TOPEKA, Kan. (Legal Newsline) - The Kansas Supreme Court reversed an appellate decision that protected Walmart and other “big box” retailers from paying higher property taxes, saying a state administrative agency has the authority to weigh different property appraisal methods before arriving at a final value.
The decision returns the question of how much “big box” retail stores are worth to the Board of Tax Appeals for further consideration. Walmart and other national retailers had relied upon an appellate ruling that prohibited the tax appeals board from including “build-to-suit” transactions in its analysis since these arrangements are more akin to financing, where the retailer’s lease rate reflects the cost of acquiring property and building the store.
The retailers argue their buildings should be valued like any other property, based upon a combination of factors including location, cost and market rents in the area. Kansas municipalities dub that approach the “dark store theory,” saying it ignores the economic reality that a busy Walmart store is far more valuable than a vacant Kmart building a few miles away.
Walmart sued after Johnson County, a suburb of Kansas City, nearly doubled the value of 11 properties based upon the higher rents it paid for stores. Walmart argued the difference in value reflected its credit rating and not the intrinsic value of the properties. The Board of Tax Appeals agreed, citing 2012 decision involving Prieb Properties in Shawnee County that instructed it to ignore build-to-suit leases.
The Kansas Supreme Court acknowledged the tax appeals board was bound by state law to follow appellate precedent, but said it wasn’t. It overturned Prieb and ordered the case back to the appeals board for reconsideration.
“Prieb's rationale invades BOTA's longstanding province as the fact- finder in the statutory process for appraising real property at its fair market value for ad valorem tax purposes,” the court ruled. “Prieb's rule of law effectively prohibits BOTA from considering expert opinions based on unadjusted data, even when the experts argue their methodologies arrive at a fair market value appraisal in conformity with generally accepted procedures and standards as required by state law.”
“Though BOTA may reach the same result on remand, that decision must be based on its own determinations of the facts and witness credibility,” the court concluded.