United & American: Are these two major airlines dodging fuel-taxes at ORD?

The Chicago Regional Transit Authority (RTA) believes that two major airlines have been running a sham business to avoid paying fuel taxes at the second busiest airport in the world, Chicago’s O’Hare Airport. Here’s how the sham allegedly works (and, by the way, it continues today)…:

Downtown Sycamore. Home of the annual Sycamore Pumpkin Festival

Airlines flying out of ORD serve the entire world, so they need to buy fuel, and thus they pay a fuel sales tax. As it happens, Illinois is quirky about sales tax. Their law charges that tax at the declared location where the sale is finalized, NOT where the fuel is delivered. So, airline executives at United and American, in the big city, have an incentive to choose the right small town when they buy their billions of gallons of jetfuel.

One of those towns, far from the urban hubbub of Chicago and 35-miles west of O’Hare, is Sycamore. The town of Sycamore, IL has an 8% sales tax, which looks better than the 9.5% charged in Chicago. So, for each dollar they spend when they buy their jetfuel at Sycamore, the airlines save one and a half pennies. It is estimated that, since 2005, airline fuel purchases at places like Sycamore have cost nearly $300M in lost tax revenues; i.e., these are funds NOT collected by RTA, Cook County, and the City of Chicago, and thus not available to serve the citizens most immediately impacted by fuel consumption at the world’s second busiest airport.

Now, the way sales taxes work is that the local municipality gets to keep their local cut. So, the city of Sycamore keeps 2.75-cents for each dollar of sales using their 8% sales tax. While the good folks running things in Sycamore were OK with de-funding programs and services for residents around O’Hare, these are not greedy people, no way. Sycamore was OK with just a fraction of the take. They cut a deal: if the airlines would pay the lower total sales tax at Sycamore, the bulk of that 2.75% would be kicked back to the airlines. Records for Fiscal Year 2012 show that Sycamore kindly returned 97.5% of the sales tax to the airlines; in other words, Sycamore kept only 2.5% of the nearly $33M collected, while refunding $17.9M to United and $14.1M to American. Sycamore’s take was a mere $837,000; not even a million dollars, for essentially no effort.

pumpkins on display at the DeKalb County Courthouse lawn

Sycamore is the county seat of Dekalb County, in the agricultural heartland of America. The annual Sycamore Pumpkin Festival has been proudly held here since 1962. Yup, it was more than fifty years ago when Sycamore resident Wally Thurow began displaying pumpkins on his front lawn. 1962: the year of the World’s Fair and Space Needle in Seattle, where Boeing was going ballistic in a brand new jet age; a year when FAA was but a new puppy, learning to fetch balls for the airlines. Call it progress: today’s O’Hare has become an absolutely monstrous aviation facility, FAA too, and the pumpkins in Sycamore are now displayed on the Courthouse lawn! Wally would be pleased.

And, who is Wally Thurow?

Who cares (no offense, Wally!). Doubtless, he is not getting a kickback in this sham tax-dodge by United Airlines and American Airlines.