The “dark store” controversy over big-box property values may have seemed settled when the Kansas Supreme Court ruled in Johnson County’s favor three years ago. But haggling over big box property valuations has returned in a big way over the site of one of Olathe’s most highly visible stores — the Bass Pro shop at 12051 South Renner Blvd.
Phoenix-based Arciterra BP LLP, the owner of three parcels of land where the outdoor retailer is located just off Interstate 35, is delinquent on property taxes for every tax year since 2018, according to county records.
As of the end of May the company would owe the county $2,980,709 if the county’s valuation is accepted on appeal.
Now the owner, represented by Overland Park tax lawyer Linda Terrill, awaits a ruling by the Kansas Board of Tax Appeals on whether the property was overvalued, as Arciterra argues it was. That hearing is scheduled for Oct. 21.
Arciterra joins a long line of big box retailers on the tax appeals board’s hearing calendar for the coming months. Walmart and Target, which appear to be up to date on their property tax payments, also have numerous appeals filed for tax years stretching back to 2020.
Terrill did not expand on the reason for the Bass Pro appeal — which is listed on the state tax appeals board form as a box checked “value is over market value.” But she reminded the Post in an email that the Supreme Court’s 2022 ruling did not overturn the appraisal method that has been labeled by critics as “dark store.”
The retail space should still be valued as if “vacant and available” as a way of separating intangible value of leases, she wrote. “This is required to ensure uniformity and equality by giving no value to nontaxable intangible property.”
The state high court’s ruling gave BOTA the freedom to choose the correct valuation methods in each case, and those appeals are now back before the board.
Big box property values in question for years
“Dark store” became a familiar shorthand about a decade ago for a disputed way of valuing big box store properties for tax purposes.
At the time, retailers across the country were challenging their property tax bills, saying that appraisers should set values based on what the property would be worth as if vacant and available, the way they do for residential property.
“By ‘vacant and available’ the law directs county appraisers to value the property on the assumption the current owner/occupant will vacate the property upon the hypothetical sale not to devalue the property but to separate out intangible value attributable to the business or leases in place,” Terrill said.
An intangible value of a commercial building represents the value that comes from it being occupied and under lease, presenting it as a good place for business, as opposed to one with windows boarded up.
However governing bodies disagreed, saying that having a building occupied by a thriving business adds value.
Valuing a commercial property as if vacant often resulted in property tax bills far lower than other methods that reflected the value of leases from build-to-suit properties, such as the building designed specifically for Bass Pro Shops.
The values of 11 of Walmart’s big box properties in Johnson County were in question in the Kansas Supreme Court case. The owners claimed the county had overvalued them by about $60 million in 2016 and 2017.
Other commercial property owners had also been appealing around that time and Bass Pro was among them. In 2021, the Kansas Court of Appeals took the side of the landlord, Arciterra, substantially reducing property taxes for the same two contested years of 2016 and 2017.
The state Supreme Court ruling taking Johnson County’s side was welcomed by county and some municipal officials, but it did not erase the possibility of the “vacant and available” method being applied in the future.
Rather than completely ruling that method illegal, the majority on the court took issue with the fact that lower court decisions improperly limited how the state tax appeal board could make its decisions by ruling out methods that included lease values.
Then the cases could go back through their appeals.
A high-profile area with a history
The Bass Pro store was built in 2006 as an anchor to the Olathe Gateway shopping center, located along I-35 at the southwest corner of 119th Street and Renner Road.
It was built with the help of a $22 million tax increment financing and was the retailer’s 40th store nationwide.
But revenues did not meet projections in the recession years leading to a default on bond payments. No city taxpayer money was lost, however, because the city did not guarantee the bonds itself.
In the meantime, Arciterra has had its own major changes due to a scandal involving its now former CEO, Jonathan Larmore.
The U.S. The Securities and Exchange Commission accused Larmore of misappropriating funds from investors and diverting them to pay for yachts, private jets, expensive residences and a “lavish lifestyle” for him and his mother. The SEC appointed a receiver to manage Arciterra’s assets.
In March, Larmore was sentenced to five years in prison for manipulating the stock of WeWork. Inc.
Bass Pro and other businesses continue as usual, and a spot next door to the shopping center in Olathe is being looked at as a promising site for an amusement park development that may get state STAR bond financing.
The Arciterra case, like many others, is making its way slowly through BOTA. It was filed in mid-2023, and the hearing was delayed from March to October. COVID-19 had an impact on the tax appeal panel, and cases are reportedly backlogged.
In the meantime, reasons are unclear as to why no payments have been made to the county on the properties since 2018. County officials declined to comment on any impact to the budget, citing the pending BOTA cases.
Olathe spokesperson Cody Kennedy said the delinquent taxes would not affect the city’s general operating fund since the revenues are dedicated to the Gateway TIF special obligation bonds and not guaranteed by the city. Beyond that would be speculation, he said.
