American and United Airlines Accused of Avoiding Payment of Fuel Sales Taxes

A commercial airplane is being refueled at the airport. Photograph ©istockphoto.com by Robert van Beets .

The Regional Transportation Authority in Illinois reportedly intends to file a lawsuit against United Aviation Fuels Corporation — a subsidy of United Airlines — alleging that it has operated a “sham” office in the DeKalb County community of Sycamore since 2001 after reaching an agreement to pay the town greater than $300,000.00 per year, which is supposedly a fraction of what it would have owed in sales taxes in Cook County where Chicago is located.

As much as $14 million dollars per year in annual fuel taxes is on the line.

A subsidiary of United Airlines based in Oakland reportedly had been engaged in a similar activity to save money on taxes imposed on fuel — until the law in the state of California was changed in 2008. Officials of San Mateo County had filed a lawsuit against that subsidiary against United Airlines back in 2006, claiming that they were being deprived of revenue from fuel taxes as a result of “creative accounting and economic blackmail.”

Although American Airlines is also accused in engaging in allegedly deceptive practices similar to United Airlines, the Regional Transportation Authority does not intend to include American Airlines in the potential lawsuit because the airline is current in bankruptcy. Filing a lawsuit against American Airlines would apparently require litigating the case both in federal bankruptcy court in New York and in Cook County Circuit Court — but by no means will the bankruptcy preclude the Regional Transportation Authority from taking legal action against American Airlines in the future.

Regardless of the ethics of these alleged practices, the question is whether or not what American Airlines and United Airlines are being accused of doing is illegal. Although the answer to that question will need to be determined in a court of law, FlyerTalk members have no problem in debating this issue.

As part of that debate, I find it interesting that the state of New Jersey mandates a “use tax on out of state purchases” where if there is any difference in sales tax between an item you purchase out of state and the sales tax rate in New Jersey, you are obligated to pay that difference. This is the same state where no sales tax is charged on clothing items, prompting a flood of residents from New York to regularly shop for clothes in New Jersey in order to avoid paying sales tax. It certainly is not illegal — but is it unethical?

I personally know a member of FlyerTalk who resides in France but drives twenty minutes to Germany to purchase bottles of carbonated beverages and other items, saving money in the process. Is this unethical?

While it is not illegal, is shopping for goods and services via the Internet to save money on sales tax unethical? States oppose this practice, claiming that they lose millions of dollars in revenue. Amazon.com began collecting sales tax in Pennsylvania, California and Texas this past September, according to The Wall Street Journal. It already collects sales tax in New York, Washington, Kansas, North Dakota and Kentucky — and New Jersey, Virginia, Indiana, Nevada and Tennessee will eventually be added to that list this year and next year.

The saying goes that two wrongs do not make a right, but what about when FlyerTalk members are accused of engaging in practices using apparent loopholes against the frequent travel loyalty programs of which they are members? Airlines have been know to frown upon such practices.

Should the city of Chicago and Cook County simply be more competitive with the sales taxes charged on aviation fuel to bring the business of United Airlines and American Airlines back from DeKalb County? Is all fair when it comes to competition?

With the purported savings on fuel taxes, are American Airlines and United Airlines passing on the savings to their customers — or are they pocketing the difference?

Perhaps both airlines should consider following the lead of Delta Air Lines and purchase an oil refinery — or is that unethical as well?

What are your thoughts?

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Comments (Showing 4 of 4)

  • EsquireFlyer at 6:58pm January 14, 2013

    test

  • EsquireFlyer at 7:01pm January 14, 2013

    re: “This is the same state where no sales tax is charged on clothing items, prompting a flood of residents from New York to regularly shop for clothes in New Jersey in order to avoid paying sales tax. It certainly is not illegal — but is it unethical?”

    It actually IS illegal if the New York residents owe Use Tax in NY state (which NY also has) and don’t pay it, since NY taxes out-of-state purchases like NJ does.

    If the NY resident pays the use tax, or if no use tax is due, then it’s not unethical, because NY knows how to tax this, and either decides to tax or not tax.

    If the NY resident purposely evades the Use Tax that NY requires, that would be both illegal and unethical.

  • aces_high at 12:48am January 15, 2013

    There is nothing more unethical that the idea of taxation per say, so whoever gets to evade it one way or another is a hero in my book.
    As for airlines, well, the moment they are forced to pay tax on fuel surcharges, it will translate to increased travel costs for all of us, so I don’t know what supporters of this insane idea are on about.

  • Brian Cohen at 12:12pm January 15, 2013

    I really would have no problem with governments levying taxes, as long as there is proper accountability to those who pay the taxes and as long as the tax money pays for services that would otherwise not be provided to corporations and individuals.

    Unfortunately, the use of tax money may not always be proper, efficient, beneficial, ethical – or even legal, which is where I would agree with you, aces_high.

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