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American Air avoids taxes with 'sham' office: Illinois lawsuit

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[March 13, 2014]  (Reuters)  An Illinois mass transit agency has sued American Airlines Group Inc <AAL.O>, accusing the world's largest carrier of operating a "sham" fuel sales office in a smaller town to avoid paying higher taxes in Chicago.

The Regional Transportation Authority, which
oversees train, bus and rail service in the Chicago area, said in the lawsuit filed in Cook County Circuit Court on Tuesday that American "reports" its jet fuel sales take place in Sycamore, Illinois, "in an attempt to avoid paying millions of dollars."

American Airlines, which emerged from Chapter 11 bankruptcy and merged with US Airways Group late last year, defended its practices.

"We believe that we are still paying the proper amount of retailer's occupation tax and that we are in compliance with the law," said spokeswoman Mary Frances Fagan.

The lawsuit contends that while an American fuel subsidiary operates an office in Sycamore, which is more than 50 miles from Chicago O'Hare International Airport and outside the RTA's taxing jurisdiction, the actual selling, storage and delivery of jet fuel takes place within the RTA's service region near O'Hare. The suit seeks monetary relief and a jury trial.

In Chicago, the overall sales tax is 9.25 percent, compared with 8 percent in Sycamore, according to the lawsuit.

The agency estimated American's fuel-buying practices cost it $8.3 million in 2013, while the city of Chicago and Cook County lost $11.5 million and $3.8 million, respectively.

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The RTA filed a similar lawsuit against United Continental Holdings Inc <UAL.N> last year, saying the carrier's Sycamore office was also a "sham." United said the suit was without merit and that its Sycamore operation complies with applicable laws.

Jordan Matyas, chief of staff at the RTA, said on Wednesday the case against United was proceeding. He added that cases in the Cook County court system can last for years.

(Reporting by Karen Jacobs in Atlanta; editing by Jeffrey Benkoe)

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