Chicago's bus and train operator Regional Transport Authority has accused United Airlines and American Airlines of depriving taxpayers of some $300 million over the past seven years by dodging sales tax on jet fuel bought for use at O'Hare airport.
According to the RTA, which has filed suit against United but deferred formal action against American owing to its Chapter 11 financial restructuring, the two carriers should be paying Chicago and Cook County taxes as they operate from a headquarters in Chicago but have been "accepting" fuel from part-time staffed "sham" offices in Sycamore, Illinois, a town of just 17,600 inhabitants in DeKalb county more than an hour's drive from the metropolis.
The RTA alleges that the sham offices are "rarely occupied and, in at least one case, don't appear to even have a computer. But both multi-billion dollar companies claim they purchase their jet fuel - one of their largest expenses - from those offices."
"The companies have entered into 25-year agreements with Sycamore, guaranteeing the city as much as a half-million dollars every year that the airlines are allowed to claim that they 'accept' jet fuel there," says the RTA. "
Most states collect sales tax based on where products are received while Illinois is one of only a few states that collect sales tax based on where a company claims a purchase was accepted. The RTA says the airlines should have been paying tax at a rate of 9.5%, instead of 8% in Sycamore.
In a "tax fairness video" released along with the lawsuit, the RTA details lost taxes since 2005 as $133 million by the city of Chicago, $60 million by Cook County and $96 million by the RTA - at a time when metro system fares are rising to make up for public funding shortfalls.
Joe Costello, executive director of the RTA, says: "Governments across the country have been forced to do more with less. CTA, Metra and Pace have had to work with constrained budgets and have needed to raise fares and reduce service because the money's just not there. Now we know why."
"These airlines happily accept taxpayer-supported services - like the mass transit that many of their customers and employees use - but don't pay what is due to support those services. That is just wrong," he adds.
The lawsuit, filed in the Circuit Court of Cook County, comes roughly 18 months after the RTA filed similar lawsuits against far south suburban municipalities Kankakee and Channahon, which have similar tax-avoidance deals with retailers and other airlines.
Neither airline would comment on the specifics of the case, but both deny any wrongdoing from the arrangement.