United Airlines, American Airlines Accused of Running 'Sham Offices' to Dodge Taxes

Jan. 14, 2013 — -- Chicago's Regional Transportation Authority is accusing United Airlines and American Airlines of operating "sham offices" in a suburban Illinois town and "dodging" millions of dollars in state sales taxes.

The Regional Transportation Authority (RTA), which helps fund bus and train systems in six counties, said the airlines are avoiding paying a higher 9.5 percent sales tax from their actual offices in Chicago and instead using "sham offices" in Sycamore, Ill., about 63 miles west of Chicago, thereby paying 8 percent in taxes.

Illinois collects sales tax based on where a company claims a purchase was "accepted."

RTA estimates that it has lost $96 million since 2005.

The RTA filed a lawsuit on Monday against United Airlines, which is based in Chicago, and is deferring formal action against American Airlines, based in Fort Worth, Texas, because it is involved in bankruptcy proceedings.

The RTA said both airlines buy and use millions of gallons of jet fuel in Chicago. But the RTA says United Airlines has claimed to "accept" jet fuel at its small office in a strip mall in Sycamore since 2001. American has done the same practice at its small office inside Sycamore's town hall since 2004.

Jordan Matyas, RTA chief of staff, said the RTA has spoken with other tenants in United's office building and was told part-time workers occasionally come to the office.

"It's one room with two empty desks and a model airplane," Matyas said. "This is not a place where they are buying $1 million of jet fuel per day. They are doing that at Sears Willis Tower where they have hundreds of employees."

United Airlines said in a statement that it is still reviewing the complaint, but believes "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," United said.

Mary Frances Fagan, a spokeswoman for American Airlines, said the company does not comment on pending litigation "but what it is doing in Illinois is permitted under state law."

The RTA said the companies have entered into 25-year agreements with Sycamore, guaranteeing as much as $500,000 each year that they are allowed to claim that they "accept" jet fuel in that city.