Witnesses sparred over appraisal methods Thursday in Walmart's appeal to cut its Pulaski County tax assessments by nearly half, as a two-day hearing on what's viewed as Arkansas' "dark store" theory test case concluded.
Tax assessors nationwide have used the phrase -- barely mentioned by name during the hearing -- to deride the legal argument that big-box retail stores should be valued, for tax purposes, as if they are closed and vacant.
About $4.5 million in annual tax revenue is directly at stake in this case, according to the county tax assessor's office.
More than $100 million in local tax revenue would be at risk if Walmart and other big-box retailers use the argument to challenge assessments throughout Arkansas, said Washington County Assessor Russell Hill, an ardent opponent of the theory.
Retailers argue that their buildings are so customized to specific needs that they cannot fetch a price on the open market that is comparable to their tax valuations.
Opponents contend that the alternative means potentially undervaluing a bustling Little Rock store by tying its worth to a vacant, misshapen lot in a different state.
County Judge Barry Hyde gave attorneys seven days to file written final arguments. Hyde, an elected Pulaski County executive who acts as a jurist when the county court is in session, will later decide whether to grant Walmart's request to lower the property assessments. Either side can appeal that decision to circuit court.
"I'm just trying to be a nice guy," Hyde said when asked if he'd take written arguments. "I'll suggest that you [keep] it readable."
Hill and other observers have said that both sides are preparing as if the case will advance to the Arkansas Supreme Court. The "dark store" theory has been tested in at least 21 states, according to one survey, getting mixed results.
The Pulaski County case is focused solely on the county's 2017 assessment of eight Walmart Supercenters and two Sam's Club stores at a combined $145 million.
Walmart first petitioned to reduce the total value to $93.4 million, then cut the request to $74.3 million, a 48% drop, after losing its first appeal before the county Board of Equalization.
Presenting testimony for the first time Thursday, Pulaski County hung its case not on defending its own assessments, but on depicting Walmart's proposed values as incredible.
Bob Clay, the assessor's supervisor of commercial appraisal, sought to pick apart decisions that private appraiser Jeff Ford, hired by Walmart, made while determining the value of the 10 properties.
Using a PowerPoint presentation that was the source of some controversy, Clay spoke at length, infrequently pausing for questions as he critiqued Ford's decisions, including the sample comparison properties he relied upon.
Clay also repeatedly questioned the decisions Ford made on "adjustments," or changes to property data in order to better compare properties that differ in size, use, location and other factors.
Clay contended that many of the comparison properties Ford used to help him determine how much the local Walmart stores are worth should "absolutely not" have been used.
Ford appraised the Walmart properties using three widely accepted appraisal methods.
One, called the "cost approach," is based on the price of the property and any buildings on it while also accounting for how that value has diminished over time. Another, called the "sales approach," is based on what similar properties have fetched elsewhere.
Ford, in his cost approach, determined the value of Walmart's land holdings -- not the buildings -- based on other land-sale transactions.
Two of the transactions, which were used among others to determine the land value, were between related parties, Clay testified.
Appraisers typically disregard related-party transactions because they are not always indicative of true market value. Relatives, or business partners, may swap property at below-market value to suit their private interests, for example.
Ford testified that he was not aware that the transactions Clay referred to were between related parties.
David Lennhoff, an expert appraisal methodology witness retained by Walmart, criticized both Ford and Clay under questioning by Harrison Kemp, who represented the county. Lennhoff had not read Ford's reports and was basing his opinion on what he heard during testimony.
"No appraisal report is perfect," Lennhoff said when asked about Ford's work, later adding that there was no testimony to indicate the related-party land transactions were a major factor in the other methods Ford used.
Ford testified that he gave most weight in his appraisals to the "sales method" -- using the price of seven sold retail properties, one in Arkansas, to inform how much he believed the Pulaski County Walmart property to be worth.
One of those sales included deed restrictions that sharply limited how the buyer could use the property. It included prohibitions on grocery and discount stores.
While questioning Lennhoff, Kemp twice used the phrase "garbage data" in reference to Ford's appraisals. In one instance, after Hyde asked him to be "gentlemanly," he used the phrase to say that he would not say it.
Lennhoff also took aim at Clay's opinions of Ford's work -- mostly over whether comparable properties Ford used under the "sales approach" were properly selected and weighed against the Walmart properties. Clay did not properly show his work, Lennhoff said.
"An opinion is a part of appraisal, but what's not part of appraisal is unsupported opinion," he said, calling the comments "not acceptable. You can't make a statement like that" without support.
Hyde held the hearing over two days in the Pulaski County Quorum Court meeting room to accommodate people interested in the case. Close to 60 people attended the first day, though the audience was noticeably thinner on the second.
Only a handful of people stuck through the entire hearing, which at times went into detail on how to evaluate property -- testimony on depreciation, "cost feasible net operating income" and whether specific industry guidance was compulsory or merely advisory.
Ryan Wilson, a Jonesboro attorney representing Walmart, asked Hyde to not allow Clay's PowerPoint presentation on the basis that he was not given a copy in advance. He said Hyde had set a March email for turning over documents to be used in the case.
"We've never seen this," Wilson said of the slide show, later adding: "I feel like we're getting railroaded here."
The Pulaski County attorneys contended that the PowerPoint was a visual aid and not evidence. Hyde allowed Clay to continue, but "noted" Wilson's objection.
Attorneys then hinted that a circuit court fight is looming. After Wilson repeatedly raised objections about Clay's presentation, he told Hyde that he wanted to "make sure our rights and record are preserved."
Harrison Kemp looked at Wilson and said, "My understanding is our trial at circuit is going to be de novo anyway," essentially meaning that it would start with a blank slate.
A Section on 07/19/2019
CORRECTION: Pulaski County Judge Barry Hyde acts as a jurist when the county court is in session, for example, when he hears appeals of property assessments. A previous version of this story misstated his role during county court hearings.