Rolling Back Property Tax Payments
Corporate Research E-Letter No. 67, September-October 2007
ROLLING BACK PROPERTY TAX PAYMENTS: HOW WAL-MART SHORT-CHANGES SCHOOLS AND OTHER PUBLIC SERVICES BY CHALLENGING ITS PROPERTY ASSESSMENTS
By Philip Mattera
When Wal-Mart proposes to build another of its giant stores, local residents often raise concerns about increased car and truck traffic, a loss of open space, higher crime rates and other negative impacts that they argue will lower the quality of life in the neighborhood and thus depress property values. The company responds to these concerns by painting a different picture, claiming that its stores provide substantial benefits to communities.
Yet what Wal-Mart does not disclose in site fights—but is revealed for the first time in a new report by Good Jobs First—is the extent to which the company later in effect concedes the point about reduced property values. Once a store has been in operation for a while, Wal-Mart frequently challenges the assessed value that local officials assign to it for tax purposes. In an effort to cut the property tax it pays to local governments—revenue that pays for public education, police and fire protection and other vital services—Wal-Mart routinely tries to belittle the value of its own facilities.
Good Jobs First discovered this behavior in a labor-intensive, nine-month investigation of Wal-Mart’s property tax behavior at more than 500 stores and distribution centers around the United States. We researched local property tax records, looking at assessment appeals on both real property (buildings and land) and business personal property (fixtures and equipment), and found what appears to be a company policy of systematically challenging assessments.
While we did not explore the merits of individual appeals, the high volume of these actions suggests that Wal-Mart, rather than occasionally disagreeing with particular valuations, is engaged in a large-scale effort to roll back its assessments, lower its tax payments and thereby increase its after-tax profits. Our finding that the challenges are handled at the corporate level rather than by individual store managers reinforces this conclusion.
Our key findings:
- An examination of a 10 percent random sample of Wal-Mart’s 2,833 Supercenters and discount stores in operation as of the beginning of 2005 finds that at least one assessment challenge has been filed at 35 percent, or more than one-third, of the stores. Applying that rate to all Wal-Mart stores, we estimate that the company has brought challenges at more than 1,000 of its retail outlets nationwide.
- An examination of all of Wal-Mart’s giant distribution centers in operation as of the same date shows that 40 percent have had an assessment challenge—this despite the fact that many of the warehouses had previously been granted property tax abatements (exempting them from property taxes in whole or in part as an economic development subsidy) when they were first built.
- At many locations, Wal-Mart has filed challenges in multiple years—either because it was not initially successful or because it wanted an even bigger tax reduction. We estimate that the company has filed a total of more than 2,100 appeals at its stores and distribution centers nationwide.
Our findings are consistent with Wal-Mart’s reputation for relentless cost-cutting; they suggest that the company treats property taxes the same way it treats suppliers and workers. But in this case, entire communities are affected. For only two things can happen when large companies like Wal-Mart reduce their property tax payments: either local public services are cut back or small businesses and homeowners are asked to pay more in taxes. Usually, it is some of both.
Our numbers probably understate the true extent of Wal-Mart’s challenges to its assessments, given that they do not include all the informal initiatives taken by the company, which are often not reflected in the local government records we obtained. Our figures also exclude those appeals that were filed but later withdrawn by the company before the hearing date. Finally, our totals are limited by the fact that many local governments keep appeals records for only a limited number of years. The earliest data we were able to obtain were usually from the mid-1990s.
As aggressive and persistent Wal-Mart is in these challenges, the company frequently loses. In fact, when it comes to Supercenters and discount stores, Wal-Mart is denied more assessment reductions than it is granted. Wal-Mart’s win rate in appeals at these stores is only 45 percent. The rate at distribution centers is higher (64 percent), but the company still loses more than one-third of those cases. For stores and distribution centers combined, Wal-Mart’s win rate is just under 50 percent. There are no comparable statistics available on other companies or on commercial property owners in general.
Wal-Mart’s mixed record can be attributed to the worthy efforts of assessors such as those in Johnson County, Arkansas, the company’s home state. When Good Jobs First phoned and said we were calling about Wal-Mart, a county official immediately responded: “We just kicked their butt.” The company had tried to get the valuation of its distribution center in Clarksville reduced from $33 million to $23 million. The county refused, so Wal-Mart sued. When we contacted the county, a circuit court judge had just ruled in its favor. “Wal-Mart pushes, pushes and pushes,” a county official said, “but I’m not bowing down to them.”
