United Airlines Sued Over Fuel ‘Sham’

by Christopher Freeburn | January 14, 2013 10:35 am

United Airlines Sued Over Fuel ‘Sham’

United 8 300x199 United Airlines Sued Over Fuel Sham[1]United Airlines (NYSE:UAL[2]) has been sued by the Illinois Regional Transit Authority (RTA) over where it buys fuel for its jets[3].

The RTA claims that the airline uses a tiny office located in DeKalb County to purchase billions of dollars worth of airplane fuel just to avoid paying higher taxes on the fuel, which actually goes to O’Hare Airport, located in Cook Country, the Chicago Sun-Times notes.

In addition to United, the RTA also accuses American Airlines (PINK:AAMRQ[4]) of the same practice, though it is not suing American due to its parent company’s on-going bankruptcy.

The RTA says that by making fuel purchases from “sham” offices outside Cook County, the airlines have cost it $96 million in tax revenue. It also notes that Chicago and Cook County have lost $133 million and $60 million in tax revenue, respectively.

Under Illinois law, sales taxes are collected based on the location where the sale is made, not where the products are delivered. However, the RTA claims that state law sets other qualifications for determining where taxes are collected. It argues that United’s “sham” office in the town of Sycamore in DeKalb County contains just a fax machine, filing cabinets and is manned by a part-time employee. The town of Sycamore is also named in the suit.

This isn’t the RTA’s first tax lawsuit. It sued two other towns over similar airline practices in 2011, but those cases have yet to reach trial.

Endnotes:
  1. [Image]: http://investorplace.com/wp-content/uploads/2011/05/United-8.jpg
  2. UAL: http://studio-5.financialcontent.com/investplace/quote?Symbol=UAL
  3. over where it buys fuel for its jets: http://www.suntimes.com/business/17558593-420/suit-sham-office-dodges-sales-taxes.html
  4. AAMRQ: http://studio-5.financialcontent.com/investplace/quote?Symbol=AAMRQ

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