Retailers pay property taxes that generate a sizable amount of revenue for municipalities. Drugstores such as Walgreens and CVS have been arguing a tax strategy in courts around the country that, when successful, dramatically lowers the property taxes they pay and municipalities aren’t happy about it.
According to a Bloomberg article, the drugstores’ argument hinges around the values of the long-term net leases they sign when renting a location. In a net lease, the renter covers property taxes and other expenses, and the retailer pays a premium in excess of building costs. The net leases are then traded among investors who own property. The taxes retailers pay are assessed on the basis of the value of these leases, rather than the value of the property itself. Retailers ? especially drugstores, due to their expensive locations and number of leases ? have been taking tax assessors to court to get their property taxes assessed at the latter, lower value.
Cases of this nature can be found nationwide, sometimes accompanied by public outrage when made known. When chains halve their tax burdens, residents cover the shortfall.
In February 2015, the Lexington Herald-Leader reported on a recent high-profile attempt on the part of Walgreens to lower its tax bill. A Walgreens location in Fayette County was valuated at $5 million, according the article, but the chain argued it they should pay taxes on a property valuation of $3.4 million.
The Herald reported that, according to Fayette County property valuation administrator David O’Neill, Walgreens was making similar appeals for six other locations in the area, which if won would pull $220,224 from the county school district. Walgreens has appealed valuations on 20 of its 94 stores in Kentucky, according to the piece.
An article in the Milwaukee Journal Sentinel reported that between 2008 and 2014, Walgreens filed more claims against the City of Milwaukee for excessive taxation than any other property owner, filing claims on all 18 of its stores every year.
The article indicated the policy amounts to bullying smaller municipalities that don’t have the bandwidth to handle the lawsuits.
Some see a slippery slope, beginning with drugstores and ending with municipalities taking a big tax hit as retailers of all types argue overvaluation.
“More companies are bringing them,” said Amie Trupke, a Madison-based attorney who represents municipalities in assessment cases in the Sentinel article. “Walgreens was probably the pioneer. But now we have Sears, Target, Menards, Kohl’s, Fleet Farm, Farm & Fleet and the fast-food chains bringing challenges.”