The Ulster Town Board last month reaffirmed its support for New York State to enact and support legislation to eliminate the Dark Store Theory in the state’s Real Property Tax Law as a legal loophole for reducing property tax assessments in tax certiorari proceedings. The town first began discussing the Dark Story Theory — the practice of deed-restricting a property that’s being vacated to reduce its taxable value — in the fall of 2017.
Town Supervisor James E. Quigley, III credited former assessor James Maloney, who passed away in July 2019 after a short battle with pancreatic cancer, with having been at the forefront of Ulster’s opposition to the Dark Store Theory, which is sometimes used by big box retailers who have moved from one location to another in an effort to reduce their property taxes.
“The town has been called upon by the (New York State) Association of Towns to pass an annual resolution calling on the governor and the state legislature to enact and support legislation to eliminate the Dark Store Theory in New York State real property tax law as a way to reduce property assessments in tax certiorari proceedings,” said Quigley during a meeting of the Town Board held on Thursday, October 21.
Quigley said that the unanimously-passed resolution was set in conjunction with the more than 900 other municipalities in the Association of Towns in the hopes of adding the matter to the legislative agenda for 2022.
In an October 2017 interview Maloney explained the Dark Store Theory.
“Let’s say you have a big box, and they came in 10 years ago and then the road was rerouted so now it’s no longer an advantageous place,” Maloney said. “So they build another one.”
According to the theory, the retailer restricts the deed on the property they’re vacating that prevents other competing big box retailers from moving in, thus forcing the potential sale price of the building down well below what they originally paid for it.
“At the end of the day, you wind up with an indoor rummage sale or something like that, so the building sells for very, very little because it’s so deed restricted,” Maloney said. “What people are doing is using the shuttered big box store that sold for $1 or $2 million as opposed to the $12 million that it cost to build it, and they’re using that as a comparable against the brand new big box.”
At the time, Quigley, said the Dark Store Theory can have deep financial repercussions for municipalities like his, which rely heavily on taxes from retail businesses. With Ulster already feeling the pinch from a reduction in the property tax assessments at both the Hudson Valley Mall and Tech City in late 2017, Quigley said the impact of big box retailers applying the Dark Store Theory locally could be devastating.
“I think it’s piling on,” Quigley said. “We have several national chains that typically purchase or lease freestanding buildings where this theory can be applied. So I think it’s a risk.”
The Dark Store Theory can also have a negative impact on local school districts. According to a 2017 report by Education Week, a national newspaper covering K-12 education issues, the State of Texas has estimated that the theory could cost municipalities $2.6 billion annually and school districts $1.2 billion annually within five years. In Michigan, where the Dark Store Theory first gained traction in the mid-2000’s, around two-thirds of all school districts had lost an estimated $75 million because of the practice.
The Town of Ulster has continued grappling with the Dark Store Theory since 2017, with assessment reductions to the properties housing WalMart and Lowe’s last year totaling close to $3 million.
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