While residents are in an uproar this summer over residential property assessments in Jackson County, Missouri, an equally important battle is underway in Johnson County, Kansas, where big box stores are successfully challenging major increases in their commercial property values.
The trend could significantly reduce future tax dollars for Johnson County schools, libraries and cities. Government leaders are worried and trying to plan for worst case situations.
"That is a scenario that is catastrophic, in my opinion, to the city," Overland Park City Manager Bill Ebel told the city council in mid-July. "Potentially 25-30% of our property tax revenue could be at stake there."
At issue are the county appraisals for large retailers such as Walmart, Target, Bass Pro, Home Depot and Walgreens. The companies argue the county has overvalued their stores by 30% to 40%. So far, they’ve won some major rulings from the Kansas Board of Tax Appeals. If those rulings stand, it could eventually reduce their property tax bills by millions of dollars.
Johnson County is appealing those rulings to the courts, and the companies have been paying their taxes under protest. But County Chairman Ed Eilert warns that if the rulings stand, it could require hefty refunds to the stores and shift the tax burden to small property owners.
"It will be a big, big impact on the tax base," Eilert told KCUR.
Eilert said he worries it could eventually lower tax payments not just from dozens of big box stores but from shopping centers, office, grocery and industrial businesses. And as those businesses see their taxes go down, homeowners could see their taxes go up.
"They would have to pick up a bigger share of the tax burden and that would be mom and pop businesses and residential property," he said.
Attorneys for the big box retailers say the budget fears are overblown, and the county appraiser is using the wrong approach to value these properties for tax purposes.
The retailers won a decision on June 28, when the Kansas Board of Tax Appeals ruled that Johnson County had overvalued 11 Walmart and Sam’s Club stores by $60 million in both 2016 and 2017. The county appraised the stores collectively at about $175 million, while the appeals board set the value at about $115 million.
That would lower Walmart's collective annual tax bill in Johnson County from about $5.5 million to about $3.5 million.
The retailers began appealing after their property values and tax bills shot up dramatically between 2015 and 2016. The Johnson County appraiser's office says those increases were warranted because data from 2015 sales showed the county’s commercial appraisals that year were too low.
County officials say the property value should be based on its worth to the current owners, compared to stores of the same quality and use.
The retailers, however, argue the county should just be valuing the land and the buildings, said Linda Terrill, a Johnson County lawyer who is president of the American Property Tax Counsel, a national organization of real estate tax attorneys.
"It shouldn't matter whether the sign says Betty's Five & Dime or Lord & Taylor," she said. "It's how you sell your house. You don't care who lives there before or if they won the lottery."
Some critics call that a "dark store" theory, saying that for tax purposes, these profitable businesses want to treat their stores as if they are vacant.
But Terrill said the dark store label is unfair, and that the lawful way to evaluate the real estate is without regard to the success of the existing business.
The June 28 Walmart ruling follows similar findings since 2018 for Johnson County Targets, CVS, Walgreens and the Bass Pro store in Olathe. Nordstrom, JC Penney and Macy's have cases pending before the tax appeals board.
"This could be like a tsunami," Johnson County Commissioner Becky Fast said. "It's just one after another."
Fast noted that Johnson County isn't alone. Big box stores have challenged their property tax bills in Wichita and in other Midwestern states including Wisconsin, Michigan and Indiana, with varying degrees of success.
The Johnson County appeals could take several years to make their ways through the courts.
No one is panicking yet, but they are monitoring the situation. Ebel, the Overland Park city manager, has cautioned that the Walmart and Target decisions could lead to a cascade of other businesses also successfully appealing their values.
He said it's difficult to plan, but at some point he would have to "start making decisions on how to curb spending to accommodate the loss of tax revenue."
The biggest impact would be on the schools, which rely heavily on property taxes.
Shawnee Mission School Superintendent Michael Fulton discussed that possibility at a July 22 school board meeting. He said the budget implications aren't yet clear, but could become more apparent next year.
"It's really important that you plan for the worst, because if you don't and there's a big bill that comes due it can really send you into a tailspin," he told the school board. "It'll cause major issues when and if the ruling comes down and is upheld."
Devin Wilson, a parent of two children in the Shawnee Mission School District and a candidate for school board, said the public needs to be more aware of the potential consequences.
"That's my biggest concern, that it would have an immediate effect of lessening funding for Johnson County schools," Wilson said.
At a county commission budget hearing July 29, Overland Park resident Julie Berggren told the commission she was "extremely worried" that if the county loses its appeals, the tax burden will fall hard on residents.
Commissioners responded that if tax money drops, they will manage the budget as they have during economic downturns. But they acknowledged it could be a challenge.
At least one city, Roeland Park, is already seeing a budget impact. A recent settlement between the county and Lowe's lowered its tax bill, requiring Roeland Park to refund $350,000 to the company. The city had planned to spend that money on Roe Boulevard improvements but is now using other funds, said finance director Jennifer Jones-Lacy.
If the Walmart, CVS and Walgreens stores in Roeland Park also reduce their tax bills, it could affect other capital improvement projects.
"It could potentially reduce what we do," Jones-Lacy said. "It's all a guessing game at this point."
Tom Cox, a Kansas legislator from Shawnee, says he can see both sides of the argument. On one hand, he believes the county boosted commercial appraisals too dramatically in 2016.
"They went bold and risked it, but they're getting their hand slapped hard," Cox said. Still, he questions how the stores can be valued regardless of the occupant.
He says the issue will most likely have to be resolved by the courts, rather than by the Kansas Legislature.
Fast, the county commissioner, says if the courts side with the companies, it may require some hard decisions.
"Do we have to look at shifting the burden to residential property taxes or do we look at significant program cuts?" she asked. "I think that will need a lot of community conversation."
Lynn Horsley is a freelance journalist and was a veteran reporter for The Kansas City Star. Follow her on Twitter @LynnHorsley.
