LA Business Journal, Cover Story: Tax Dispute Could Force Sales of 2 Scientology Properties

24 Feb 2002

Los Angeles Business Journal
February 25, 2002

COVER STORY

SCIENTOLOGY IN PROPERTY TAX DISPUTE
by Danny King, Staff Reporter

Two L.A. properties owned by the Church of Scientology are in arrears for hundreds of thousands of dollars in property taxes and could be put up for auction by the county.

The buildings are two of six Hollywood-area properties owned either by the Church or its Building Management Services subsidiary that owe the county property taxes going back as far as 1997, according to the Los Angeles County Tax Collector's Office.

The properties - both on Hollywood Blvd. - could be subject to sale if property taxes, delinquent since the 1996-1997 fiscal year, aren't brought current by July 1. Since 1997, Building Management Services has paid $76,000 of the $241,000 due in taxes on one building and $65,000 of the $156,000 due on the other.

If not brought current by July 1, "they become subject to the tax collectors to sell," said Sharon Perkins, operations chief at the Los Angeles County Treasurer and Tax Collector's Office. "They may become eligible, but we wouldn't actually go to sale until February 2003." The delay between eligibility and auction is a standard allowance to allow property owners to get current.

Three other Scientology properties - 6331 Hollywood Blvd., 4833 Fountain Ave., and 5165 Fountain Ave. - are in various stages of arrears, though none of them will be hitting the six-year threshold this year.

The Church of Scientology or its subsidiaries own 17 properties in Los Angeles, according to the Treasurer and Tax Collector's office.

STATUS DEPENDENT ON USE

Perkins noted that many churches and religious organizations attempt to negotiate property tax-exempt status with the county, and often withhold tax payments in the process. Specific exemptions, granted by the County Assessor's office are dependent on the site's use, according to the office's media deputy, Robert Knowles.

"If they had a parking lot on part of their property and they leased it out five days a week," said Knowles, "we would look at that differently" than property used strictly for church activities.

He added that the Church of Scientology has "always been very cooperative with us when we were in discussions with them about what properties qualified for being tax-exempt."

As for the two properties that could be scheduled for auction in July, the county has granted only partial tax-exemption status for 6724 Hollywood Blvd. (Author Services Building) and none for (the recently remodeled) 6349 Hollywood Blvd., according to Knowles.

Church of Scientology International spokeswoman Linda Simmons Hight said that because of complicated tax exemption issues that have yet to be resolved, the county would end up owing the Church money.

"We are in negotiations with the county - we have been for some time," said Hight, who claimed that because the Church's properties exemption status is in flux, the organization has overpaid on its property taxes. "We're simply waiting for these negotiations to be completed to know how much money they owe us. This a very slow process." Hight estimated that the amount L.A. County will owe the Church "is in the realm of $200,000," adding that the church properties "will never go on the auction block."

County officials could not be reached to respond to that claim.

HOLLYWOOD'S BUSINESS IMPROVEMENT DISTRICT (BID) DRAWN IN

The dispute has hit the Hollywood Entertainment District, a business improvement district formed in 1996 that collects fees from all the properties within its boundaries, without regard to tax-exemot status. As a result, it is seeking $150,000 in unpaid fees due on five Scientology properties.

The BID, which has an annual operating budget of $2.25 million, collects fees based on a formula factoring in street frontage, lot size and building square footage. The fees are charged as a special assessment to the property tax bill, except for tax-exempt properties, which are billed directly by the BID.

Though the BID factors up to $100,000 in nonpayments annually, Scientology-owned property delinquencies now account for half that figure, according to Kerry Morrison, its executive director.

"We have not seen that money," she said. "We don't get anything until (the county is) paid in full."

Morrison said the delinquencies are a major drain on the Hollywood Entertainment District, among the first of the 30 business improvement districts in the city. Its income relies exclsuively on fees from the 210 property owners that make up the 18-block-long district.

"I don't believe we've had any other BID that has had this kind of delinquent assessment problem," said Frank Martinez, executive officer at the Los Angeles Clerks Office.

Property taxes notwithstanding, Hight takes issue with religious or educational facilties having to pay BID fees, noting that the Los Angeles Unified School District also is in arreaes for BID fees generated by Selma Avenue Elementary School.

"What are nonprofits doing in the BID as assessed members at all?" she said. "The executive director makes $135,000 a year, more than a city council member, and yet nonprofits are supposed to cheerfully pay for that salary?"

Hight also alluded to the Church's long-standing cleanup efforts in Hollywood.

"We've been in Hollywood for 30 years. These (properties) were bought when they were very run down and we've brought them up to prize-winning status," said Hight. "We did this for decades before there was a BID."

TAX STATUS BATTLES

The debate over the tax status of the Church of Scientology is not new. The organization was granted tax-exempt status in 1993 after paying the IRS over $12 million as part of a settlement agreement, according to the New York Times. The agreement marked an end to 25 years of legal battles, which included over 2,000 lawsuits on the part of church members against the IRS and 13 separate audits of Scientology-related organizations on the part of the IRS.

Exempt status for the Church of Scientology of California was granted in 1957, only to be revoked in 1970, according to the California Franchise Tax Board. Still, the Building Management Services subsidiary has had exempt status with the state since 1987.

By the end of last July, the end of the county's fiscal year, more than 2,300 properties hit their sixth year of delinquency. While owners of most of the properties have either gotten current on payments or have made payment arrangements with the county to starve off auctioning, about 800 properties will be put up for sale at the end of the month.

"Unfortunately, it's not out of the ordinary," said Perkins, who added, "if they've paid everything but (a nominal portion) we're not going to sell."