Big Box Chain Brings "Dark Store" Tax Dodge to San Antonio

It’s a busy Saturday at the Lowe’s Home Improvement that hugs the northbound Interstate 35 access road, and do-it-yourselfers jostle for aisle position while wheeling carts stuffed with power tools, mulch, touch-up paint, leaf blowers, bathroom vanities, dimensional lumber and more. Similar scenes play out inside of the Lowe’s on Goliad Road on the southwest side, the Wilshire Terrace location and the other seven Lowe’s superstores in town.

Each year, Lowe’s, just like every other San Antonio area commercial and residential property, is assessed a market value by the Bexar County Appraisal District for which a property-tax figure is calculated. For the past three tax years, the average value of Lowe’s ten San Antonio area stores came out to $82 per square foot, according to BCAD records.

Eighty-two dollars sounded far too high to Lowe’s. They countered, during a BCAD review board hearing, that the value should be more like $20 a square foot, as if the big-box buildings sat empty.

In other words, Lowe’s wanted BCAD to pretend like all of its local stores are permanently defunct, and then come up with a much lower value, even though none of the stores are closed for business.

BCAD decreased Lowe’s value a bit, but not all the way down to $20 a square foot. As a result, a dissatisfied Lowe’s countered by suing BCAD based on a tax dodge known as the “dark-store theory.”

When contesting its appraised value, a big-box corporation can assert that its oversized building is worth as much as a similarly sized structure that has ceased operations (thus, the term “dark”). Because if they were to move out of their warehouses, the property, due to tricky deed restrictions, would sit empty for only-god-knows-how-long. As a result, retailers claim that their buildings are actually worth much less than what local tax assessors have historically determined.

As crazy as it sounds, the maneuver, which is brand new to Texas, is totally legal. Texas – and most other states – doesn’t boast protections in the tax code against the dark-store strategy, according to Texas State Sen. Paul Bettencourt (R-Houston).

The dark-store theory has helped Lowe’s and other big-box retailers sidestep millions of property-tax payments that would normally help fund city and county services such as fire protection, medical care and public-school education. A convincing dark-store argument for Lowe’s in Marquette, Michigan has been cited as a reason why a local library there stopped opening on Sundays.

Depending on the result of the Lowe’s vs. Bexar County Appraisal District non-binding arbitration hearing, scheduled for October 17 at a Bexar County Civil District Court, an already decimated property-tax base could be devastated even further. If the retail chain prevails, San Antonio homeowners might also be saddled with higher property tax payments in the coming years.

“The problem is the long-term effect of the spiral down,” says Mary Kieke, BCAD deputy chief appraiser. “If Lowe’s value goes down, why would Home Depot, Costco, H-E-B or anybody else pay their fair share of property taxes?”
In a prepared statement that didn’t specifically address the San Antonio Current’s questions, the Mooresville, North Carolina-based, Fortune 500 retailer defends the company’s practice.

“Lowe’s goes through a process every year to review property tax values for all its properties across the country,” writes Karen Cobb, a spokesperson in Lowe’s corporate public relations department. “Stores generate jobs, pay state and local income tax, sales tax and property tax. Just like homeowners, we want to be taxed fairly on the value of our buildings and land.”


Critics say that the dark-store argument doesn’t make any sense, and that the legal tactic, which has worked for big-box chain stores in Michigan, Alabama, Florida and Indiana, is a blatant, callous attempt by corporations like Target and Home Depot to avoid millions of dollars in property taxes.

“It’s a distortion of the appraisal process,” says Kieke of BCAD. “You’re looking at more than $300 million worth of value [for the Lowe’s stores in Bexar County].”

The phenomenon of powerful business proprietors outsmarting tax law isn’t new. In Texas, out-of-state corporations, owners of skyscrapers and oil conglomerates have taken advantage of what appraisal district officials, state lawmakers and real-estate professionals say is a broken property tax collection system. The dark-store theory, critics attest, is simply another exploitation.

The unrest boils down to the uniform-and-equal law that was inked into the Texas Constitution in 1997 and expanded in 2003 to the advantage of commercial and industrial property owners. The ambiguous statute, often called the equity provision, forces a civil court to side with a property owner if the owner feels like his specialty property – whether it’s a big-box store, office tower or refinery – has been unfairly appraised due to a lack of comparables in the immediate area.

In Texas, it’s often impossible for an appraisal district to find a comparable property because the state doesn’t require the disclosure of sales prices. Because real-estate sales numbers are essentially secret, appraisal districts must rely on erratic and incomplete private databases to try and procure hard numbers. 

Cash-strapped appraisal districts say that they’re forced to settle disputes because cash-flush corporations drag out and drive up the costs of litigation. “The effect is to simply run up our lawyer and expert costs,” says Kieke, who adds that BCAD has sunk $1.2 million in legal costs to fight Lowe’s over the stores’ 2014, 2015 and 2016 appraised values.

