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Kmart sues hundreds of towns over taxes

Kmart has taken sued several hundred towns, cities and counties nationwide, claiming the communities overcharged it millions of dollars in property taxes.
/ Source: The Associated Press

Kmart has taken aim at several hundred towns, cities and counties nationwide in a lawsuit that claims the communities overcharged the discount retailer millions of dollars in property taxes on stores and other facilities.

Some of those being sued have agreed to settlements over the disputed tax assessments, which range in value from a few thousand to tens of thousands of dollars. But other communities, including several in California, have banded together to fight, saying Kmart is using the suit to pressure them into accepting its demands.

"The scope of Kmart's lawsuit is almost overwhelming," Donald Hurley, a lawyer representing the tax assessor for California's Ventura County, which Kmart says overcharged it about $30,000 in 2001, said Wednesday. "The only way we can really respond to it is do it together, which is what we're doing."

The company's suit was filed May 5, the day before Kmart emerged from 15 months of bankruptcy protection. The lawsuit asks the U.S. Bankruptcy Court in Chicago to step in and lower the 2001 and 2002 tax assessments, claiming decisions by assessors overstated the value of Kmart's properties.

"The allocation formula adopted by the defendants in arriving at the assessments is arbitrary, imprecise and unreasonable," the lawsuit states, "and constitutes no proper basis for the valuation of the ... property."

Kmart declined comment Wednesday on the suit.

In recent court filings, communities that refused to settle have asked the bankruptcy court to dismiss the suit. They say the Troy-based company failed to appeal tax decisions locally, waited too long to object and failed to detail in its lawsuit why their assessments are flawed.

Some of Kmart's claims ask the court for reductions of less than $100 in taxes on certain properties, while one against Detroit says the city overcharged Kmart more than $627,000 in 2001. A city spokesman on Wednesday had no immediate comment.

Kmart Corp. closed nearly 600 stores and shed 57,000 employees after filing for bankruptcy protection in January 2002. It emerged from bankruptcy last May as Kmart Holding Corp. and in March reported its first profitable quarter in three years despite declining sales at stores open at least a year.

In Wednesday trading on the Nasdaq Stock Market, shares of Kmart finished down 36 cents at $41.48.

States with communities named in the suit include Alabama, Alaska, Arkansas, California, Colorado, Connecticut, Georgia, Idaho, Kansas, Louisiana, Michigan, Missouri, Mississippi, Montana, Nevada, New Mexico, North Carolina, Oklahoma, Oregon, Rhode Island, Tennessee, Texas, Washington, Wisconsin and Wyoming.

As of January, according to court filings, a few dozen municipalities had reached settlements. Among them was Arkansas' Pulaski County, which after being sued agreed to shave 30 percent off Kmart's nearly $185,000 two-year tax bill.