A controversial court ruling that allowed Millennium Park’s Park Grill restaurant to get away with paying no property taxes is having an unexpected ripple effect at Midway Airport, where a politically connected concessionaire quietly used the case to exempt his business from more than $1 million in tax payments.

At least some of that money is lost to local governmental agencies, including the financially troubled Chicago Public Schools system, which ends up with roughly half of all property taxes paid in the city.

And the overall tax loss could reach $2 million a year if more concession operators at Midway – and ultimately O’Hare Airport – follow the lead of multimillionaire Timothy Rand. His MAC One successfully sued Cook County’s government to stop paying property taxes on the company’s 16 Midway restaurants, including Harry Caray’s and Manny’s Deli.

Since winning the lawsuit with little fanfare in 2012, MAC One received $496,000 in refunds for three years of previously paid taxes, in addition to being excused from $150,000 in taxes each year for the past four years, according to records and interviews.

“The refunds are a direct hit or loss to all the taxing bodies, they can’t recoup the money,” said Bill Vaselopulos, a former high-ranking county real estate official, now a consultant.

At least some of the impacted taxing bodies are able to make up the rest of the lost revenue by shifting the burden to other taxpayers, experts said.

MAC One is the largest concessionaire at Midway, which is owned and operated by city government. Restaurants overseen by Rand – a prolific campaign donor – earned $30.2 million in revenue in 2014, city records show.

Sixteen other Midway concessionaires still pay property taxes. For example, the owner of Reilly’s Daughter Irish Pub pays $10,670 in taxes for space generating $1.2 million per year in revenue, and the owner of The Shoe Hospital, which shines shoes, pays $1,337 a year in property taxes on two locations with $50,533 in annual revenue, records show.

​So far, the only other Midway concessionaire to get the same tax break as Rand’s company is the New Jersey-based Hudson Group, owner of newsstands and retail stores, which filed suit in 2014 citing MAC One as a precedent.

County officials filed no objection and entered into an agreed injunction, saving Hudson Group $112,000 a year from 2014 forward for its Midway sites. Hudson also received a refund for the $109,000 paid for 2013, records show.

Hudson Group spokeswoman Laura Samuels said in a written statement: “Based on the MAC One case precedent, we realized that we were being improperly charged Cook County property taxes. We protested, and the court determined that the tax was improper and could no longer be collected after 2012.”

Hudson Group is still paying property taxes on its O’Hare locations, but Samuels would not explain why.

A search of county records turned up no additional exemption cases among the 16 other concessionaires at Midway, or the 61 concession properties at O’Hare.

‘Barking up . . . wrong tree’

For decades, businesses that rent space in tax-exempt properties, such as airports and traditional government-owned buildings, paid a “leasehold” property tax under the theory that commercial establishments should not enjoy the same tax break as their landlords.

But that principle was upended by a December 2010 Illinois Supreme Court ruling that the Park Grill – a controversial tenant of the Chicago Park District’s Millennium Park, with a generous agreement – was not obligated to pay property taxes.

Rand’s suit, filed in April 2011, asked for the same property tax treatment.

The details revolve around the somewhat arcane issue of whether the restaurants are operating under agreements defined as “leases” or “licenses.”

Under state law, leaseholders pay property taxes.

Licensees, who have fewer property rights and can more easily lose their space, are exempt.

For both Park Grill and MAC One, the park district and the Chicago Department of Aviation – the city agency that runs Midway and O’Hare – call its rental agreements “licenses,” setting up the legal controversy. In the past, judges denied tax exemptions to restaurant “licensees” at O’Hare and at a community college, ruling the agreements had the characteristics of leases.

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However, the judges in the Park Grill and MAC One cases saw it differently.

The Cook County state’s attorney’s office, which represented county government in those lawsuits, said the county lost the MAC One case because Cook County Circuit Court Judge Rita Novak focused on the Park Grill precedent and the fact 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,” said Sally Daly, spokeswoman for State’s Attorney Anita Alvarez.

The county did persuade the judge to limit tax refunds to three years, less than MAC One had demanded.

“They were seeking reimbursements for years back to 2001,” said Daly.

Daly said the county found no “viable” grounds for appeal, but her agency did flag City Hall about the problems with the city’s contract language, warning of “significant real estate tax implications” if wording didn’t change in future agreements.

​Tom Shaer, a spokesman for Cook County Assessor Joseph Berrios, said his agency had no choice but to follow the judge’s ruling and grant the exemption.

Asked whether Berrios was taking action to address the larger problem of concessionaires leaving the tax rolls, Shaer said, “There’s nothing he can do legally. You’re barking up the wrong tree. You’re asking the question of the wrong agency.”

Legal and tax experts say one way to stop city concessionaires from going off the tax rolls is to write future city agreements clearly as leases, and to try to amend current agreements to eliminate the right to seek a property tax exemption – if the companies want to continue doing business at the airports.

The city has begun to close the loophole, in 2011 writing a new master lease at O’Hare’s Terminal 5, which prohibits the lessee from arguing that it owes no property taxes.

The city is insisting on a similar provision as it rebids Midway concessions under one new master lease in the coming months. MAC One is preparing a bid for the new Midway lease.

Another fix could be a change in state law, so that licensees are taxed the same as lease holders.

“The General Assembly created the leasehold tax and they’re free to change it, as long as the change is constitutional,” said Thomas McNulty, a property tax attorney who is also on the board of the nonprofit fiscal watchdog Civic Federation.

McNulty said the schools are the biggest losers when Chicago property taxes aren’t paid.

Rand’s spokesman disputes that the company’s tax exemption represented a “tax break” and released a written statement that said in part: “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 given $780,000 to local political campaigns, records show.

In 2008, Rand donated $5,000 to Alvarez’s campaign fund and $10,000 to the Cook County Democratic Party, headed by Berrios, who was then a member of the county Board of (Tax) Review.

Daly said the donation to Alvarez had nothing to do with the court case.

Sandy Bergo is a special contributor for Illinois Answers.

Chuck Neubauer is a special contributor for Illinois Answers.