The city of Chicago has halted its attempt to collect hundreds of thousands of dollars in taxes from a large local parking garage operator, after an apparent settlement deal appeared to end the legal action that came about two months after a Chicago administrative law judge ruled state law doesn’t let City Hall go after garage operators for taxes actually owed by valet parking outfits that pay to use the garages.
On May 18, a Cook County judge signed off on City Hall’s motion to voluntarily withdraw its action against LAZ Parking. The judge’s order indicated a settlement agreement may have been reached between the city and the parking garage operator. The order did not disclose any potential details of the possible settlement.
In the order, the judge dismissed the city’s legal action with prejudice, ending the matter the city had introduced less than two weeks earlier.
According to that lawsuit, filed May 6, the city had asked Cook County Judge Kay Marie Hanlon to overturn the decision of Raymond J. Prosser, an administrative law judge who had presided over LAZ Parking’s protest of the city’s tax collection action.
The case dates back several years. But the matter landed before Prosser in November 2015, when the city served LAZ with a tax collection notice worth nearly $425,000, according to Prosser’s decision.
The Cook County Record obtained a copy of Prosser’s March 9, 2016, decision through a Freedom of Information Act request.
According to the case document, the city had claimed a valet parking service, identified in the documents as American Parking Service, had parked vehicles in LAZ’s garages, by agreement, from 2006-2011. Yet, the city said, neither APS nor LAZ had paid the city’s required “parking tax” - a tax imposed on those who use either valet services or paid parking garages for “the privilege of parking a motor vehicle” in the city.
For individual motorists, the parking garages typically tack on the tax to the cost of parking in the garage, and send the money on to Chicago’s Department of Revenue. However, for valet operators, parking garages may negotiate agreements under which valet businesses are required to collect and pay the parking tax themselves.
In this case, LAZ and APS had such an arrangement. APS, though, did not pay the taxes for that five year span, the city alleged.
However, the city argued LAZ was just as liable for the unpaid taxes as the valet business.
In his decision, Prosser said the city’s own ordinance doesn’t allow the city to pursue parking garage companies, like LAZ, for the valet operators’ tabs.
The administrative law judge slapped down the city’s particular attempt to conflate individual motorists parking in the garage and valet operators who are being paid by motorists to park perhaps dozens of hundreds of cars per day. The ALJ cited the city’s ordinance, which declares “valet parking operators are required to collect the tax” when a motorist pays them to park a vehicle, unless the “valet parking operator or the recipient pays the tax to the person conducting the operation of the parking lot or garage.”
Prosser said the distinction the ordinance draws between the valet operator and the “recipient” – the person whose vehicle is being parked – was key in his decision.
“Only ‘if’ the tax is paid directly to the parking lot operator by either the valet parking service or the ‘recipient’ is the valet parking service excused from the obligation to ‘collect and remit’ the Parking Tax,” Prosser wrote. “… Requiring the parking lot owner to collect the tax after the fact and remit the tax to the Department (of Revenue) inserts an extra party and potential error, including double payment of the tax, into the process, a situation a fair reading of this ordinance was trying to avoid.”
He said this should absolve LAZ of any obligation to pay the tax now.
“Since no Parking Tax payment was ever made to the taxpayer by APS or its customers, the condition precedent to the taxpayer’s liability never occurred,” Prosser wrote. “There is simply no provision … placing any responsibility or liability for the alleged insufficient tax payments on this taxpayer (LAZ.)”
Prosser also brushed aside the city’s attempt to argue LAZ was jointly liable for APS’ alleged failure to pay the tax during the five year period at the heart of this case.
According to Cook County court records, LAZ Parking was represented in the action by attorneys with the firm of Duane Morris LLP, of Chicago. The city of Chicago was represented by staff attorneys in the city’s Department of Law.