PRESS ARTICLES

Retailers press tax fight

Big chains scoring with claim they’ve lost millions because counties use a flawed method to value in-store equipment
By Alina Matas
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Three of the nation’s largest retailers — Wal-Mart, Kmart and Target — are taking on Florida’s county property appraisers by challenging recent tax bills, in a move that could change the way retailers statewide are taxed in the future.

The retailers allege that Broward and Palm Beach counties — as well as several other Florida counties including Hernando and Sarasota — are using a flawed method for assessing the value of their tangible property, and thereby are not accurately reflecting the market value of the property. Tangible property includes furniture, fixtures and business equipment inside stores.

At stake is hundreds of thousands of dollars each retailer pays yearly in tangible property taxes. If they win their legal challenges in each county, their tangible property tax assessments could be cut by as much as 50 percent. Wal-Mart won a similar case last year in Hillsborough County, where it won a tax refund of about $150,000.

The issue “raises a red flag about how anybody is taxed in any county,” says Sheila Anderson, a commercial property consultant in Miami who is active in various government watchdog groups.

In addition to Wal-mart, Kmart has sued in Broward and Palm Beach, and Target has sued in Palm Beach County. Similar suits are expected in Miami-Dade, where the three retailers are challenging their assessed values for 1999 through the county’s value adjustment board.

If other retailers follow the lead of the big three, as some experts expect, the impact on county revenues could be significant.

With average tangible property assessments of about $1 million per store and multiple stores in each county, these big-box retailers are major contributors to county tax rolls. Wal-Mart, for example, in 1998 paid $214,530 in tangibles taxes in Broward County on its total assessed value of $9.79 million. In Palm Beach County, it paid $139,053 on an assessed value of $6.6 million. But those payments are being contested.

Wal-Mart has sued in 17 counties throughout the state during the last three years. Its fight began after three counties in Central Florida rejected the retailer’s 1996 returns, declining to accept the company’s figures on what its personal property had cost. Those counties then produced their own assessments of what the items were worth. Wal-Mart is currently suing Broward and Palm Beach counties over 1998 assessments.

At issue is whether the value of the tangible property should be based on what the property would cost if acquired brand new — with some depreciation allowed — or on what the retailer could sell the equipment for in the open market. The state and most local government use the first method, which yields a higher value. The retailers want to use the latter.

“There’s been no effort to see if the results the [government’s] method is producing are an accurate reflection of the market,” said Robert Kelley, an attorney with the Tampa office of Holland & Knight, who represents Wal-Mart, Kmart and Target. “What we’re doing is challenging that practice and trying to determine whether more is required under the law.”

The current methodology assesses taxable value by taking the original cost of the items, as provided by the retailers, and subtracting from that the item’s depreciation — an amount determined with age tables supplied to county appraisers by the state Department of Revenue, also a defendant in the suits.

The retailers say that methodology has two general flaws:

• The values it produces haven’t been corroborated by market data.

• It allows double taxation because the sales taxes the retailer paid when they originally bought the property are included in the original cost of the property.

Property appraisers and the state revenue department stand by the methodology, saying it is the only reasonable way to assign a value to tangible property. They say market data — which means amounts paid in recent sales of business equipment similar to that being assessed — isn’t an accurate method because those sales are mainly made at the time when retailers decide to renovate their stores and sell old equipment. Using that data, therefore, would amount to valuing newer items at salvage prices.

“These companies are now coming up with this salvage values theory, which we believe are not reflective of the true value of their personal tangible property,” said Jay R. Jacknin, a West Palm Beach attorney representing Palm Beach County’s property appraiser.

Said revenue department spokesman Dave Bruns: “We’re confident that the methodology the staff has put forward will meet the statutes test.”

Kelley, the retailers’ attorney, said there is a market for newer items and the revenue department should make an effort to gather sales data and include them in its methodology.

“What [the retailers] want to accomplish is that the Department of Revenue will make some changes, so that in future years they will be satisfied they have made an effort to provide a fair assessment,” Kelley said.

The courts so far have rendered decisions in three Wal-Mart cases elsewhere in the state. A Hillsborough circuit judge this past July reduced the 1997 tax assessment for Wal-Mart stores from $10.1 million to about $5.5 million. The judge ruled that the method of cost-minus-depreciation was acceptable, but that the revenue department tables used to determine depreciation were outdated and should be regularly checked against market data.

In Hernando and Sarasota counties, however, circuit judges have recently ruled in favor of the property appraiser. Wal-Mart is appealing those cases.

Some say the matter won’t go beyond Wal-Mart’s and the other retailers.

“I believe that all of these lawsuits are nothing more than Wal-Mart looking at their tax bill and saying any way we can legitimately reduce our tax bill, we’re going to try,” said Wood, the attorney for Broward County.

But Kelley and other industry professionals disagree. They say suits from other companies may follow if the retailers prevail on the issue, as they may be encouraged by substantial legal precedents in their favor.

Further, system critics say the issues are relevant to all property valuations conducted under guidelines and audits from the Department of Revenue.

Says Anderson, the commercial property consultant in Miami, “It takes a Wal-Mart to sue, but the big picture is about whether [the revenue department] is doing its job of implementing uniform and fair standards for all taxpayers.”

Web Published Monday, January 10, 2000
Published in Daily Business Review on: Monday, January 10, 2000