AA avoids taxes with 'sham' office: Illinois lawsuit

 

Old Mar 13, 14, 1:16 am
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AA avoids taxes with 'sham' office: Illinois lawsuit

(Reuters) - An Illinois mass transit agency has sued American Airlines Group Inc (AAL.O), accusing the world's largest carrier of operating a "sham" fuel sales office in a smaller town to avoid paying higher taxes in Chicago.

The Regional Transportation Authority, which oversees train, bus and rail service in the Chicago area, said in the lawsuit filed in Cook County Circuit Court on Tuesday that American "reports" its jet fuel sales take place in Sycamore, Illinois, "in an attempt to avoid paying millions of dollars."

<snip>

The lawsuit contends that while an American fuel subsidiary operates an office in Sycamore, which is more than 50 miles from Chicago O'Hare International Airport and outside the RTA's taxing jurisdiction, the actual selling, storage and delivery of jet fuel takes place within the RTA's service region near O'Hare. The suit seeks monetary relief and a jury trial.

<snip>
FULL STORY: (UA doing the type same thing).
http://finance.yahoo.com/news/americ...155946404.html

Sounds like "smart business" to me. Time will tell.

Last edited by miamigrad; Mar 13, 14 at 10:50 am Reason: shortened to stay within fair use/copyright guidelines
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Old Mar 13, 14, 2:50 am
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I think there's a bit of a pot-kettle orientation issue here, since O'Hare airport itself is gerrymandered into the City of Chicago by a 200 foot wide strip of land in order to make it contiguous and ensure Chicago has direct control over the airport while not having to deal with the nearly as much of the community impact its presence causes.
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Old Mar 13, 14, 4:16 am
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Yeah, sort of like 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.
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Old Mar 13, 14, 6:08 am
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Located not very far from the United 'sham' office with exactly the same purpose.
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Old Mar 13, 14, 6:18 am
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This has been going on for years. It was reported at least as far back as 2011 and airlines have admitted they were avoiding fueling in Chicago for many years prior to that as well.
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Old Mar 13, 14, 7:28 am
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Im, guessing they lost againt UA and figured they would get better results the second time around?
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Old Mar 13, 14, 7:34 am
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Originally Posted by Dr. HFH View Post
Yeah, sort of like 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.
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.
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Old Mar 13, 14, 7:56 am
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Originally Posted by Dr. HFH View Post
Yeah, sort of like 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.
They're not debating 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.

Originally Posted by CDKing View Post
Im, guessing they lost againt UA and figured they would get better results the second time around?
UA lawsuit is ongoing, so far as I can tell. They didn't file against AA last year because of the bankruptcy.
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Old Mar 13, 14, 8:55 am
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Question for the experts: Why wouldn't AA simply base this activity out of Dallas and have either traveling sales people or remotely based sales people? What requires the office in IL at all?
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Old Mar 13, 14, 9:22 am
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This is really all about Illinois state politics and taxation and the conflicts between the Chicago political machine and the "rest of the state" (which doesn't resemble Chicago's political makeup at all). Perhaps the Illinois legislature and governor should remedy this peculiarity. But that's probably not going to ever happen. Aren't several of the recent Illinois governors convicted felons (primarily on corruption charges)? I believe that Blago is still in prison and Ryan was recently released.

Doesn't Georgia and/or Atlanta provide some sweetheart fuel tax deals to Delta? I vaguely remember something about it from a few years back.
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Old Mar 13, 14, 9:48 am
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Originally Posted by fanch26 View Post
Located not very far from the United 'sham' office with exactly the same purpose.
It was pretty hilarious.
Back when I used to work in Sycamore, we used to eat at this little Asian place in the same plaza as the United "Purchasing" office.
I always wondered why it was there.
It looked like an insurance office with their logo on the glass.
But no Hrs on the door. Just a desk, phone and a few chairs.
Never understood why BIG UA would have such a silly little office in Sycamore.
LOL!
Now I know.
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Old Mar 13, 14, 10:56 am
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It's mostly, IMO, about Cook County? City of Chicago? covetousness. If they push it, it'll go to USSC and get dealt with much like similar issues have been (it'll be allowed to continue), and in the meantime it'll be business as usual.

Or, AA will spin off its fuel sales to a subcorporate entity and then the fuel sales entity can choose to sell it's fuel strictly to AA at a markup that is just sufficient to pay for the overhead.

Will it cost money? Likely - and we the passengers will pay for it.
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Old Mar 13, 14, 11:13 am
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Originally Posted by FWAAA View Post
This is really all about Illinois state politics and taxation and the conflicts between the Chicago political machine and the "rest of the state" (which doesn't resemble Chicago's political makeup at all). Perhaps the Illinois legislature and governor should remedy this peculiarity.
You mean move people from Chicago downstate to balance the state?? Yikes ... I sure hope they don't try to do that to me!
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Old Mar 13, 14, 11:17 am
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Originally Posted by FWAAA View Post
Aren't several of the recent Illinois governors convicted felons (primarily on corruption charges)? I believe that Blago is still in prison and Ryan was recently released.
Yes - all true. And we have convicted felons trying to run for alderman or county board (can't remember which) and the Tax Assessor (Berrios) hires his relatives and when fined for ethics violations thumbs his nose at the ethics board and tells them they have no jurisdiction over him. Oh and then there was the judge who was reaffirmed to the bench just a few days after she was arrested for assaulting her bailiff (we now get to pay her for LTD and mental care). I could go on.....

But sadly we don't have anything to do with Ford in Toronto.

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Old Mar 13, 14, 11:33 am
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Originally Posted by neo_781 View Post
You mean move people from Chicago downstate to balance the state?? Yikes ... I sure hope they don't try to do that to me!


No, no forced resettlement.

Seriously, though, the RTA, Chicago and Cook County would like to tax AA (and UA) to the tune of 9.25% of their ORD jet fuel purchases, and absent a change in state law, I don't see that happening. AA has been paying a fraction of one percent to Sycamore, as that town has agreed to rebate most of its 8% tax back to AA (and UA).

Last year, the plaintiffs claimed that UA's Sycamore office had cost the RTA, Chicago and Cook County over $200 million in the aggregate since UA's bankruptcy. When you enact confiscatory business taxes like these and yet state law allows for loopholes like the Sycamore offices (where the fuel is actually sold, but not delivered), then you're gonna get good tax planning (or tax evasion, depending upon your politics) as a result.

No airline in their right mind would voluntarily pay an extra 9% on top of its fuel purchases if it didn't have to.
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