United Airlines Sued by Illinois for Skirting Sales Taxes

United Airlines Inc. (UAL) used a “sham” site outside Chicago to avoid paying the full tax on jet fuel, the Illinois Regional Transportation Authority said in a lawsuit.

The airline’s United Aviation Fuels Corp. unit, which purchases jet fuel for United and its regional carriers, used an office in Sycamore, Illinois, that has no true sales activity, the agency said in the complaint filed yesterday in state court in Chicago. The office has one staff member, who doesn’t work daily and doesn’t have a computer, according to the complaint.

“The only reason that United Fuels has an office in Sycamore is to attempt to create a sham tax situs for fuel sales in a lower taxing jurisdiction,” the authority said. “The sales of jet fuel in this complaint are occurring in Chicago, not Sycamore.”

By posting transactions in Sycamore, United Fuels pays an 8 percent sales tax rate, instead of the 9.5 percent rate for Chicago-based sales, the transportation agency said in the complaint. United Airlines and its unit have been engaging in such sales since 2001, diverting tax money owed to the agency and other municipalities, according to the lawsuit.

The RTA asked for a court order barring the practice, as well as recovery for unpaid taxes.

The lawsuit is “without merit,” said Jennifer Dohm, a spokeswoman for Chicago-based United Continental Holdings Inc., United Airlines’ parent company.

“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,” Dohm said in an e-mail. She said the company will fight the claims.

The case is Regional Transportation Authority v. United Aviation Fuels Corp., 2013CH01023, Circuit Court of Cook County, Chancery Division (Chicago).

To contact the reporter on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.