Chicago-Area RTA: United Airlines Running 'Sham' Business

Lawsuit alleges the loss to taxing bodies in the Chicagoland area has approached $300 million over the last seven years

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    NEWSLETTERS

    Lawsuit alleges the loss to taxing bodies in the Chicagoland area has approached $300 million over the last seven years. Phil Rogers reports.

    Jet fuel is the lifeblood of any airline. But both United and American Airlines say they don’t buy their fuel at O'Hare International Airport.

    In fact, they claim they buy it in a tiny community which doesn't even have an airport. That tiny community is Sycamore, home to some 17,000 people about an hour west of Chicago.

    And the Regional Transportation Authority says it’s all a big lie.

    In a suit filed Monday, the RTA argued that both United and American are operating "sham" offices in Sycamore in an effort to evade Chicago’s higher taxes, cutting the transit agency out of some $96 million since 2005. In fact, the RTA suit alleges the loss to taxing bodies in the Chicagoland area has approached $300 million over the last seven years.

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    "There’s no question these are sham offices," argued Jordan Matyas, the RTA's chief of staff. "We’ve only been able to see United’s, because American’s is locked all the time."

    Indeed, visitors to Sycamore will miss the United fuel headquarters if they don’t know what they’re seeking. It’s squeezed into an office strip next door to a chiropractor.

    "In the United case, you just have a toy airplane, and there’s a couple of empty desks," Matyas said. "That’s not where they’re negotiating the millions of gallons of jet fuel they’re purchasing every year."

    The two airlines are spending a staggering amount of money on fuel. Based on sales taxes that were paid in Sycamore, the RTA estimates that in 2012 alone the two airlines spent "approximately $1.2 billion on jet fuel the airlines" for jets at O'Hare, Matyas said in an email, adding that it is unclear how much of that was later sold to other airlines.

    American, still mired in bankruptcy, is not named in the suit. United shares that honor with the city of Sycamore, which the RTA says entered into a sweet deal with the airlines, agreeing to kick back millions in sales taxes to keep the fuel offices in their community.

    "Sycamore only keeps about $300,000 to 500,000 a year,” Matyas said. "And then they rebate about $14 million."

    The RTA said in a prepared statement that "sales tax dodges" have cost the city of Chicago $133 million in lost sales tax revenue since 2005. They have cost Cook County an additional $60 million and Metra, Pace and the Chicago Transit Authority another $96 million, according to the RTA, which oversees the three agencies and relies on sales tax revenue for much of its funding.

    "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," RTA executive director Joe Costello said in the news release. "Now we know why."

    The lawsuit is potentially embarrassing for Chicago Mayor Rahm Emanuel, who earlier this year called United's decision to move its corporate headquarters to Chicago "great news for all Chicagoans."

    When told of the lawsuit, Emanuel spokeswoman Sarah Hamilton said: "The City has been supportive of efforts in Springfield to ensure corporations pay their fair share, but we have not seen this specific lawsuit and therefore cannot comment on it."

    According to the RTA, the total sales tax rate in Sycamore is 9.5 percent, compared to 8 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.

    Neither United or American would agree to an interview, citing the pending litigation. A United spokesman said in a 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."

    American likewise said it believes it is on solid legal ground. Sycamore city fathers wouldn’t speak about the arrangement, but issued a statement saying, "For over ten years the city has worked with United Aviation under the agreement, which has been examined by tax authorities in the past, and determined to comply with state law."

    The lawsuit is part of a larger effort by the RTA to combat similar deals between various communities and companies.

    During a visit to the United office Monday, reporters found a single employee, who arrived driving a Toyota Prius with the license plate JT FUEL 1. She declined comment.

    American’s office is on the second floor of Sycamore’s city hall.

    The Associated Press contributed to this report.