SYCAMORE – No one was in the office for a Sycamore-based American Airlines subsidiary about 1 p.m. Wednesday, the day after the Regional Transportation Authority filed a lawsuit against them.
In the lawsuit, RTA claims American Airlines and American Aviation Supply, which has a 750-square-foot office in Sycamore’s City Hall, is avoiding paying its retailers’ occupation tax in Cook County by running what the lawsuit states is a sham office in Sycamore, which is outside RTA’s taxing jurisdiction.
Under a 26-year agreement with American Aviation Supply, which lasts through 2030, the city of Sycamore receives at least $360,000 a year from American Aviation Supply, and rebates millions in sales taxes to American Airlines each year. DeKalb County, which does not have a rebate agreement with the airline, receives about $2 million in sales tax revenue each year.
The city has a similar agreement with United Airlines, which operates a subsidiary company called United Aviation Fuels Corp. in Sycamore. The city received about $400,000 from the agreement with United in 2012, while rebating about $17.9 million in sales tax proceeds.
In Sycamore, the money is used to fund sidewalk and parking lot improvements and general public building upkeep, among other things, according to the city’s 2014 fiscal budget.
The RTA oversees the Chicago Transit Authority, the region’s Metra commuter line and the Pace suburban bus service. The agency has been making the allegations against American for more than a year, but said it was waiting for the airline to emerge from bankruptcy protection, something that happened in December.
RTA spokesman Jordan Matyas said Sycamore’s American Supply office is simply a ploy for the company to avoid Cook County taxes. Cook County’s combined sales tax rate is 9.25 percent.
“This is clearly a violation of state law,” Matyas said. “The law says you have to pay sales tax where the bulk of your sales operations are. None of that is happening.”
American Airlines spokeswoman Mary Frances Fagan said in a written statement: “We believe that we are still paying the proper amount of retailers’ occupation tax and that we are in compliance with law.” Fagan declined to comment further.
On Nov. 21, the Illinois Supreme Court found Cook County-based Hartney Fuel Oil Co., a fuel oil retailer, could no longer use a contractor in Putnam County to take advantage of lower sales-tax rates there for sales made in Cook County.
Because the majority of the company’s selling activity was in Cook County, the court found it should be subjected to the tax rates there.
Sycamore City Manager Brian Gregory declined to comment Wednesday saying he didn’t have the opportunity to review the lawsuit.
The lawsuit comes a year after the RTA accused United Airlines in a lawsuit of doing the same thing in Sycamore.
RTA estimates its damages in 2013 total $8.3 million, money that would have benefitted its transit system, Matyas said.
Matyas said RTA will drop its lawsuit if American Airlines recovers the money RTA claims it lost and pays taxes in Cook County, where the bulk of American Aviation Supply’s business is. American Airlines is collecting in excess of $14 million with the agreement, Matyas said.
“It’s not benefitting the city of Sycamore,” he said. “This is a win-win for American Airlines, and for taxpayers, it’s a lose-lose.”