SYCAMORE – Sycamore could lose millions in a lawsuit filed Monday by the Regional Transportation Authority claiming a sales-tax agreement the city has with United Airlines is improperly diverting tax money from the RTA and Cook County.
Sycamore and United Aviation Fuels Corp. are in the 11th year of a sales-tax agreement that allows United Airlines to use Sycamore office space to conduct fuel purchases and avoid the 9.5 percent Cook County sales tax.
Instead, United Airlines benefits from Sycamore’s 8 percent sales tax and a generous rebate from the city.
Under the agreement, Sycamore’s share of revenue increases 2 percent from the $360,000 base set in fiscal 2004.
For example, last year Sycamore reimbursed United Airlines roughly $17.9 million of the $18.3 million collected in sales tax, netting the city roughly $400,000.
RTA – the umbrella organization of Pace, Metra and the Chicago Transit Authority – claims that “sales tax dodges” have cost Chicago $133 million in lost sales-tax revenue since 2005.
They have cost Cook County an additional $60 million and Metra, Pace and the Chicago Transit Authority another $96 million, according to the agency.
The RTA argues the small office United Airlines occupies on DeKalb Avenue is not used to negotiate and execute fuel purchases, but rather is a “sham office.”
The agency claims because the work to purchase fuel is done at United’s Chicago headquarters, Chicago should receive the tax revenue.
“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.
In a news release issued by Sycamore City Manager Brian Gregory, officials claim the arrangement is legal and has been found to be in compliance with state law. Gregory said he would not personally comment until the lawsuit had been thoroughly reviewed.
Sycamore Mayor Ken Mundy said Monday that he had not seen all the details of the lawsuit, but was confident the city was in the right.
“We’re confident in the process,” Mundy said. “They’re just doing what any business or individual would do, and that is to look to save some money and lower their tax burden.”
The money the city receives goes toward sidewalk repair, building maintenance and vehicle purchases for public safety agencies, among other expenses. Combined with the revenue from a similar agreement the city has with American Airlines, Sycamore has netted more than $7 million since 2001 through jet fuel sales taxes.
The RTA said no formal action would be taken against American Airlines until its parent company emerged from bankruptcy. Sycamore estimates show the American Airlines agreement could generate more than $18 million for the city before it expires in 26 years.
Having Sycamore serve as the point of purchase for the airlines’ fuel also benefits DeKalb County. Because the county has no tax rebate agreement with the airlines, it receives its full share of it’s .25 percent sales tax, which equates to about $2 million a year, said County Administrator Gary Hanson.
“That would be a significant blow,” Hanson said of Sycamore potentially losing the airlines’ business. “We’re hopeful that won’t happen.”
The lawsuit is part of a larger effort by the RTA to combat similar deals between various communities and companies.
The RTA, the city of Chicago and Cook County in 2011 filed lawsuits against Kankakee and the village of Channahon. They alleged that those communities’ tax-incentive programs are costing other government agencies millions of dollars because they allow companies to avoid paying higher sales taxes by moving purchases through satellite offices in areas where the sales-tax rates are lower.
• The Associated Press contributed to this report.