Lollapalooza, the music mega-festival that ran in Grant Park from Aug. 5 through 7, is expected to have its unique tax-exempt status reviewed thanks to questions about whether the city gets the money it should from the event.

But South Loop hotel and restaurant owners remain gung ho about the festival.

“We would love to have them back,” said Vee Jones, director of sales & marketing at the Wyndham Blake Hotel, at 500 S. Dearborn St.

And Bob O’Neill, executive director of the Grant Park Conservancy, argued that the current contract between Chicago and Lollapalooza promoter C3, “has greatly improved Grant Park and many other parks throughout the city.”

Lollapalooza started in 1991 as a touring festival showcasing bands in the burgeoning alternative music scene. After a hiatus, it was reinvented in 2005 as a Chicago-based music fest that draws the biggest popular music acts.

Grant Park has hosted Lollapalooza every year since 2005 and Lollapalooza promoter C3 has a contract where Chicago’s front yard will host the festival until 2018.

As part of the deal, C3 has received an exemption each year from the five percent amusement tax levied on ticket sales for Chicago Park District events. Lollapalooza is also exempted from the 1.5 percent Cook County amusement tax on ticket sales.

The reason for Lollapalooza’s tax status is that C3 technically is not contracting with the Park District, but instead the Parkways Foundation — the Park District’s non-profit fundraising arm.

The arrangement has raised eyebrows — particularly after WBEZ and the Chicago Sun-Times reported that Mark Vanecko, the nephew of former Mayor Richard Daley, represented C3 in negotiations with the city.

Last week, current Mayor Rahm Emanuel suggested that the City Council or Park District appoint a “third-party, independent” negotiator to look into Lollapalooza’s tax status.

Brenda Palm, executive director of the Parkways Foundation, said that her organization welcomed a contract review. Calls to C3 were not returned.

But while the city may reconsider its relationship with Lollapalooza, O’Neill of the Conservancy is happy with the C3-Parkways Foundation contract. In the current arrangement, 10 percent of annual ticket sales go toward the foundation and the rest to Chicago parks. In 2010, Lollapalooza generated $17 million in ticket sales, leaving almost $2 million for the Parkways Foundation.

O’Neill said that thanks to Lollapalooza money, “hundreds and hundreds of trees have been planted in Grant Park, crabapple trees, elm trees.” Festival money also went to restore Buckingham Fountain.

When asked if Lollapalooza could generate the city even more money if — like other events — it was not tax exempt, O’Neill pointed out that the music festival might bolt Chicago without the exemption.

Also, O’Neill is happy that in the current arrangement, money goes straight to the Parkways Foundation instead of toward overall city revenue and the “city bureaucracy.”

As for business generated by the festival, there’s no definitive study on Lollapalooza’s economic impact. An in-house study by a contractor hired by C3 claimed that the festival generates $80 million for the city, but there have been no corroborating independent studies.

Lollapalooza does greatly benefit hotels and restaurants in the immediate vicinity — probably more than any event in Grant Park.

“It absolutely impacted our business,” said Chris Stamp, director of marketing at the Fairmont Hotel, 200 N. Columbus Drive. “We’ve sold out two consecutive years over that three-year period.”

“I’m not sure anything has the demand of Lollapalooza,” Stamp said. “But Grant Park is becoming more of a destination. We were sold out this weekend because of the Air and Water show.”

Allison Webb, a receptionist at the Congress Hotel at 520 S. Michigan Ave. said that the hotel is normally at 70 percent capacity in the summer, but was “sold about a month in advance for Lollapalooza.”

Phil Fernandez, owner of Tribute Chicago — a restaurant that just opened in July at 800 S. Michigan Ave. said that business jumped about 40 percent during Lollapalooza weekend.

It’s not clear how far this economic boost spread past the immediate Grant Park area. Both Donna’s Café, at 1255 S. State St., and Weather Mark Tavern, at 1530 S. Michigan Ave., reported more modest sales increases.

Regardless, Lollapalooza continues to enjoy community support. “I hope it keeps trending in the direction it has,” Stamp of Fairmont said. “We don’t ever want to see it go away.”