Thanks to such perseverance by local officials, the total dollar value of tax savings that Wal-Mart has achieved in its appeals has apparently been kept to a moderate level. We found that the cumulative tax savings achieved by Wal-Mart at outlets that have had successful appeals averages $43,000 per store; at distribution centers it is $289,000. We estimate the company’s cumulative tax savings nationwide for all Supercenters and discount stores at about $23 million; for all distribution centers the amount is about $6 million. This puts Wal-Mart’s total cumulative tax savings in the neighborhood of $30 million, or roughly $3 million a year over the last decade.
Wal-Mart does not disclose how much it pays in annual property taxes nationwide, but a few years ago a company official implied that the amount was about $400 million. If that is still the case, the amount it is recouping through assessment appeals is approaching one percent of its total property tax bill. The amount it seeks through those challenges is much higher, yet the sums involved would still be tiny for a company with $350 billion in revenues and $11 billion in profits. The fact that Wal-Mart goes to such lengths in assessment challenges is another example of its obsession with cost cutting.
The amounts involved in the appeals are also a far cry from the hundreds of millions of dollars Wal-Mart has received in economic development subsidies, which Good Jobs First documented in our 2004 report Shopping for Subsidies, now updated on our website Wal-Mart Subsidy Watch (www.walmartsubsidywatch.org). If local government officials were less vigilant in defending their property valuations from Wal-Mart’s appeals, it is likely that the gap between the two sets of numbers would be much smaller. In some cases, the two tax avoidance methods go together. We found 12 cases of Wal-Mart distribution centers with property tax abatements or exemptions that also filed assessment appeals.
There are significant variations in the frequency of assessment challenges from state to state. In Texas, where the challenges are called appraisal protests, Wal-Mart engages in the practice to a much greater degree than we found in other states. In our research, Texas accounts for the largest absolute number of both total appeals and total successful protests. Because of the high numbers for Texas that turned up in our random sample, we did additional research on other Wal-Mart stores in the state. As a result, we documented more than 100 other locations in the Lone Star State with protests that have brought Wal-Mart more than $6 million in total tax savings. (These additional Texas findings are summarized separately from the random sample.)
Here are the top six states in percentage of stores in our random sample that have at least one challenge (limited to those with 5 or more stores in the sample):
- Texas.................................................................... 83%
- Colorado................................................................ 71%
- Kansas.................................................................. 71%
- California............................................................... 67%
- New Hampshire...................................................... 60%
- Georgia................................................................. 55%
The states with the most frequent appeals are not always those in which Wal-Mart has the most success. While Texas has the most appeals, the company’s success rate in the state is only 43 percent, far below the 82 percent success rate in Florida, for example. In California, the state where we found the second largest number of appeals, its success rate is even lower—25 percent.
There is no clear relationship between the frequency of Wal-Mart’s challenges and the property tax rates in different states. The list above includes Texas, which is considered to have high property taxes (it has no state income tax), and California, which since Proposition 13 has had low property taxes—as well as states that are not necessarily high or low.
Although Wal-Mart’s overall campaign to downsize its property tax payments has been blunted in some states, the company has enjoyed substantial gains in certain individual communities. We document more than 20 locations at which Wal-Mart has won total tax savings of more than $100,000. For example:
- In 2004 Wal-Mart proposed that the assessment of its distribution center in Tomah, Wisconsin be lowered from $43.6 million to $23 million. The city resisted, but Wal-Mart kept up the pressure. This year the matter was finally settled, with the city agreeing to drop the assessment to $31.4 million and refund the company more than $300,000 for each of three years—a total of $949,000.
- Wal-Mart has filed 11 separate challenges at its distribution center in the northern California city of Red Bluff. The company first appealed for the years 1994-1996 but got no change. It then appealed for the years 1997-2002 and reached agreement on changes for each year, achieving total savings of $644,000—a substantial amount but much less than what Wal-Mart was seeking. The company returned with appeals for 2005 and 2006 and recouped another $150,000.
Even when local governments defeat a Wal-Mart appeal entirely, there still may be substantial costs for the community. Assessors told us of major cases in which they had to spend tens of thousands of dollars on outside lawyers, appraisers and other consultants to prepare their defense.
Overall, what we found strongly suggests that Wal-Mart approaches assessment appeals—as with most things—in a centralized, systematic way. The company apparently sees assessment appeals as another way to improve its bottom line. That may be gratifying to shareholders, but it is another example of how the colossal company pursues policies detrimental to the fiscal health of the communities in which it operates.
Note: The text of this E-Letter is drawn from: Philip Mattera, Karla Walter, Julie Farb Blain and Colleen Ruddick, Rolling Back Property Tax Payments: How Wal-Mart Short-Changes Schools and other Public Services by Challenging Its Property Tax Assessments (Washington, DC: Good Jobs First, October 2007); available online at http://www.goodjobsfirst.org/pdf/walmartproptax.pdf.
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