RTA alleges United, American Airlines using 'sham' office for fuel purchases

January 14, 2013

The Regional Transportation Authority alleges two major airlines are running "sham" business operations to get out of paying higher taxes on jet fuel. RTA contends the practice has deprived Chicago and Cook County taxpayers of nearly $300 million dollars over the last seven years.

According to RTA, United Airlines and American Airlines are claiming they purchase their jet fuel from offices in Sycamore, IL, when RTA believes they're actually doing business out of their Chicago headquarters. RTA Chief of Staff Jordan Matyas says both airlines are running small, part-time offices in Sycamore that are barely occupied. 

"If they were to put however many people in Sycamore, and those were the people that actually buy the jet fuel, that negotiate the prices — the real experts — that would be fine," Matyas said. "But what they're doing is they're just claiming that and they're still maintaining their office in Chicago." 

RTA imposes an additional sales tax on top of the base tax rate in Cook and each of the collar counties that Matyas said amounts to 50 percent of their operational budget — the money that runs CTA, Metra and Pace. Matyas estimates that RTA has lost out on around $96 million dollars since 2004 because of these practices by United and American Airlines. Chicago's sales tax rate is currently 9.5 percent, while Sycamore's is 8 percent. 

In a statement, United Airlines contends they are following the law.

"We are still reviewing the complaint, but we believe that any such suit is without merit. In fact, 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 these claims."

RTA has deffered formal action against American Airlines, as the company is currently involved in bankruptcy proceedings. The airline wouldn't comment, only releasing this statement: "American does not comment on pending litigation but what it is doing in Illinois is permitted under Illinois law." 

This isn't the first time the RTA has sued over sales tax avoidance. In 2011, RTA filed similar lawsuits against far south suburban Kankakee and Channahon, which the company alleges has similar deals with retailers and other airlines.

Updated: An original version of this story said the RTA has filed a lawsuit against both United and American Airlines. Today a lawsuit was filed against United, but the company is deferring action against American.