Lawsuit: ‘Sham’ United office dodges sales taxes
BY ART GOLAB Staff Reporteremail@example.com January 14, 2013 12:40AM
The front door of a small office building in Sycamore, Illinois. The RTA will file a lawsuit claiming United and American Airlines use tiny offices in remote Sycamore, Illinois, to purchase billions of dollars in aviation fuel for use at O'Hare and Midway in order to avoid paying higher Cook County sales taxes.
Updated: February 15, 2013 6:23AM
In a tiny office in rural Sycamore, next to a chiropractor and an attorney, United Airlines buys billions of dollars in jet fuel.
But the jet fuel never gets anywhere near Sycamore, which is 100 miles west of Chicago.
It goes to O’Hare, and that upsets the Regional Transit Authority, which says it is out at least $96 million in lost sales taxes as a result of the actions of United and another company, American Airlines.
The RTA filed suit Monday against United and the city of Sycamore, contending United operates a “sham” office in the DeKalb County town in order to avoid higher sales taxes in Cook County.
American Airlines also has a fuel purchasing office in Sycamore, but it will escape being sued for now because it is in bankruptcy.
Since 2005, the RTA claims the airlines’ routing of fuel orders through Sycamore has cost the RTA $96 million, the city of Chicago $133 million and Cook County $60 million in sales tax revenues.
The RTA helps fund the CTA, Metra and Pace with sales tax revenue collected in the six-county Chicago area.
Both airlines would not comment on specifics of the suit but said what they are doing is legal.
That’s because while most states say sales taxes should be collected where products are received, Illinois law says they should be collected where the purchase is accepted.
To the airlines, that means Sycamore — which not only has a lower sales tax, but has a deal with the airlines to pay back most of the sales taxes it does collect.
In its suit, however, the RTA will argue Illinois law also requires that other factors should be considered besides where the order is accepted.
“We believe it’s a multi-factor test,” said RTA chief of staff Jordan Matyas. “You have to look at where it was negotiated, where were the payments made, where was it signed, where was the company located and where was the product used.
“You can’t just look at where a piece of paper ended up.”
United’s Sycamore office consists of little more than a fax machine, filing cabinets and a part-time employee, the RTA contends, while its headquarters and massive O’Hare operations are in Chicago.
“These airlines happily accept taxpayer-supported services — like the mass transit that many of their customer and employees use — but don’the pay what is due to support those services,” RTA executive director Joe Costello said in a statement.
In 2011, the RTA filed a similar suit against the towns of Kankakee and Channahon. That suit has yet to go to trial, but the case to be filed Monday will be the first time the RTA is suing a specific company such as United for using this method to reduce its sales tax bill.
In another suit involving a suburban Forest View oil company and the Illinois Department of Revenue, downstate and appellate courts have so far ruled the company can continue to use its downstate purchasing office and avoid Cook County sales taxes.
The RTA hopes for better luck in a Cook County court.
“I don’t see how a jury would find against us,” said the RTA’s Matyas.