Big-box retailers have mounted widespread legal campaigns to lower their property-tax bills in recent years, prompting courts to wade into the murky areas of market values and sometimes leaving counties in Minnesota and across the nation scrambling to cover lost revenue.
In Minnesota, such property-tax disputes — whether from individuals or megacorporations — have traditionally been waged in tax court, under a legal framework established by state law in 1935.
But in a new legal tactic, Walmart recently has begun to fight property-tax valuations on constitutional grounds, asserting that the longstanding state law shouldn't apply.
The Bentonville, Ark.-based company filed challenges against at least four Minnesota counties this spring and summer on grounds that its rights of equal protection and uniformity granted under the 14th Amendment of the U.S. Constitution have been violated.
Adopted in 1868 as one of the Reconstruction Amendments after the Civil War, the 14th Amendment was originally crafted to address citizenship rights and equal protection of the laws to former slaves. The equal-protection clause is one of the most litigated elements of the Constitution, as it limits the actions of state government officials.
Lawyers for Walmart, the world's largest retailer, have taken their case to Minnesota district courts, arguing that property assessors in Anoka, Martin, Wabasha and Washington counties "intentionally," "willfully" and "systematically" discriminated against it compared to similarly situated properties in the same taxing district. The disparities led to an "unequal assessment" and overvaluation of its fair-market value, the retailer argues.
Walmart aims to reach back and contest six years of tax assessments, from 2013 and 2018, rather than being bound by the 84-year-old state statute, known as Chapter 278, which sets an April 30 deadline to file petitions and deals only with the current property-tax year.
The cases are in the early stages and outcomes could vary among different district court judges.
A judge in the Winona County case recently ruled against Walmart's constitutional argument, saying in a Sept. 12 order that Minnesota's Chapter 278 is the "exclusive remedy" for taxpayers to address unequal assessments, overvalutions and other claims.
"Taxpayers must seek protection of their federal rights by state remedies," Judge Nancy Buytendorp wrote.
A decision by a different judge in Martin County could come any day. Challenges in Washington and Anoka counties have not yet come before their district courts.
The basis for the fight isn't new. Retailers — including Menards, Target, Lowe's and Home Depot — routinely challenge tax assessments in communities across Minnesota and in other states where they do business.
Municipalities, which in many cases have offered retailers tax incentives to bring jobs and commerce to their communities, tend to incorporate sales and other measures of current business success into their market valuation. They use property taxes to keep libraries open, plow the snow, repair roads and hire police officers.
The companies base their legal claims on what has been called a "dark store" comparison, believing their properties should be valued based on what their brick-and-mortar properties would claim if sold on the open market. Because the stores have been designed for a specific purpose, they can have little value to other commercial enterprises when vacated.
The dark-store argument took root in the wake of the Great Recession and has expanded as the rise in e-commerce has led to closures of once-venerable companies such as Sears, Herberger's, Kmart and Toys 'R' Us.
In Minnesota, dark-store challenges could lead to a potential loss of $70 million to $80 million a year in revenue to local and state governments, a Star Tribune analysis found.
Efforts to reduce tax assessments have continued even as businesses experienced significant reductions in federal taxes from the 2017 tax overhaul.
Nationwide, retailers are using the dark-store strategy to fight property valuations in at least 20 states, according to a report by City Lab.
Critics of the dark-store valuation approach model — which also has been used by food producers and manufacturers — said that reductions in retailers' property taxes disproportionately shift the burden onto homeowners and small businesses.
Walmart's approach in Minnesota seems to be an anomaly. By arguing on constitutional grounds, it seeks to move the fight out of tax court, which is an executive branch court established by the Minnesota Legislature to hear only tax-related cases.
Although all tax-court appeals are heard by the Minnesota Supreme Court, only a small number of cases go to trial each year.
In the Martin County case, as with the other counties, Walmart argues that the assessors have treated the company in a systematic and arbitrary way that runs afoul of the company's constitutional protections.
In a complaint filed in the Fifth Judicial District, Walmart argued that between 2013 and 2018, its store in Fairmont faced a market value assessment "250% and 300% more than the average sales price paid or assessment for any big box store in Minnesota during the pertinent time frame."
The 164,000-square-foot store opened in 2006. In 2018, Walmart paid $428,636 in property taxes to the county, according to government records.
At an Aug. 2 hearing, the attorney for Martin County argued that the state's Chapter 278 law already meets the basic standards of due process and allows a fair opportunity for taxpayer challenges.
The law gives individuals and corporations alike the ability "to put the key in the courthouse door," said Marc Manderscheid, a real estate law specialist with the Minneapolis firm of Briggs, on behalf of Martin County.
Walmart lawyer Edward Fox, of the Minneapolis firm Bassford Remele, countered: "What they are asking this court to do is to slam the courthouse door in our face."
Argued Fox: "The tax court has no jurisdiction to consider constitutional claims."
Judge Darci Bentz could make a ruling this week.