TN Family Tax Break Benefits NY 'Strip King' - NewsChannel5.com | Nashville News, Weather & Sports

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TN Family Tax Break Benefits NY 'Strip King'

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It's a Tennessee tax break meant for families.

So how did a so-called strip club "king" from New York end up taking advantage of the legal loophole?

Right now, Tennessee state government needs all the money it can get.

But some very wealthy people are getting very big tax breaks -- and our NewsChannel 5 investigation discovered they're not all Tennesseans.

"Family-owned businesses are part of what has made this state and this nation great," said the House Republican leader, Rep. Jason Mumpower of Bristol.

For some, Norman Rockwell's family images capture a life worth defending -- in this case, defending from state business taxes.

"We passed this recognition of family-owned businesses a number of years ago to help it promote exactly what it has promoted," Mumpower added.

But if that is what lawmakers thought they were promoting when they approved a tax break nine years ago for "Family-Owned Non-Corporate Entities" -- FONCE, for short -- they also created a haven where a New York "strip king" could re-invest millions of dollars.

Tax free.

"Is that your idea of a family-owned business?" NewsChannel 5 chief investigative reporter Phil Williams asked Mumpower.

"That wouldn't be, no," the Republican leader answered.

Still, after New York's strip clubs made him a wealthy man, Sam Zherka looked South to invest that money.

Our investigation discovered that, two years ago, Zherka began buying up apartment complexes in Hendersonville, Goodlettsville and Clarksville. Property records show 12 properties valued at more than $55 million.
 
Zherka, who has also become a newspaper publisher, appears in an anti-tax ad now running in his home county.

And his former attorney, John Stone, says the deals here were structured through various entities designed to help him legally avoid Tennessee taxes.

"It tells me that we've created a tax haven here in the state of Tennessee," said state Revenue Commissioner Reagan Farr.

Farr couldn't discuss Zherka's taxes, but he says the FONCE law allows out-of-state investors from 43 other states to escape paying Tennessee taxes on more than -- get this -- $1 billion in commercial property.

"We are providing all the services that make their property valuable," the revenue commissioner added.

"All of the Tennesseans who are here, buying their goods, paying their sales tax, businesses paying their franchise and excise tax, we are all subsidizing these wealthy out-of-state investors."
 
But our investigation discovered it's also benefited plenty of people around Belle Meade --  the people who appear in the society pages -- who've managed to keep all their money in the family.

Williams: "If I own a building with my best friend from college, it's taxable?" Williams asked Farr.
Farr: "Correct."
Williams: "If I own it with my rich brother, it's tax free?"
Farr: "That's correct."
Williams: "What's the logic behind that?"
Farr: "There is none -- none whatsoever."

Last year, Belle Meade's Rep. Gary Odom, the House Democratic leader, pulled the plug last year on efforts to close the loophole.

"I could not get a clear answer last year as to how many businesses were going to be affected by it," Odom told Williams.

Among Odom's supporters, millionaire developer Jack May and his family own the Belle Meade Plaza, as well as several nearby office buildings.

The Mays are also behind the $4 billion May Town Center proposed for Bells Bend.

"I don't know who has a FONCE. Tax information is private information. It's confidential," Odom said.

"Have they ever discussed it with you?" Williams asked.

"No, sir."

Jack May did not return NewsChannel 5's phone call.
 
But Odom's own campaign treasurer, millionaire developer Bill Freeman, has acknowledged he's also taken advantage of the exemption to avoid state taxes on his real estate holdings.

"Bill Freeman and I have never discussed the FONCE issue," Odom insisted.

"Is there any reason that he should not pay taxes?"

"That's, hopefully, a question that we will answer during this session."
 
The Bredesen administration argues closing the loophole could bring in at least $25 million dollars -- and perhaps much more.

"Given our current budget situation, it's sinful that we don't close this loophole," Revenue Commissioner Farr said.

But Mumpower disagreed. "In this economy, the last thing that we need to be doing is raising taxes at any level."
 
Does that mean continuing to give Tennessee tax breaks to folks who are not even Tennesseans?

"Let's find a way to take care of those people who are coming in from out of state and taking advantage of us," Mumpower said. "Let's not hurt everybody because of one or two bad apples."

Sam Zherka did not return NewsChannel 5's phone calls.

But, to be clear, lawmakers wrote the law that allows him and other out-of-state investors to legally get out of paying these taxes.

All he's doing is taking advantage of their law.

Zherka bought these apartments from another New Yorker, who's been described as a notorious slumlord.

From the property documents, it appears that the previous owner also probably qualified for the family tax break.

Back to NewsChannel 5 Investigates

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