RTA Continues Sales Tax Fight: Several More Companies Exposed
March 19, 2014
The Regional Transportation Authority (“RTA”) on Wednesday filed lawsuits against companies that have entered into sales tax rebate agreements with three Illinois towns located outside of the RTA region in order to avoid paying taxes to the RTA and other local governments in the RTA region.
The lawsuits filed in Cook County name several companies, all of which have offices and significant operations in the RTA region. The companies are accused of deliberately avoiding the RTA region’s sales tax rate by establishing sham sales offices outside of the RTA region in the small Illinois communities of Genoa, Savanna and Morris. These communities incentivized the companies to open small offices within their taxing jurisdiction by not only offering the companies a reduced sales tax rate, but also by refunding a large portion of the sales tax revenue the municipalities receive back to the companies in the form of a rebate. While these companies benefit financially from this tax avoidance practice, the RTA and other local governments within the RTA region are burdened with the responsibility of having to continue to provide services to these companies and their employees without receiving the sales tax revenue necessary to support these services.
The RTA, along with the City of Elgin and Kane County, have lost a significant amount of sales tax dollars as a result of a sales tax rebate agreement between the City of Genoa and PetroLiance, a fuel and oil distribution company. The City of Genoa, located in DeKalb County, agreed to rebate 50% of the sales tax revenue it received from sales made by PetroLiance. The agreement between Genoa and PetroLiance resulted in a significant loss of revenue for the RTA, Kane County and the City of Elgin, where PetroLiance main retail operation is located.
The RTA, along with the Village of Schaumburg and Cook County, have lost a significant amount of sales tax dollars as a result of a sales tax rebate agreement between the City of Savanna and Palatine Oil, a retail fuel, oil and lubricant distributor. The City of Savanna, located in Carroll County, agreed to rebate a 36% of the sales tax revenue it received from sales made by Palatine Oil. The agreement between Savanna and Palatine Oil resulted in a significant loss of revenue for the RTA, Cook County, and the Village of Schaumburg, where Palatine Oil’s main retail operation is located.
The RTA, along with the Village of Stickney and Cook County, have lost a significant amount of sales tax dollars as a result of a sales tax rebate agreement entered into by the City of Morris and Bell Fuels, a wholesale petroleum distribution company. The City of Morris, located in Grundy County, Illinois, agreed to rebate 70% of all the sales tax revenue it received from sales made by Bell Fuels. The agreement between the City of Morris and Bell Fuels resulted in a significant loss of revenue for the RTA, Cook County and the Village of Stickney, where Bell Fuels’ main retail operation is located.
These three lawsuits come on the heels of a lawsuit the RTA filed last week against American Airlines, the nation’s largest airline, alleging that the company has been engaged in a sales tax avoidance practice by claiming its sales take place in Sycamore, Illinois when the sales are actually taking place within the City of Chicago. The RTA believes that the American Airlines taxing scheme has cost the City of Chicago an estimated $11.5 million, Cook County $3.8 million, and the RTA system, which includes Chicago Transit Authority (“CTA”), Metra and Pace, $8.3 million.
“Whether you are the world’s largest airline, or a lesser-known oil company, the same law applies: you must pay taxes where you do business,” said RTA Chief of Staff Jordan Matyas. “Sales tax is designed to support the governments that are providing services to businesses and residents. These companies that rely on government service within the RTA region, but play games to avoid paying the correct tax, must be stopped.”
The RTA is responsible for funding the mass transit agencies in Northeastern Illinois, which rely on sales tax revenue from the six-county RTA region, and account for half of its operating revenue. The lawsuit against American is not the first sales tax lawsuit that the RTA has filed. A similar lawsuit was filed against United Airlines in 2013, which also claims Sycamore as the location of its fuel purchases. The RTA has also filed suit against the communities 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.
View a copy of the lawsuits and additional documents.