MIDWAY CLOUT KING’S SWEET TAX DEAL
Businessman avoids years of property taxes thanks to the way the city wrote arrangement with airport concessionaires
For years, multimillionaire businessman Timothy Rand held exclusive rights to operate restaurants at Midway Airport under a contract supposedly meant to give a leg up to “disadvantaged” minority business owners.
After the Chicago SunTimes revealed the cloutheavy African-American businessman’s $20 million personal net worth put his lucrative concession deal at Midway in jeopardy, City Hall decided to let him keep it, saying it had been awarded under earlier rules.
Now, taking a page from the politically connected operators of the Park Grill restaurant in Millennium Park, Rand has found a way to avoid paying years of property taxes on his restaurants at Midway — thanks to the way the city wrote the deal for airport concessionaires including his business, now called MAC One.
A lawsuit the company successfully filed to be exempted from property taxes has so far saved Rand’s company from paying more than $1 million in taxes. Those taxes were either lost to the cash-strapped city and the Chicago Public Schools system — which gets just over half of all property taxes paid in the city — or had to be made up by other taxpayers.
MAC One is the biggest concessionaire at Midway, which is owned and operated by the city of Chicago. The company operates 16 restaurants at the Southwest Side airport, including outposts of Harry Caray’s and Manny’s Deli. The restaurants overseen by Rand — a prolific campaign contributor appointed by Gov. Bruce Rauner in June to the Illinois Sports Facilities Authority — reported revenue last year of $30.2 million, city records show.
As with Park Grill, the key point in whether MAC One has to pay property taxes was whether the restaurants are operating under leases or licenses.
Under state law, businesses that rent space in tax-exempt government properties such as airports have had to pay property taxes, as leaseholders.
But licensees — which have fewer property rights
and can more easily lose their space — are exempt.
Park Grill successfully made an issue of that distinction after a 2005 SunTimes investigation exposed its sweetheart deal to operate on taxpayer-owned land with highly favorable terms including no property taxes and free water, gas and garbage pickup. Those reports prompted then-Cook County Assessor Jim Houlihan to place the restaurant on the tax rolls and the county to start charging it for property taxes.
But Park Grill’s owners — some with close political or personal ties to then-Mayor Richard M. Daley — successfully argued in court they weren’t leasing the prime downtown land from the Chicago Park District, which would have subjected them to leasehold property taxes. Instead, they argued, their deal was a non-taxable concession license.
In December 2010, the Illinois Supreme Court agreed.
Soon after, in April 2011, Rand’s MAC One filed suit to block Cook County from collecting property taxes from the company on the Midway restaurants. It cited the Park Grill case in making a similar argument about its deal with the Chicago Department of Aviation, the city agency that oversees Midway as well as O’Hare Airport.
There had been other court rulings that denied tax exemptions to restaurant licensees at O’Hare and at a community college, in which judges ruled those agreements were effectively leases and thus taxable.
But Cook County Circuit Judge Rita Novak, who heard the MAC One case, saw things differently. Novak ruled in August 2012 that Rand’s company didn’t have to pay property taxes on the airport restaurants. She cited the Park Grill precedent and the fact that the city wrote the contract as a “license.”
“It all came down to their actual deal with the city — their 82-page agreement with the city,” says Sally Daly, a spokeswoman for Cook County State’s Attorney Anita Alvarez, whose office represented the county.
Daly notes that the county persuaded the judge to limit tax refunds to three years — less than what MAC One wanted.
“They were seeking reimbursements for years back to 2001,” Daly says.
Since winning the lawsuit, MAC One has gotten $496,000 in refunds for three years of previously paid taxes, according to records and interviews.
It’s also been exempted from having to pay $150,000 a year in property taxes for each of the past four years.
The refunds are a loss to the city, the school system and other taxing bodies. They can make up the loss of future taxes by raising other people’s taxes.
A spokesman for Rand says, “MAC One simply availed itself of established state law, which any individual or corporate taxpayer may do.”
Since the late 1990s, Rand and his businesses have made campaign contributions totaling $780,000 to local politicians, records show, including $5,000 he gave in 2008 to Alvarez and $10,000 to the Cook County Democratic Party, headed by Joseph Berrios, who’s now the county assessor.
Daly says the contribution had no bearing on the handling of the court case.
Berrios spokesman Tom Shaer says the assessor’s office had no choice but to follow the judge’s ruling and take MAC One off the tax rolls.
The Rand case prompted a second Midway concessionaire, New Jersey-based Hudson Group, which operates newsstands and retail stores, to file a similar suit last year. County officials didn’t object, agreeing to a court order that saved Hudson Group $112,000 a year from 2014 forward for its Midway locations. Hudson also was given a refund for $109,000 it paid in taxes for 2013.
“Based on the MAC One case precedent, we realized that we were being improperly charged Cook County property taxes,” Hudson Group spokeswoman Laura Samuels says. “We protested, and the court determined that the tax was improper and could no longer be collected after 2012.”
Hudson Group still pays property taxes on its O’Hare locations. Samuels won’t say why.
Sixteen other Midway concessionaires still pay property taxes. Among them, Reilly’s Daughter Irish Pub pays $10,670 in taxes for a location that brings in $1.2 million a year, records show. And The Shoe Hospital — a shoeshine operation — pays $1,337 a year in property taxes on two locations with $50,533 in annual revenue, records show.
County records show no additional exemption cases among the 16 other concessionaires at Midway or the 61 concession properties at O’Hare, which collectively pay nearly $2 million a year in property taxes.
City officials have begun taking steps to keep concession-holders from avoiding property taxes, in 2011 writing a new master lease for O’Hare’s Terminal 5 that requires tenants to pay property taxes.
They plan to include a similar provision as they rebid Midway concessions under a single, new master lease sometime in the coming months. MAC One plans to bid for the new Midway lease.
Beyond those moves, state legislators could change the law, making licensees subject to taxes just as leaseholders are, says Thomas McNulty, a property-tax attorney who is on the board of the fiscal watchdog Civic Federation.
“The General Assembly created the leasehold tax,” McNulty says. “And they’re free to change it.”
“MAC ONE SIMPLY AVAILED ITSELF OF ESTABLISHED STATE LAW, WHICH ANY INDIVIDUAL OR CORPORATE TAXPAYER MAY DO.”
A spokesman for Timothy Rand on MAC One’s successful lawsuit to be exempted from property taxes