Lawsuit Accuses American Airlines of Avoidance of Fuel Sales Taxes

The town of Sycamore — where both American Airlines and United Airlines have fuel sales offices — is located within the red circle on the left, which is greater than 40 miles due west of Chicago O’Hare International Airport, located within the red circle on the right. Imagery ©2014 TerraMetrics. Map data ©2014 courtesy of Google Maps.

A lawsuit was filed by the Regional Transportation Authority in Illinois against American Airlines Group Incorporated, alleging that it has operated a “sham” office in the DeKalb County community of Sycamore in an attempt to avoid paying millions of dollars in fuel sales taxes.

The lawsuit contends that although the actual sales, storage and delivery of jet fuel regularly occurs within the service region of the Regional Transportation Authority near Chicago O’Hare International Airport, the fuel subsidiary of American Airlines operates an office in Sycamore — greater than 50 miles from the airport and beyond the taxing jurisdiction of the Regional Transportation Authority.

Filed in the Cook County Circuit Court on Tuesday, March 11, 2014, the lawsuit seeks a jury trial and monetary relief — which allegedly includes a loss of $8.3 million in 2013 for the Regional Transportation Authority; a loss of $11.5 million in 2013 for the city of Chicago; and a loss of $3.8 million in 2013 for Cook County.

One reason for the monetary loss in Chicago is the difference in sales tax by 1.25 percent: the overall sales tax in Chicago is 9.25 percent; whereas the overall sales tax in Sycamore is eight percent — and Chicago is located within Cook County in Illinois.

In January of 2013, the Regional Transportation Authority reportedly intended to file a similar lawsuit against United Aviation Fuels Corporation — a subsidy of United Airlines — alleging that it had operated a “sham” office in 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.

At that time, the Regional Transportation Authority did not intend to include American Airlines in a lawsuit because the airline was under bankruptcy protection at that time. However, American Airlines has since emerged from bankruptcy protection. The Regional Transportation Authority has since filed legal action against both United Aviation Fuels Corporation and American Airlines Group Incorporated; and could take years before they are resolved.

As in January of 2013 — 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 by the Regional Transportation Authority is illegal. Although the answer to that question will need to be determined in a court of law, FlyerTalk members once again have no problem in debating this issue.

For example, FlyerTalk member Dr. HFH compares this situation to corporations locating in Delaware or individuals moving to Florida. “The Supreme Court said long ago that you’re entitled to arrange your affairs to optimize your situation under the law. I see nothing wrong with what AA did, even if the allegations are true.”

Although based in Atlanta, Delta Air Lines is a Delaware corporation. Does the city of Atlanta have a basis for a lawsuit?

Not so, explains FlyerTalk member Upgraded!. “Companies don’t actually locate in DE, they incorporate in DE, and it’s done for reasons having nothing to do with this. They incorporate under DE law because the laws are set up to streamline the incorporation process and there is an entire court system structured around handling business disputes. Taxation is still based on the company’s operations.”

FlyerTalk member dtremit posted that the debate is not about “AA’s right to arrange its affairs to minimize taxes — they’re debating whether AA actually arranged them sufficiently. The Illinois Supreme Court ruled in a case last fall that a fuel oil company that had a similar arrangement didn’t do enough at their satellite office for it to establish the ‘occupation of selling’ there.”

Based on that statement, 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 — and is all fair when it comes to competition? I asked these questions last year — as well as the following question: 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?

Should American Airlines and United Airlines be forced to move their fuel sales offices to somewhere near the airport and pay the higher taxes?

Perhaps this is all politics as usual, as implied by FlyerTalk member FWAAA?

What are your thoughts?

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Comments (Showing 4 of 4)

  • JAXBA at 7:27am March 18, 2014

    Which economic benefit is better for Cook County and the City of Chicago? The tax they’re not collecting because a preferential tax rate is available in a neighboring county.. or the employment and associated income of airport operations?

    If AA & UA had to pay the higher tax rate, wouldn’t they (a) pass on the cost to consumers, reducing demand and airport revenues, and (b) trim their schedules to cut costs, reducing airport revenue and affecting employment.

    Maybe if they were competitive on the tax rate, then maybe they’ll attract business, and not miss out on tax revenue.

  • treydawgmt at 9:59am March 18, 2014

    Knowing someone who worked for many years at a Sycamore office for one of these companies, that company at least did ALL of the fuel transactions at the office in Sycamore. Perfectly legal, in my eyes, and the eyes of the company and I’m pretty sure law. While employees in the Sycamore offices for both companies traveled to Chicago often, not a single transaction was made if they weren’t in the Sycamore office.

    This is no different than the hordes of people that used to drive from Cook County to little West Dundee, IL in Kane County to go to Springhill Mall back when the sales tax was a full 3 percent difference, and buy all their appliances, furniture, etc. Not Kane or DeKalb counties fault that the taxes are so exorbitant in Crook, I mean Cook County.

  • AS MHT at 10:34am March 18, 2014

    Can I pay Exxon OKC prices but put the gas in my car in HNL or NYC?

  • relberger at 3:56pm March 18, 2014

    Agreed with treydawmgt … I see nothing illegal

    AS MHT: I think that’s perfectly OK, but the fuel needs to be stored somewhere – so perhaps instead of fuel surcharges there should be fuel _storage_ surcharges.

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