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Suit alleges United dodges tax on fuel

Rural office in town with lower levy called a fake

United Airlines says it buys fuel for jets at O’Hare Airport in Chicago from this small office in rural Illinois.

Regional Transportation Authority via Associated Press

United Airlines says it buys fuel for jets at O’Hare Airport in Chicago from this small office in rural Illinois.

CHICAGO — A lawsuit has been filed against United Airlines, alleging it falsely claims to buy jet fuel in rural Illinois in order to skirt tens of millions of dollars in sales taxes. The case hinges on whether a transportation agency can prove the monumental purchasing task could not have been done from the airline’s tiny office 70 miles from Chicago.

Throughout the lawsuit — which alleges the office does not have a computer and is staffed only by one part-time employee — the Regional Transportation Authority’s argument boils down to this: United’s contention that it buys fuel in Sycamore is absurd.

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The authority must show that the work United says is going on in Sycamore is really being done at United’s headquarters in downtown Chicago.

‘‘The question before the courts is ‘Where does the transaction happen?’ ” said Sue Hofer, a spokeswoman for the Illinois Department of Revenue.

United said the allegations are untrue. ‘‘We buy fuel in Sycamore,’’ spokeswoman Megan McCarthy wrote in an e-mail.

In another e-mail, she wrote: ‘‘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.’’

The authority alleges American Airlines is engaged in a similar ‘‘sham’’ business at an office it rents in Sycamore City Hall.

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But the authority’s chief of staff, Jordan Matyas, said American was not sued because the airline remains in bankruptcy, and suing American would require litigating in Bankruptcy Court in New York as well as in Cook County Circuit Court. He said the authority plans to pursue legal action against American at some point.

American spokeswoman Mary Frances Fagan said via e-mail that its operation ‘‘is permitted under Illinois law.’’

Sycamore, also named in the lawsuit, said it has been ‘‘examined by tax authorities in the past and determined to comply with state law.’’

The authority alleges that in 2012 alone, the two airlines spent $1.2 billion on fuel for jets at O’Hare International Airport. The RTA said that since 2005, the ‘‘sales tax dodges’’ have cost Chicago $133 million, Cook County $60 million, and the Chicago Transit Authority $96 million.

According to the authority, the sales tax is 8 percent in Sycamore and 9.5 percent in Chicago. But it says the airlines get an even better deal: They have 25-year agreements that call for Sycamore to ‘‘kick back’’ most of its share of the tax — up to $14 million a year — in exchange for payments of at least $300,000 a year from each airline.

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