This undated photo provided by [auth] the Regional Transportation Authority in Chicago shows a list of businesses in a small office building in Sycamore, Ill., including United Aviation Fuels, Corp., a subsidiary of United Airlines. The RTA filed a lawsuit Monday, Jan. 14, 2013, alleging that United Airlines has been falsely claiming to buy jet fuel out of what it calls this “sham” office in rural Illinois since 2001 to avoid paying tens of millions of taxes in Chicago, where it says the purchases are actually being made. (AP Photo/Regional Transportation Authority)
CHICAGO (AP) — The lawsuit filed against United Airlines, alleging that the company falsely claims to buy jet fuel in a rural Illinois community in order to skirt tens of millions of dollars in sales taxes, hinges on whether a transportation agency can prove the monumental purchasing task couldn’t have been done from inside the airline’s tiny office 70 miles from Chicago.
Throughout the lawsuit — which alleges the office doesn’t have a computer and is only staffed by one part-time employee — the Regional Transportation Authority’s argument boils down to this: United’s contention that it is buying fuel in Sycamore is absurd.
It won’t be enough for the RTA to show that United set up shop in the DeKalb County community of Sycamore to avoid paying close to $300 million in sales taxes. Rather, it must show that the work United says is going on in Sycamore is really being done at United’s Willis Tower headquarters in downtown Chicago.
“The question before the courts is ‘Where does the transaction happen?'” said Sue Hofer, a spokeswoman for the Illinois Department of Revenue, referring to an anticipated appeal to the state Supreme Court. A similar argument made by the department in a case involving an oil company was rejected by a trial court and last year by an appellate court.
Even RTA chief of staff Jordan Matyas acknowledges that no matter how much the agency and government agencies in Chicago and Cook County don’t like small communities luring businesses with the promise of sweetheart deals that save them tens of millions of dollars in taxes, there is nothing they can do about if the work is actually being done there.
“If there’s 10 people out there, their jet fuel experts, that’s fine,” he said. Instead, “The person that’s out there is very part time, maybe two days a week, but not a full day. There’s nothing going on out there and whoever is out there is not negotiating hundreds of millions of dollars in jet fuel,” Matyas said.
To drive home that point, the RTA has distributed a video made by a consultant who visited United Aviation Fuels Corp., a subsidiary of United, showing an office that was closed at midday on a weekday, with nothing on the desks or any office equipment visible.
Cook County Board President Toni Preckwinkle said her office is investigating the allegations to determine if the county will join the lawsuit, which was filed in Cook County Circuit Court. In the past, the county has joined similar ones the RTA has filed against communities engaged in what they contend are illegal tax incentive programs.
“These allegations are very disturbing to me because basically these are allegations of tax cheating,” she said.
United, though, said the allegations are untrue.
“We buy fuel in Sycamore,” spokeswoman Megan McCarthy wrote in an email to the AP.
In fact, she said in another email, “The operation of our fuel subsidiary in Sycamore has been examined by tax authorities in the past and has been determined to comply with all applicable laws.”
The RTA alleges that American Airlines is engaged in a similar “sham” business out of an office it rents in Sycamore’s City Hall.
But Matyas said American was not included in the lawsuit because the airline remains in bankruptcy, and suing American would require litigating the case both in federal bankruptcy court in New York and in Cook County Circuit Court. He added that the RTA does plan to pursue legal action against American at some point.
American defended its office, too, with spokeswoman Mary Frances Fagan saying in an email that the operation “is permitted under Illinois law.”
And Sycamore, which is also named in the lawsuit, issued a brief statement defending the agreement, saying it has been “examined by tax authorities in the past and determined to comply with state law.”
The RTA alleges that in 2012 alone, the two airlines spent approximately $1.2 billion on fuel for jets at O’Hare International Airport. The RTA said that since 2005, the “sales tax dodges” have cost Chicago $133 million, Cook County $60 million and the Chicago Transit Authority another $96 million.
According to the RTA, the total sales tax rate in Sycamore is 8 percent, compared to 9.5 percent in Chicago. But the RTA contends the airlines are getting an even better deal: The two companies have entered 25-year agreements that call for Sycamore to “kick back” most of its share of the sales tax on jet fuel — as much as $14 million a year — in exchange for payments of at least $300,000 a year from each airline.
The lawsuit is part of a larger effort by the RTA to combat similar deals between various communities and companies.
The RTA, the city of Chicago and Cook County in 2011 filed lawsuits against Kankakee and the village of Channahon, alleging those communities’ tax incentive programs are costing other government agencies millions of dollars.