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CHARITY THRIFTS : Donated Goods Form Heart of a Billion-Dollar Family Empire

September 27, 1987|DAVID JOHNSTON | Times Staff Writer

What some charities are doing "is selling their name for 10 cents on the dollar. They don't control the store, they don't hire the solicitors, they just let (operators) use their name."

In the beginning, the Ellisons salvaged troubled souls. Now they make fortunes in salvage.

A mostly reclusive family of Salvation Army officers turned entrepreneurs, the Ellisons dominate a flourishing multibillion-dollar trade in used clothing and households items solicited in the name of charity and sold in thrift stores heralding the names of those charities.

The family, their associates and former employees who have struck out on their own quietly run hundreds of such stores coast-to-coast and in Canada, unseen by the public or even most government officials charged with regulating charities.

Amvets, Disabled American Veterans, Vietnam Veterans of America Foundation, many Assns. for Retarded Children, the California Council of the Blind and many other charities simply sell the Ellisons and their associates the right to solicit tax-deductible donations of clothes and household goods in the charity's name.

In return, the charities get a share of the proceeds. But not the lion's share.

That goes to the thrift store operators, The Times found after examining several thousand charity tax returns and other documents and interviewing more than 100 thrift store operators, charity executives and government officials across the nation.

Public records show that thrift store operators typically make about $1.50 for each $1 the charity gets.

But in one instance, The Times found, two operators from Florida made $2.55 for each dollar that they turned over to charity. The two men, William R. Stinnett and Sandy Satullo, consistently earn a phenomenal 100%-plus annual return on their equity, giving each of their families a million-dollar-plus income from 10 Illinois Amvets thrift stores.

Public records also show that one family member, Matthew Orlo Ellison of Ventura, built a $1.3-million fortune from charity thrift stores in less than six years.

Most charity-connected thrift stores are not run by entrepreneurs. Goodwill Industries, the Salvation Army, Volunteers of America and others run their own nonprofit stores, usually to provide employment or job training for the troubled, and often at a loss. Still other charities, including the American Cancer Society, operate their stores, for profit, with volunteers supplemented by a paid manager and truck drivers.

Charities can own businesses, but federal tax law makes any profits taxable unless the business relates directly to the organization's charitable purpose. Thus, a health care charity can run a hospital and any surplus or profit is tax-free, but if it owns a pasta factory it must pay taxes on its profits.

However, federal tax law specifies that thrift stores are presumed to relate directly to any charity's purpose. Critics say that Congress never gave a moment's thought to how entrepreneurs could profit from this provision. The Ellisons say Congress also never realized that the thrift stores they run could be a bonanza for the charities.

One former Ellison employee, William J. Ashe, owns thrift stores in Burbank and Sunland that sells goods solicited in the name of the California Council of the Blind. When the arrangement began in 1984, the blind council got 4% of the store's gross revenues, a share since raised to 10%.

George Delianedis, chief investigator for the Los Angeles city Social Services Department, said even that arrangement is more generous than the law requires.

"The law is so weak that Ashe could give them 1% and so long as that is disclosed, there's nothing we can do about it," Delianedis said.

"What the California Council of the Blind is doing," said Robert D. Burns, general manager of the city Social Services Department, "is selling their name for 10 cents on the dollar. They don't control the store, they don't hire the solicitors, they just let Ashe use their name."

Robert J. Acosta, the blind charity's unpaid president, defends the practice. He said the charity expects to receive more than $100,000 from Ashe this year and called Ashe's two stores vital to producing a recorded magazine and other services for the sightless.

Ashe agrees. "This is a great deal for the blind council because they don't have to do anything," he said, during a tour of his Burbank store at 3226 W. Magnolia Blvd. "I send them a check every month and at the same time we're creating value out of throwaways.

"To me, this is what the free enterprise system is all about," he added. "That's why I named my place the American Way Thrift Store."

"The business," as family members call it, began with Ben and Orlo Ellison, sons of Montana farmers who became Salvation Army officers after World War I, quickly gaining note as industrious innovators in church salvage operations, which began in 1897 as a way to put idle hands to work.

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