For years, BCAD has faced off against and lost big to Valero and the JW Marriott Hill Country Resort and Spa. The oil giant, whose corporate headquarters is located in San Antonio, sues BCAD annually over the value of its campus, the data center, the servers in the data center, all 150 convenience stores and even their corporate jets, says Kieke. Meanwhile, the sprawling Marriott resort has been able to lower its value by more than $150 million since 2009.

Last year, coupled with the other commercial and industrial litigation that BCAD settled, a record $19 billion of taxable value was erased from the tax base. As a result, millions of dollars for school districts and basic services, such as roads and city libraries, went poof from the tax rolls. Meanwhile, BCAD has raised the values of all property, resulting in a 25.5 percent increase in property-tax expenses for Bexar County homeowners since 2014.

Homeowners could get some relief in 2017 because last month, the Bexar County Commissioners Court, as part of the 2016-2017 budget, approved a lower overall tax rate. However, the potential cost savings could be rendered moot if the dark-store strategy continues to spread.


When the Current asked Lowe’s specific questions about the dark-store strategy in Bexar County, corporate spokesperson Cobb sent us an answer by email. The explanation is exactly the same as a statement Lowe’s provided to the Dallas Morning-News in a September 12 piece about the dark-store theory.

“Determining market value can be a complicated process, but in general, we look at information about comparable property in the area to help determine an appropriate value. In many cases, independent appraisers help us determine an appropriate market value for our buildings and land,” reads the word-for-word statement that also appeared in the DFW paper.

“We are happy to talk with tax assessors to better understand how they determined the assessed value and to try and find a way to arrive at a fair assessment,” the statement concludes. After the Current pointed out the verbatim similarities and asked for an original comment, Lowe’s stopped communicating with us.

The Current’s questions to Lowe’s about their stances on the dark-store theory and the pending court case with the Bexar County Appraisal District were never answered. The Current also received a white-noise response to this inquiry: had they ever filed suit on an appraisal district with knowledge that that appraisal district might not have the financial resources to challenge Lowe’s in court; thus, resulting in a decision by an appraisal district to settle out of court?

The dark-store argument first worked in 2013 in Michigan, according to The Mining Journal, when a Lowe’s store – one that was actually empty – successfully argued that the value of the property isn’t about the sticks and the bricks, but rather the business that takes place inside.

Big-box stores in other states took advantage. In 2014, according to, the Midwest supermarket chain Meijer used the dark-store theory to slash its assessment from $83 per square foot to $30 per square foot in Marion County, Indiana. Not stopping there, the lawyer representing Meijer was able to get the decision applied retroactively, resulting in a $2.4 million repayment of nine years worth of back taxes.

As the dark-store strategy has gained wider acceptance, lawmakers have scrambled to try and reverse the trend, with little to no success.
Indiana legislators rushed to get dark-store defense on the books, but two laws that were passed in 2015 were repealed due to a violation of the state’s uniformity clause, a constitutional requirement, similar to Texas’ uniform-and-equal statute, which says that similar properties must be valued in a equitable fashion. Michigan lawmakers are furiously attempting to push through legislation that would install protections for appraisal districts when faced with the dark-store argument; at press time, a bill that passed the House was awaiting Senate consideration.

Currently, Texas’ tax code can’t protect against the dark-store power play. State lawmakers are scheduled to convene at the Texas State Capitol for the 85th Legislature on January 8; however, property-tax reform with any bite has fallen woefully short during Texas’ recent legislative sessions.

Texas Sen. Bettencourt compares the dark-store arguments to a 2013 Galveston County jury ruling, which determined that the Galveston County Appraisal District had overvalued Valero’s Texas City refinery by $189 million. The court ordered the Texas City Independent School District to repay the energy corporation $5 million; however, GCAD challenged the lower court’s decision to the 14th Court of Appeals, and now the dispute will be heard at the Texas Supreme Court.

“You get these concepts that come up that have to be litigated because it’s something that’s not in the law,” Bettencourt tells the Current. Bettencourt says that he’s currently collecting information from chief appraisers around the state before deciding what types of bills, if any, to craft for the 2017 Legislature. Along with the Bexar County case, Lowe’s has also filed suit against the Harris County Appraisal District in Houston.

Lowe’s greatest concentration of stores – more than 140 – are located in Texas. If Lowe’s dark-store arguments in Bexar and Harris counties turn out in the retailer’s favor, BCAD’s Kieke shudders to think what could happen next.

“I always think there’s a breaking point and then over time I realize there isn’t,” says Kieke. “It’s kind of like the frog that’s in room temperature water, and then somebody turns up the heat. He doesn’t notice until he’s boiled that he has been cooked.”


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