Chicago agency suing American Airlines over tax incentives

03/13/2014 9:13 AM

11/12/2014 4:15 PM

The agency that oversees public transportation in Chicago is suing American Airlines, alleging that it falsely claimed 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.

The lawsuit was filed a year after the same agency — the Regional Transportation Agency — accused United Airlines in a lawsuit of doing the same thing in the town of Sycamore. The agency filed the lawsuit in Cook County Circuit Court late Tuesday afternoon.

The agency 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, which happened in December.

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.

Reiterating its charges against United, the agency 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 Airport, out of an office that’s less than 1,000 square feet where one or two employees work. The office is in Sycamore’s City Hall.

“We’re saying whatever work is being done there is a sham,” Jordan Matyas, the agency’s chief of staff, said ahead of the lawsuit being filed.

“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.”

The agencyt 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 agency, the Sycamore office cost Chicago, Cook County and the Regional Transportation Agency a total of more than $23 million last year.

Matyas said he believes that an Illinois Supreme Court ruling in November strengthens the agency’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 …5 where you are actually conducting the business of selling.”

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