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RTA Sues American and United Airlines over Sales Tax

  • Jan 15, 2013 | Gail Cole

 Chicago RTA Files Suit Against United Airlines.

The longer the country lingers in the financial doldrums, the more intensely cities, states, and other regional municipalities search for alternative sources of revenue. For a case in point, read on.

The Chicago Regional Transit Authority has accused both United Airlines and American Airlines with running "sham business operations" out of Sycamore, Illinois, in order to avoid paying the higher Chicago and Cook County sales taxes. It has filed suit against Chicago-based United Airlines in the Cook County Circuit Court. American Airlines, which is currently undergoing bankruptcy proceedings, is not listed in the suit. (Chicago Tribune).

The Sycamore offices for both airlines are purportedly small, part-time offices. The RTA maintains that both American and United "claim they purchase their jet fuel, one of their largest expenses, from those offices."  RTA contends that "if the airlines complied with Illinois law and paid the appropriate sales tax, they would be taxed at a rate of 9.5 percent." The sales tax rate in Sycamore is 8 percent.

The RTA also claims that "Sycamore kicks back a large part of its share of the sales tax to the airlines, amounting to as much as $14 million a year."

For their part, both United and American Airlines maintain that "their tax arrangements are legal under Illinois law." United released the following statement:

"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.  … We will vigorously defend ourselves against any such claims."

Under Illinois law, sales taxes "should be collected where the purchase is accepted." In many other states, sales taxes are "collected where products are received." (Suntimes.com).

Yet RTA chief of staff Jordan Matyas says, "You can't just look at where a piece of paper ended up." He maintains that other factors should be considered: where a deal is negotiated and signed, where payments are made, where the company is located, is where the product is used.

RTA executive director Joe Costello reminds, "These airlines happily accept taxpayer-supported services … but don't pay what is due to support those services."

The RTA is "calling on United, American and any other businesses engaged in these practices to do the right thing and cancel these agreements."

photo credit: Images by John 'K' via photopin cc

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Gail Cole
Avalara Author
Gail Cole
Gail Cole
Avalara Author Gail Cole
Gail began researching and writing about sales tax in 2012 and has been fascinated with it ever since. She has a penchant for uncovering unusual tax facts, and endeavors to make complex sales tax laws more digestible for both experts and laypeople.