The Regional Transportation Authority on Monday accused United Airlines and American Airlines of running "sham business operations" that have deprived Chicago and Cook County taxpayers and public transportation agencies of nearly $300 million during the past seven years.



The allegations reignite the RTA's long-running battle to stop what it sees as tax-dodging in Illinois -- a campaign that has experienced some setbacks. Efforts to get the tax code changed by the Legislature have stalled. And a legal challenge by the state's Department of Revenue and the RTA to a similar tax arrangement in Putnam County have been rejected in circuit and appellate courts. The state and the RTA are asking the Illinois Supreme Court to hear an appeal.



In its most recent move, the RTA alleges that United and American operate offices in the DeKalb County city of Sycamore to avoid paying higher tax rates that would be applied from their offices in Chicago. These small, part-time offices are rarely occupied and, in at least one case, don't appear to even have a computer, the RTA said.



Both airlines claim they purchase their jet fuel, one of their largest expenses, from those offices, the RTA stated.



The RTA filed suit in Cook County Circuit Court against Chicago-based United, while deferring formal action against American, noting that the airline, based in Fort Worth, Texas, is in bankruptcy proceedings.



Both airlines and the city of Sycamore said their tax arrangements are legal under Illinois law.



"The operation of our fuel subsidiary in Sycamore has been examined by tax authorities in the past and has been determined to comply with all applicable laws," United said in a statement. "We will vigorously defend ourselves against any such claims."



Sycamore said it also intends to defend its position. American declined to comment on pending litigation.



Joe Costello, RTA executive director, said: "We are looking to have United Airlines pay the sales tax that they legally owe. That sales tax supports public transportation and services for the city of Chicago and Cook County. It supports services that firms like United use themselves."



The RTA estimates the tax agreements have cost it $96 million since 2005 while they deprived the city of Chicago $133 million and Cook County $60 million. The agencies overseen by the RTA -- the CTA, Metra and Pace -- rely on sales tax revenue to operate mass transit in the six-county region.



Cook County and the city of Chicago are studying the case, officials said Monday.



The tax practice by the two biggest airlines at O'Hare International Airport was first reported by the Tribune in August 2011.



Illinois is among a handful of states where sales tax is applied where a purchase offer is accepted rather than where a product is delivered to the customer. That quirk in the law creates an opportunity for companies to relocate the site of sales transactions to a lower-tax venue, some of which also offer rebates.



Sycamore has a total sales tax rate of 8 percent, of which 2.75 percent goes back to the municipality, while the rate in Chicago is 9.5 percent. Under their agreements with Sycamore, United and American jet fuel companies also recoup the lion's share of the Sycamore's portion.



United received a $17.9 million reimbursement in Sycamore's 2012 fiscal year, while American received $14.1 million, according to city budget documents. Sycamore retained $837,000.



The RTA 18 months ago filed similar lawsuits against Kankakee and Channahon, which have similar tax rebate agreements with retailers and other airlines. Those lawsuits are pending.



But allegations of tax-dodging by local companies date at least to 2008, when the Illinois Department of Revenue challenged the Hartney Fuel Oil Co.'s claim that its sales office was in the tiny village of Mark, in Putnam County, where there was no local sales tax.



The state's revenue department contended that Hartney's business took place at its longtime office in west suburban Forest View, where sales orders of about $200 million a year were processed and fuel shipped by a related company.



The issue was first reported by the Tribune.



A Putnam County judge ruled in favor of Hartney, and the ruling was upheld on appeal. Now the state, the RTA and the village of Forest View are asking the Illinois Supreme Court to take it up.



Meanwhile, the RTA will continue talking with legislators about potential changes to the tax code, said Jordan Matyas, the agency's chief of staff.



The issue is a divisive one, pitting some Downstate and suburban legislators against those from Chicago.



Previous efforts at compromise have stalled.



But the RTA won approval last summer for legislation that requires local governments to inform the public about its sales tax rebate agreements.



"That was a first step," Matyas said, "to show the Legislature how widespread the practice is."



kbergen@tribune.com | rwronski@tribune.com

