Tax Dogfight over O'Hare

Desperately hungry for money, Chicago, the big dog of Illinois cities, is circling lesser municipalities currently feeding off big corporations by collecting sales taxes that Chicago wants for itself. Jack Nicas writes in the Wall Street Journal (link may expire):

The transportation authority here accused two of the world's largest airlines, United Continental Holdings Inc. UAL  and AMR Corp.'s  American Airlines, of dodging a combined $300 million in local taxes since 2005, expanding its allegations that several towns in Illinois are illegally operating as tax havens.

The Regional Transportation Authority alleges United and American set up "sham offices" in Sycamore, Ill., population 17,500, in order to save tens of millions of dollars in annual sales tax on the fuel they purchase for their planes at O'Hare International Airport in Chicago.

It seems that some Illinois towns actively recruit corporations to locate purchasing offices in their jurisdictions, even offering rebates of up to 85% of the sales tax revenue they receive. But Chicago is claiming that the rakeoff should belong to it. And it may prevail:

Two courts have recently sided with a town in a similar lawsuit. A county court and an appeals court have both ruled against the RTA, Cook County and the state of Illinois in their suit against tiny Mark, Ill., population 500, and a local oil company over their sales-tax agreement. The appeals court ruled that state law allows for companies to pay sales tax to the municipality in which they "accept" the purchase of goods. The state, county and RTA are appealing the decision to the Illinois Supreme Court.

If Chicago wins and United and American, both of whom maintain hubs in Chicago, will have every incentive to cut flights to O'Hare and route passengers through Houston and Dallas, their fortress (and highly profitable) hubs where taxes presumably already are lower. Competition between two hub airlines at Chicago is inherently less lucrative than enjoying dominance in a large and growing Texas city. American, which trails United at O'Hare, might even de-hub Chicago, costing the city jobs and tax revenue.

Ravenous governemnt is bad for business.

Hat tip: David Paulin

Desperately hungry for money, Chicago, the big dog of Illinois cities, is circling lesser municipalities currently feeding off big corporations by collecting sales taxes that Chicago wants for itself. Jack Nicas writes in the Wall Street Journal (link may expire):

The transportation authority here accused two of the world's largest airlines, United Continental Holdings Inc. UAL  and AMR Corp.'s  American Airlines, of dodging a combined $300 million in local taxes since 2005, expanding its allegations that several towns in Illinois are illegally operating as tax havens.

The Regional Transportation Authority alleges United and American set up "sham offices" in Sycamore, Ill., population 17,500, in order to save tens of millions of dollars in annual sales tax on the fuel they purchase for their planes at O'Hare International Airport in Chicago.

It seems that some Illinois towns actively recruit corporations to locate purchasing offices in their jurisdictions, even offering rebates of up to 85% of the sales tax revenue they receive. But Chicago is claiming that the rakeoff should belong to it. And it may prevail:

Two courts have recently sided with a town in a similar lawsuit. A county court and an appeals court have both ruled against the RTA, Cook County and the state of Illinois in their suit against tiny Mark, Ill., population 500, and a local oil company over their sales-tax agreement. The appeals court ruled that state law allows for companies to pay sales tax to the municipality in which they "accept" the purchase of goods. The state, county and RTA are appealing the decision to the Illinois Supreme Court.

If Chicago wins and United and American, both of whom maintain hubs in Chicago, will have every incentive to cut flights to O'Hare and route passengers through Houston and Dallas, their fortress (and highly profitable) hubs where taxes presumably already are lower. Competition between two hub airlines at Chicago is inherently less lucrative than enjoying dominance in a large and growing Texas city. American, which trails United at O'Hare, might even de-hub Chicago, costing the city jobs and tax revenue.

Ravenous governemnt is bad for business.

Hat tip: David Paulin

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