Oklahoma County Assessor Leonard Sullivan and County Commissioner Ray Vaughn both get a tax break that many Oklahomans would envy.
Sullivan and his wife receive $42,000 a year in lease payments from a commercial building in Oklahoma City they own, but pay no property taxes on the building.
Vaughn is part of a family limited liability corporation that is receiving $209,000 in lease payments over 41 months for use of an Edmond building it owns. Vaughn's group doesn't pay property taxes on its building, either.
And it is all perfectly legal.
What's their secret?
Both men lease their properties to tax-exempt, nonprofit organizations.
It is the use — not the ownership — of a property that determines whether a property is tax exempt, the Oklahoma Supreme Court ruled in a 2002 case involving Integris-related nonprofit charitable entities.
It doesn't matter if the landlord is receiving rent and is not a nonprofit entity, the court said.
For Sullivan and Vaughn, owning income-producing properties in Oklahoma County that are tax exempt could be politically awkward, since property taxes help pay for a majority of their office expenses and their $105,262 annual salaries. As assessor, Sullivan also is responsible for determining the market values of properties in the county for tax purposes.
Sullivan became irritated when asked about the situation.
“I'm going to give them notice tomorrow to move out of the building,” Sullivan said. “I'm doing a charity deal already and you're trying to find a nasty story to do about me.”
Sullivan said it was his tenant, now called Family Builders Inc., that applied for the property tax exemption on the building at 415 NW 5. Sullivan said he has used that tax exemption to help give the organization a break on its rent that far exceeds the value of the excused taxes.
Sullivan said he has been renting the property to Family Builders for about $5 a square foot when he could be getting double that amount.
“They need me. I don't need them,” Sullivan said. “I don't need the aggravation.”
Laura Gamble, executive director of Family Builders, confirmed Sullivan has given her organization a great rent deal. Gamble said she looked into other rental properties about a year ago and found they would cost two or three times as much.
“It would hurt us severely if we lost the lease on this,” she said.
Gamble said her organization provides counseling and educational services aimed at reducing domestic violence and child abuse.
Vaughn said it was his tenant who applied for the tax exemption granted for his Edmond property at 13700 N Eastern.
The lease requires the tenant to pay all property taxes and insurance, in addition to the rent, so it is the tenant that receives all the financial benefit of the tax exemption, he said.
Vaughn rents the property to Wings Special Needs Community, a nonprofit entity that seeks to enhance the lives of adults with developmental disabilities through social, vocational and residential programs.
The property Vaughn rents to Wings was valued by the assessor at $822,000 and generated property taxes of $11,032 a year in 2011 before being removed from the tax rolls.
The property Sullivan rents to Family Builders was valued by the assessor at $435,000 and generated property taxes of $3,211 a year in 2008 before it was taken off the tax rolls.
While those two properties are tax exempt, Sullivan and Vaughn both pay property taxes on their homes and other nonexempt properties.
Sullivan's office lists the market value of his home at $479,075 and he paid $5,694 in taxes on that home last year. He paid additional taxes on other Oklahoma County properties.
The assessor's office lists the market value of Vaughn's home at $377,309 and he paid $4,213 in taxes on that home last year. His family corporation also paid Oklahoma County a small amount of taxes on vacant commercial land it owns.
Sullivan said he told staff members to appraise his personal home at the high end of what properties in his neighborhood were being valued at, rather than the low end, to avoid questions.
Sullivan said many landlords benefit from the same tax exemption that he and Vaughn do, but said he has no way of counting how many once they have been removed from the tax rolls.
He cited strip shopping centers that lease some of their space to churches as examples of property owners that receive partial exemptions.
Constitution trumps law
Properties like the ones Sullivan and Vaughn lease to nonprofit entities have not always been considered tax exempt by county assessors.
State law says tax-exempt status is to be conferred on “property used exclusively and directly for charitable purposes within this state, provided the charity using said property does not pay any rent or remuneration to the owner thereof unless the owner is a charitable institution.”
However, the Oklahoma Supreme Court's 2002 opinion said that law is unconstitutional to the extent that it would restrict property owners from receiving tax exemptions on property used by tenants exclusively for religious and charitable purposes.A note about this story: