CHICAGO — The Regional Transportation of Illinois is expanding its pursuit of companies and towns involved in the practice of setting up allegedly sham offices in small towns that allow firms to avoid higher Cook County sales taxes.
The agency that provides oversight of the Chicago Transit Authority, Pace suburban bus service, and Metra commuter rail filed lawsuits Wednesday against a handful of companies accused of settling up sham offices in Genoa, Savanna, and Morris.
The litigation follows the RTA's filing of a lawsuit against American Airlines earlier this month alleging a sham office was set up for fuel purchases in Sycamore when the actual sales are allegedly taking place in Chicago. The RTA believes that the American Airlines taxing scheme has cost Chicago an estimated $11.5 million, Cook County $3.8 million, and the RTA system $8.3 million.
The latest charges accuse the communities of incentivizing 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 back to the companies in the form of a rebate.
The RTA filed suit against Genoa and PetroLiance a fuel and oil distribution company; the city of Savanna and Palatine Oil a retail fuel and oil and lubricant distributor; and Morris and Bell Fuels, a wholesale petroleum distribution company.
"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," RTA Chief of Staff Jordan Matyas said in a statement. "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 has in recent years filed lawsuits challenging offices set up by United Airlines and other towns including Kankakee and Channahon. Some companies have since announced they would terminate their rebate agreements.
The towns serve as points of sale for processing purposes on purchases. Illinois imposes its sales tax at the location where the seller operates, not the buyer, as most other states do.
The companies and towns have insisted that they are not doing anything illegal but the RTA argues that the sham offices violate state law because the sales are not actually occurring there.
The RTA relies on about $900 million of sales tax revenue annually to help fund its service board operations.