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Sales=Tax Value?
by Ron Davis

Should shopping centers pay property taxes based on retail sales the facility generates? The part owner of an Ohio shopping center thinks so and has contested other means of tax assessment all the way to the state’s top court.

The shopping center is SouthPark Center in suburban Cleveland, and the part owner is an affiliate of Dillard’s, Inc., which built a department store at the center at a cost of $14,927,945. A controversy soon arose when the county auditor valued the Dillard’s store at $17,036,714 the year after it opened for business.

A subsidiary of Dillard’s argued, however, that the property had a fair-market value of only $6,860,250. After a hearing, the local board of revision made no change in the county auditor’s valuation.

An appeal followed, but the Board of Tax Appeals valued the Dillard’s property at $14,945,000. That figure, based on the estimated cost of the property, pleased neither Dillard’s nor county officials, whose appraiser set the value of the property at $22 million.

The controversy eventually made its way to the Supreme Court of Ohio, which upheld the Board of Tax Appeals valuation.

The justices explained the “fallacy” of using sales per square foot as a factor in determining a retail property: “Assume two identical anchor department store buildings in the same mall, operated by different owners. If one store has higher sales per square foot than the other, is the property housing the store with the lower sales worth less than the building housing the store with the higher sales? The two buildings in the hypothetical mall should be valued the same if they are identical.”

Added the justices, “If property of this type were to be valued based on the owner’s projection of sales, this could lead to a manipulation of sales projections, so that failure to attain the erroneous sales projection would result in a reduced valuation of the property.... If it is the real property that is being valued, its valuation cannot be made to vary depending on the success or lack thereof of the businesses located on the property. The business factors and the real-property factors must be separated when the real property is being valued for tax purposes.”

The justices therefore accepted the Board of Tax Appeals cost-based valuation figures. (Higbee Company v. Cuyahoga County Board of Revision, 839 N.E.2d 385)

Decision: January 2006
Published: March 2006



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