The Chicago-area Regional Transportation Authority will file suit against United Airlines today for tax evasion — there’s a tax on jet fuel that depends on where the fuel is being purchased, and United keeps an office in DeKalb County to confuct fuel purchase transactions in order to save on the much higher Chicago taxes.
American apparently engages in a similar arrangement, but they aren’t being sued while they’re in bankruptcy — though the Transportation Authority may sue them once they emerge.
How much money is at stake?
The RTA said in a prepared statement that “sales tax dodges” have cost the city of Chicago $133 million in lost sales tax revenue since 2005. They have cost Cook County an additional $60 million and Metra, Pace and the Chicago Transit Authority another $96 million, according to the RTA, which oversees the three agencies and relies on sales tax revenue for much of its funding.
Chicago pressed hard to get United to move downtown, taking space in the Willis Tower relocating the headquarters from Elk Grove Village. They benefit tremendously from the operation of O’Hare as a hub for more than one airline.
But with hundreds of millions of dollars at stake, and with an industry that is erratic in its profitability at best, it seems to me that piling on taxes could jeopardize the benefits enjoyed by the city (in revenues they do collect from O’Hare) and its residents (with such convenient and competitive air service).
My general impression as that airlines were taxed at about the level of cigarettes and alcohol (where ‘sin taxes’ make them a convenient target but also ostensibly discourage use, although also make government dependent on their continued existence). The aviation lobbyists contend airlines are taxed more heavily than cigarettes and alcohol.
In addition to the basic corporate taxes that any company would pay, to various jurisdictions, airlines face a 7.5% excise tax on domestic ticket sales, a $3.90 per passenger ‘flight segment tax’ (remember there are hundreds of millions of passengers each year), a 4.3 cent per gallon commercial jet fuel tax, international arrival and departure taxes, and that’s aside from security fees, facilities fees, immigration fees, and customs fees.
Perhaps some of those are appropriate, perhaps even all of them are, that’s not the interesting point here. There’s hundreds of millions more at stake, United and American claim their arrangements are perfectly legal and they can hardly be said to be failing to ‘pay their fair share’ overall.
Suggestive of the idea that the Transportation Authority has ‘gone rogue’, Chicago Mayor Rahm Emanuel is refusing to comment on it.