Regional Transportation Authority (RTA) Sues American Airlines

March 11, 2014

The Regional Transportation Authority (“RTA”) on Tuesday, March 11, 2014, filed suit against American Airlines (“American”) to force the company and its affiliated fuel subsidiary to comply with Illinois law and stop diverting millions in sales-tax revenues owed to local governments and transit agencies from the six-county Chicago area. The lawsuit alleges that American is engaged in an “unlawful scheme” by its fuel subsidiary’s false reporting of the site of bulk jet fuel sales to avoid paying taxes due to the RTA.

In 2013 American’s fuel purchasing practices are estimated to have cost the City of Chicago $11.5 million, Cook County $3.8 million, and the RTA system, which includes Chicago Transit Authority (“CTA”), Metra and Pace, $8.3 million. Although publicly available records suggest that these practices have been ongoing since 2004, likely costing local government and transit agencies many millions more, American’s bankruptcy, from which it recently emerged, might shield it and its subsidiaries from paying on certain past liabilities.

American claims that it purchases jet fuel in the rural community of Sycamore in DeKalb County, which is more than 50 miles west of Chicago’s O’Hare International Airport (“O’Hare”), but which is just five miles from the RTA’s service region and does not have an airport. Sycamore and American’s fuel subsidiary have entered into an agreement that calls for Sycamore to rebate almost all of the sales tax it collects back to the company in the form of incentive payments and, in exchange, is allowed to keep as much as half-a-million dollars each year. Documents obtained from Sycamore describe American’s fuel subsidiary’s offices as “…a modest operation housing one or two employees….An office suite of less than 1,000 square feet would be sufficient for the operation. There will be no demand on public services for such a business.” In fact, this tiny office is located in Sycamore’s City Hall and no fuel for aircraft at O’Hare is ever physically delivered to Sycamore.

“The world’s largest airline has a responsibility, like every other business or individual, to pay the taxes it owes and that are used to support the public infrastructure that allows the airline to operate,” said RTA Chief of Staff Jordan Matyas. “Millions of passengers, as well as airline employees, use mass transit to get to O’Hare.” Additionally, emergency personnel from local governments serve the airport and respond to serious situations there. They also rely on those
tax dollars to support their operations and to protect the safety of American’s employees and customers.”

American partners with several other airlines in the oneworld® alliance, whose members include airberlin, British Airways, Cathay Pacific, Finnair, Iberia, Japan Airlines, LAN, Qatar Airways, Qantas Airways and Royal Jordanian Airlines. American purchases millions of gallons of jet fuel every year for its operations at Chicago’s O’Hare Airport, and provides operational support to its partner airlines.

The RTA is responsible for funding the mass transit agencies, which rely on sales taxes from the six-county region, and account for half of its operating funds. The lawsuit against American is not the first one that the RTA filed. It filed a similar lawsuit against United Airlines in 2013, which also claims Sycamore as the location of its fuel purchases. American was not sued at that time because it was in bankruptcy. The RTA has also filed suit against the towns of Kankakee and Channahon for entering into tax-avoidance deals with retailers and other airlines. A number of businesses have subsequently announced they are terminating their agreements with those municipalities.

To view a copy of the lawsuit and additional documents relating to the lawsuit visit www.rtachicago.com/media-center/sales-tax.