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Sat, Aug 27, 2011

Aero-Insanity #2: Chicago, RTA Attack Tax Havens

Airlines, Others Avoid Millions In Sales Tax On Legal Technicality

If you've ever shaken your fist at local governments that sock it to travelers who have no choice but to pay taxes to fly through their airports, this may be a rare opportunity to root for the big airlines. The City of Chicago has a sales tax as high as 9.75%. So United and American Airlines buy their fuel through subsidiaries in the small town of Sycamore, Illinois, and it has saved them as much as $12-14 million since 2004.

Illinois has a quirk in its tax law that makes sales tax applicable wherever an offer to sell is accepted, not where the product is actually delivered. The Chicago Tribune reports this has turned into a boon for small-town tax havens such as Sycamore, which has enacted tax rebate agreements with airline subsidiaries United Aviation Fuel Corp. and American Aviation Supply, LLC to officially sell the fuel in Sycamore for dispensing into aircraft at Chicago O'Hare International Airport.

Chicago's Regional Transit Authority (RTA) is facing a deficit, and the discovery of the deals has the bureaucrats fit to be tied. Mayor Rahm Emanuel complains, "Companies are gaming the system and cheating Chicago's taxpayers. I have to be the voice for the taxpayers, and I will not tolerate this."

Last Sunday, the Tribune reported that dozens of other companies ranging from catalog houses to oil and computer companies were shifting the official point of purchase for their products from the Chicago area to outlying cities such as Kankakee and Channahon. Both those cities have been named in a lawsuit filed Tuesday by the city and the RTA.

So far, Sycamore has escaped a legal attack, but Chicago officials say they're now targeting the airline deals. Sycamore City Manager Bill Nicklas insists to the Tribune, "We're confident of our legal standing and will defend it all day."



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