dist. v. Jagee Corp., 812 S.W.2d 49, 51 (Tex. Ct. App. 1991).

(313) Jagee, 812 S.W.2d at 50-51. Both parties stipulated that the market value of the KMart leasehold estate was less than the leased fee estate in the property. Id.

(314) See id. at 50-51. The entire value of the property encompasses the leasehold that is included within the fee simple. Id. at 52.

(315) Id. at 50-51.

(316).Id. at 52,

(317) See id. at 52-53. The court's holding is evidence that an appraiser in Texas can include a valuation of the leasehold stake that the fee contains. Id.

(318) See id.: see also Cherokee Water, 801 S.W.2d 872.

(319) See Cherokee Water, 801 S.W.2d 872; Jagee, 812 S.W.2d 49.

(320) See Cherokee Water, 801 S.W.2d 872; Jagee, 812 S.W.2d 49.

(321) Ken Parsons, Dark Store Assessment Comes to Texas, POER REPORT (Oct. 6. 2016),

(322) See id.

(323) Compare Cherokee Water, 801 S.W.2d W2, and Jagee, 812 S.W.2d 49, with Matter of Home Depot U.S.A. Inc. v. Assessor of the Town of Queensbury, 129 A.D.3d 1427 (N.Y. App. Div. 2015).

(324) See Cherokee Water, 801 S.W.2d 872; Jagee. 812 S.W.2d 49.

(325) See TEX. CONST, art. VIII. [section] 20.

(326) See supra notes 91 -94.

(327) See supra notes 268-71.

(328) See supra Part IV(A).

(329) See supra notes 301-02; supra Part IV(A).

(330) See generally TEX. CONST, art. VIII.

(331) See supra Part IV(A).

(332) See generally TEX. CONST, art. VIII; TEX. TAX CODE ANN. (West 2018).

(333) See generally TEX. CONST, art. VIII: TEX. TAX CODE ANN. (West 2018).

(334) In 2017, the Texas Legislature attempted to foreclose on the Dark Store's applicability with House Bill 27, which aimed to amend the property tax code to limit comparables to only those with the same highest and best use but which was never was adopted. H.B. 27, 2017 Leg., 85th Sess. (Tex. 2017).

(335) See supra Part 11(A).

(336) See supra note 278.

(337) See supra note 122.

(338) See supra notes 173-74.

(339) See supra Part III(C).

(340) See generally supra Part IV.

(341) See supra note 287.

(342) See supra Part IV(C).

(343) See supra notes 173-74.

(344) See supra note 275.
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