RTA Sales Tax Position Strengthens as Cook County Files Suit and Plass Appliances Terminates Its Tax-Dodging Arrangement With Channahon-Based Consultant
October 4, 2011
Pressure is building for Kankakee and Channahon to stop allowing businesses working with private consultants to use their towns as havens for tax avoidance scams that are costing local governments in Cook and the collar counties tens of millions per year in lost revenue. Earlier this year, the Regional Transportation Authority (RTA) was the first to file suit to stop the deceptive practice and recover funds that have been wrongly siphoned away. On Monday, Cook County joined the RTA and City of Chicago in the litigation effort by filing its own lawsuit against the two municipalities.
In a second important development, Plass Appliances announced that it will end its practice of claiming that all of its sales occur in Channahon, where it has no physical presence, and instead report them as taking place in the municipalities – Addison, Arlington Heights, Chicago, Elmhurst, Geneva, Marengo, Naperville, Northbrook and Tinley Park – within the RTA region where the company’s retail stores are actually located.
“I commend Plass Appliances for cancelling its improper sales tax sharing agreement and am pleased that the company recognizes it is wrong to divert sales taxes needed by the RTA and other local governments to provide the public safety and transportation services that Plass, its employees and customers depend on every day,” said RTA Executive Joe Costello. “We strongly encourage other businesses engaged in this practice to follow Plass’s lead.”
Tax consulting firms, representing businesses in jurisdictions with higher sales taxes, have negotiated rebate agreements with Kankakee and Channahon that allow the businesses to source their sales as occurring at sham storefront offices in those towns. In exchange, the municipality takes a small cut of the sales tax and rebates the rest to the consultant. The consultant, in turn, takes a cut and then rebates an unknown, but likely significant, amount of the sales tax to the businesses. The result is that the businesses pocket most of the money themselves and avoid paying sales taxes to the local governments who are providing the services to their businesses where they are actually located, while Kankakee and Channahon reap a tax windfall without having to provide any additional services.
Also at issue in the lawsuits is that although tax dollars are being expended, Kankakee and Channahon have refused to make their agreements public with the consultants and the businesses they represent. Both towns have denied Freedom of Information Act requests filed by the RTA seeking those agreements and both have refused to comply with a ruling by the Illinois Attorney General’s information access counselor that they must provide them to the RTA.
“The notion that municipalities can give away tax dollars to private businesses in total secret is contrary to our belief in open government,” Costello said. “Kankakee and Channahon say that they aren’t doing anything wrong, yet they will not provide their own taxpayers with information about how their tax dollars are being spent and what businesses are the beneficiaries. That is wrong and makes it harder for citizens in those towns to hold elected officials accountable for their actions.”
Representing the taxpayers of Cook, DuPage, Kane, Lake, McHenry and Will counties, the RTA Board has a fiduciary responsibility to ensure that all applicable taxes are collected so that a safe and reliable public transportation system can operate in northeastern Illinois.