Walmart’s tax appeal and breach jeopardize local schools, veteran, and public services in small Michigan community

Rural Upper Peninsula city makes Walmart the area’s largest retailer and depends on its vital tax revenue in return

HOUGHTON, Mich. – The City of Houghton, a small northern town (pop. 8,200), located in Michigan’s rural Upper Peninsula, is facing a potentially devastating property tax appeal by Walmart, the world’s largest corporation. The global company seeks a lowered valuation on its local store, spurring a six-year retroactive $1.2 million refund and a reduction in future property taxes. If successful, these actions would force the town to make difficult budget cuts for critical public services to accommodate reduced future city tax revenues.

If Walmart wins the case, it will result in dramatically reduced future budgets to local K-12 schools, veterans’ services, county medical care facilities, the local library, and the City of Houghton. These cuts will jeopardize important programs and services that benefit people, including Walmart employees and customers.

In addition to a 60% reduction of the community’s property taxes, Walmart’s appeal violates a development agreement it made with the City of Houghton. The City provided Walmart with land and other costly infrastructure to accommodate its store expansion. In return, Walmart agreed to increase the store’s assessed value to cover these and other ongoing expenses. The breach of the development agreement makes this case unique and serves as a caution to other local units that have provided financial benefits to Walmart. The City of Houghton has sued Walmart for the breach in federal district court.

Today, community leaders convened in the City of Houghton Council Chamber to discuss the ramifications of Walmart’s appeal and the breach of its development agreement. The City is seeking coordination with the affected local units in what is likely to be a long and expensive litigation. During the meeting, Houghton City Manager Eric Waara and the City’s legal counsel laid out the history of the agreement, explained Walmart’s tax avoidance strategy, and prepared stakeholders for the budget cuts.

“Walmart is important to our community, but this doesn’t privilege them from property tax responsibilities,” said Waara. “Our local Walmart store employs veterans and hard-working parents who rely on city services, so it is disheartening that they are not willing to negotiate a solution to avoid negatively impacting public budgets and services for their customers and employees.”

Walmart is the world’s largest corporation by revenue ($543 billion) held by the wealthiest family on the planet. However, the company is using a legal strategy called “dark store theory” to reduce its tax burden and jeopardize services in a small rural community that supports its thriving store. The theory asserts that for tax assessment purposes, an open, bustling store — such as the Walmart property on M-26 highway’s shopping corridor — should be valued at the same rate as older, vacant stores in markets where the retailer no longer operates. Walmart’s goal is to reduce the property’s value and lower their tax responsibility, which will cost taxpayers well over one million dollars in lost tax revenue and legal fees.

The lawsuit filed on behalf of the City of Houghton stems from an agreement the City made with Walmart when it expanded the local store in 2004. The City transferred the property to Walmart, created a public roadway, funded the relocation of utilities, and agreed to wetland mitigation work to help accommodate the expansion. In return, Walmart agreed to increase the taxable property value to $4,780,000, which allowed the city to justify these infrastructure investments.

A local task force has been assembled in Houghton to increase public awareness and understanding of the situation and to prepare for potential future property tax reductions. The group includes city leaders, public school administrators, veterans’ service groups, the public library, local economic development experts, and many other community stakeholders. The task force will ensure that the community understands the consequences of Walmart’s desire to mitigate property tax expenses at the cost of vital community services.

“I am very disappointed by Walmart’s actions,” said Anders Hill, superintendent of Houghton-Portage Township Schools. “We have limited resources and strive to be responsible with what we have to impact students. Loss of these funds forces us to make some very tough decisions that will not be what is best for kids. Walmart’s actions do not reflect being a partner with our community.”

The task force and the City of Houghton hope that their efforts encourage Walmart to respond to numerous settlement overtures and salvage a relationship that has benefited both Walmart and the people of the community.

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