I saw a sign for a business in Sycamore a couple of years ago and thought, “Seems like an unusual place for this.”
I was right. Sycamore – being nowhere near a major airport – IS an unusual place to transact aviation fuel deals worth hundreds of millions of dollars annually.
Or so says the Regional Transit Authority (umbrella organization of the Chicago Transit Authority, Metra and Pace), which filed suit in Cook County Circuit Court last week against United Airlines, its subsidiary United Aviation Fuels Corp. (located in Sycamore) and the city of Sycamore.
As reported by the Daily Chronicle, the deal is big money. The Chronicle said Sycamore has netted at least $360,000 annually since fiscal 2004. The deal began in 2001.
Under the agreement, United uses the office in Sycamore to buy aviation fuel and pay Sycamore’s 8 percent tax, rather than Cook County’s 9.5 percent rate. Sycamore rebates most of its share of the sales tax – about $18 million in 2012 – back to the airline, while keeping a small portion. So the airline saves money and Sycamore makes money.
The RTA estimates, however, that the tax agreements have cost it $96 million since 2005, the city of Chicago $133 million and Cook County $60 million.
“Illinois is among a handful of states where sales tax is applied where a purchase offer is accepted rather than where a product is delivered to the customer,” the Chicago Tribune said. “That quirk in the law creates an opportunity for companies to relocate the site of sales transactions to a lower tax venue, some of which also offer rebates.”
Illinois allowing something other states say is either illegal or at least dirty pool? Who’d a-thunk it?
The RTA says the Sycamore office is a “sham.”
“While United Fuels purports to have a ‘sales office’ in Sycamore, there is no selling activity to demonstrate this office is the site of any sale compared to the activity United Fuels and United Airlines perform in their primary offices in Chicago,” the suit filing says.
The Sycamore office “is located on one floor, and shares that floor with other businesses. It is staffed by one person, but not on a daily basis, and that sole representative does not even have a computer.”
The suit doesn’t include American Airlines because American is in bankruptcy proceedings, but the RTA told Reuters that American will be added as soon as it emerges from bankruptcy.
Sycamore Mayor Ken Mundy says the airlines are “just doing what any business or individual would do, and that is to look to save some money and lower their tax burden.”
He’s right, but paradoxically, that’s why Sycamore loses no matter what happens.
Worst-case: Sycamore loses the suit, gets no future money and must repay the roughly $7 million it has received in fuel tax revenue as a result of its agreements with the airlines, plus attorney’s fees. That would be devastating.
Let’s say Sycamore loses the suit but doesn’t have to repay the money. The city would still lose enormous revenue.
If Sycamore wins?
The arrangement continues, the money flows, but we still lose.
We lose because we’re doing only what’s legal, not what’s right. Call me na´ve, but situations such as these arise because corporations, municipalities and people increasingly are hewing to the minimum standard of behavior.
Here’s the crazy part. The suit alleges the true sales activity of jet fuel happens in Chicago. Much of this activity occurs in an office with phones and Internet, not in hangars.
Sycamore has phones and Internet. Since the airlines went to the trouble of setting up an office here, wouldn’t it have been easier, legal and more ethical to have people in the office doing the work?
•áJason Akst teaches journalism and public relations at Northern Illinois University. You can reach him at firstname.lastname@example.org.