When it comes to economic development, Memphis and Shelby County often behave like someone in a codependent relationship. If we can just give more and do more, surely, someone will love us.
Never has this played out more graphically than in the pursuit of an IKEA store to join the Wolfchase mashup of chain stores and restaurants.
Until the trendy retailer came along, local government had never given a tax break to a retail store. To bask in IKEA’s “cool factor,” however, our Economic Development Growth Engine (EDGE) contorted itself to approve a PILOT by trying to thread the needle to limit tax breaks to “destination retail” (translation: a retail store that attracts customers from far beyond the Memphis metro).
When the term destination retail was first heard here, it was being used by the special committee at The Pyramid, which said it was the best use of the former arena and which recommended Bass Pro Shops. In the case of that store, the bonds for rehabbing The Pyramid are being paid from increased sales taxes generated by the store itself, and to top it off, it pays 2 percent of gross sales as rent to City of Memphis. That’s projected to be at least $2 million a year.
When used by EDGE, destination retail resulted in an 11-year PILOT for IKEA that waived $9.5 million in Memphis and Shelby County taxes.
Meanwhile, IKEA met with MATA to call for a transit stop closer to its store site, seemingly oblivious to the fact that the taxes being waived could have paid for services like public transit. MATA president Ron Garrison said the changes for IKEA may be funded by MATA and federal funds designated to reduce congestion and improve air quality.
With PILOT in hand, IKEA purchased its new store site for $5.6 million about five months ago, but when Shelby County Assessor Cheyenne Johnson set its appraised value at $5.1 million, an amount that seemed fair in light of the sale, IKEA protested and asked for it to be lowered to the prior appraisal of $1.25 million. The Shelby County Board of Equalization agreed with IKEA.
Under Tennessee law, the assessor had the right to appeal that decision to the Tennessee Board of Equalization and she did so, whereupon Johnson was subjected to a barrage of withering attacks for simply doing her job, which is to conduct appraisals honestly, fairly, and equitably.
The PILOT approved by EDGE gives IKEA an 11-year tax holiday worth $864,000 a year. If the state board supports the assessor, it means that the $29 billion Swedish company would pay about $300,000 in additional city-county property taxes. That’s the average of what the retailer takes in every five-and-a-half minutes.
IKEA’s response was to hint that it may reconsider its Memphis store.
All of this drama takes place against the backdrop of IKEA’s surprising structure as a company owned by a nonprofit organization. It’s why The Economist wrote that unwinding its finances is even “more exasperating than trying to assemble [its] flat-pack furniture.” It described the company as an “outfit that ingeniously exploits the quirks of different jurisdictions to create a charity dedicated to a somewhat banal cause, that is not only the world’s richest foundation but is at the moment also one of its least generous. IKEA’s parent is a private Dutch company, Ingka Holding, which in turn belongs to Stichting Ingka Foundation, which was established by the founder of the company. Its charitable mission is dedicated to “innovation in the field of architectural and interior design,” but its primary purpose is to reduce the company’s taxes by about 80 percent.
At the same time, IKEA is highly successful in receiving subsidies from American governments. According to The New York Times , IKEA has been awarded $21 million in seven government grants in four states in about eight years, and Good Jobs First even puts that amount at $32.5 million.
All in all, it underscores the way that cities chase IKEA as a marker to prove they are trendy and a cool city for millennials. Couple that with Memphis’ legendary lack of self-worth and it adds up to an attitude that propels our amorous overtures to IKEA and that triggers quick condemnations of an assessor doing her job.
It also results in elected officials behaving as if IKEA — and even a Cheesecake Factory — is what will make Memphis a big-league city when legendary music, FedEx, AutoZone, and St. Jude Children’s Research Hospital, to name a few, have already done that in spades.
In the end, Memphis and Shelby County’s codependency won out, and EDGE did what it does best: It extended the international retailer’s tax freeze a year and a half longer just in case the assessor wins her appeal.