United Airlines Ducks Taxes, State Agency Says

CHICAGO (CN) - A Chicagoland transit agency claims in court that United Airlines created a sham office in a far west suburb to duck Chicago taxes on jet fuel, and made a deal with the suburb to get tax kickbacks.

The Regional Transportation Authority sued United Airlines, its subsidiary United Aviation Fuels Corp., and the City of Sycamore, in Cook County Chancery Court.

Sycamore, pop. 18,000, is about 30 miles west of Chicago's western reaches.

The Regional Transportation Authority describes itself in the complaint as "an Illinois special purpose unit of government and municipal corporation."

"This case is filed to redress the improper tax siting by defendants of retail sale taxes on enormous sales of jet fuel," the complaint states. "This practice, which has been ongoing since approximately 2011, has diverted tax monies from plaintiff and other municipalities to defendants.

United Fuels and Sycamore entered into an Economic Development Agreement in 2011, under which "the City and the retailer would agree for a period of 10 years to share sales tax revenue from the firm's operations," the complaint states, citing a Sycamore City Council Agenda.

"While United Fuels purports to have a 'sales office' in Sycamore, there is no selling activity to demonstrate this office is the site of any sale compared to the activity United Fuels and United Airlines perform in their primary offices in Chicago," the Regional Transportation Authority says in the complaint.

"The United Fuels' 'sales office' at 1101 Dekalb Avenue, Sycamore, is located within a small office building, accessible through the rear of the building. The office is located on one floor, and shares that floor with other businesses. It is staffed by one person, but not on a daily basis, and that sole representative does not even have a computer. ...

"The only reason that United Fuels has an office in Sycamore is to attempt to create a sham tax situs for fuel sales in a lower taxing jurisdiction. On information and belief, the only 'sales activity' of United Fuels which occurs in Sycamore is the purported receipt of fuel purchase orders. All true sales activity occurs in Chicago: negotiations for the purchase of fuel from vendors, all delivery scheduling, all accounting, credit approvals, and all decision-making and support for United Fuels' activities."

The complaint adds: "On information and belief, United and United Express send periodic purchase orders incorporating the terms and conditions of the Fuel Agreements to the United Fuels 'sales office' in Sycamore. These purchase orders specify the amount of fuel to be 'purchased' for the period. United Fuels purportedly 'accepts' the offer in Sycamore and claims that the 'sale' of jet fuel took place in Sycamore.

"The facts at issue demonstrate no true acceptance of a purchase order takes place in Sycamore. The terms and conditions of the Fuel Agreements and other transactions are established and accepted in Chicago with the knowledge and understanding that purchase orders will be transmitted to an often empty office in Sycamore. Acceptance occurs before the purchase order arrives in Sycamore as the transaction was already agreed upon in Chicago."

The Transportation Authority claims: "By improperly siting the said jet fuel sales to Sycamore, United Fuels pays the lower combined sales tax rate which applies in Sycamore - 8 percent - compared to Chicago's combined sales rate - 9.5 percent.

"In addition, United Fuels receives the sales tax kickback provided for in the EDA from Sycamore, thus reducing the effective sales tax rate it pays even lower.

"As a direct result, RTA has suffered and is suffering a loss of retail sales tax revenues it should receive from the jet fuel sales of United Fuels, plus a loss of the 30 percent of its sales tax revenue as a Public Transportation Fund match on sales made in any of the six counties within the RTA region."

The Regional Transportation Authority seeks an injunction ordering United Airlines to site its jet fuel sales in Chicago, not Sycamore, or in the alternative, an order finding the Economic Development Agreement invalid.

It is represented by Maura Yusof with Heyl, Royster, Voelker & Allen.

Yusof referred Courthouse News to Jordan Matyas at the Regional Transportation Authority, who did not respond to a request for comment.

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