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Agency suing American for running “sham” business

March 12, 2014, Chicago, Il. - The agency that oversees public transportation in Chicago is suing American Airlines for falsely claiming to buy "vast amounts of jet fuel" from a small office in a rural community to avoid paying tens of millions of dollars in taxes in the nation's third-largest city, where the actual work is done.


March 12, 2014
By The Associated Press

The lawsuit comes a year after the same agency — the Regional
Transportation Authority — accused United Airlines in a lawsuit of doing
the same thing in the same small town. The RTA filed its lawsuit in
Cook County Circuit Court late Tuesday afternoon.

 

The RTA oversees the Chicago Transit Authority, the
region's Metra commuter line and the Pace suburban bus service. The
agency has been making the allegations against American for more than a
year but said it was waiting for the airline to emerge from bankruptcy
protection, something that happened in December.

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As it said when it sued United,
the RTA said American or its subsidiary, American Aviation Supply, could
not possibly conduct the business of buying fuel for jets at one of the
largest airports in the world, Chicago's O'Hare International Airport,
out of an office that's less than a 1,000 square feet where one or two
employees work. The office is in City Hall in the town of Sycamore.

 

"We're saying whatever work is being done there
is a sham," Jordan Matyas, the RTA's chief of staff, said ahead of the
lawsuit being filed.

 

Matyas said that while the lawsuit also names
American Aviation Supply, American Airlines is responsible for what is
being done — or not being done — in Sycamore.

 

"This is clearly American
Airlines doing the deal," he said. "They set up a subsidiary in order to
funnel the money and not pay the appropriate taxes."

 

RTA alleges that under the arrangement between
Sycamore and American, the city reimburses the airline for a portion of
the sales tax it pays on the fuel. According to the RTA, the Sycamore
office cost the Chicago, Cook County and RTA a total of more than $23
million last year.

 

American Airlines spokeswoman Mary Frances Fagan
said in an emailed statement that the company believes it is "still
paying the proper" tax amount and that it's "in compliance" with the
law.

 

Sycamore's city manager declined to comment.

 

The litigation is part of a barrage of lawsuits
filed by the RTA, the city of Chicago and Cook County against
communities outside Cook County that allege those communities' tax
incentive programs are costing other government agencies millions of
dollars.

 

Matyas said he believes an Illinois Supreme
Court ruling in November strengthens the RTA's lawsuits. The court found
in a case involving a fuel oil retailer that sales taxes must be paid
by companies in communities where most of their business is conducted.

 

"The major point was these sham
offices do not work and you've got to pay taxes … where you are
actually conducting the business of selling."

 

Cook County Commissioner Larry Suffredin agreed,
saying he hopes the ruling will persuade companies that have such
offices to reconsider because, while the court decided that the
companies should not be forced to pay Cook County for taxes they avoided
before the ruling, it was clear in warning them that they will be on
the hook for those taxes from now on.

 

"I think they're going to be nervous, absolutely because the court was saying … don't do it again," he said.