Financial News

  • 15 January 2013, 15:30

United Airlines Sued Over Alleged Tax Dodge

One of America's largest airlines is accused of falsely claiming to buy huge amounts of jet fuel out of a small, rural Illinois office to avoid tens of millions of dollars in taxes.

Chicago's Regional Transportation Authority (RTA) alleges United Aviation Fuels Corp., a subsidiary of United Airlines, has operated a "sham" office in the DeKalb County community of Sycamore since 2001.

It claims the fuel company set up the office after reaching an agreement to pay the town more than $300,000 a year - a fraction of what it would have owed in sales taxes in Chicago and Cook County.

"The only reason that United Fuels has an office in Sycamore is to attempt to create a sham tax situs (location) for fuel sales in a lower taxing jurisdiction," the RTA states in court papers filed on Monday.

United officials said they have not received a copy of the complaint, but "believe that any such suit would be without merit".

"We buy fuel in Sycamore," spokeswoman Megan McCarthy said in an email.

"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," she added.

The RTA, which insists the office has no computer and is staffed by one person who only works part time, said consultants visited the site on a recent weekday and found it locked with nobody inside.

The agency said that judging from the few chairs and empty desks seen through a window, there is little, if any, business occurring in the office.

"Whoever is out there is not negotiating hundreds of millions of dollars worth of jet fuel," said Jordan Matyas, the RTA's chief of staff.

He said any negotiations for fuel - as well as delivery scheduling, accounting, credit approval and administrative decisions - are being done in the Willis Tower in downtown Chicago, where United is headquartered.

The RTA alleges that American Airlines is engaged in a similar "sham" business out of an office it rents in Sycamore's City Hall.

But Mr Matyas said American Airlines was not included in the legal action because the airline remains in bankruptcy, and that suing the airline would require litigating the case both in federal bankruptcy court in New York and in Cook County Circuit Court.

He added that the RTA does plan to pursue legal action against American Airlines at some point.

American Airlines spokeswoman Mary Frances Fagan said in an email that the airline does not comment on pending litigation but added: "What American is doing is permitted under Illinois law."

Sycamore's city manager, Brian Gregory, declined comment.

The RTA said in a statement that "sales tax dodges" have cost the city of Chicago $133m (83m) in lost sales tax revenue since 2005.

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