American Airlines Accused of Running Sham Office in Small Town to Avoid Taxes
The regional Transportation Authority has accused American Airlines of running a sham office in a small town to claim that it purchases aviation fuels from there to avoid paying sales tax in Chicago. The agency had made the same accusation against United Airlines and said it had waited until American emerged from bankruptcy protection to level charges against it.
According to the agency, American operates a small 1,000 square feet office in Sycamore and has two employees there. The office is owned by a subsidiary called American Aviation Supply and is used to pay lower sales tax on purchases of aviation fuel. American has issued a statement saying that it believes it is fully tax complaint.
Does this surprise anyone? Chicago is a high tax city and Illinois is an anti-business state. Their policies compel companies to be creative when it comes to reporting taxes. They are taxing companies, along with the feds, at around 50%.
Working with a Pro
As various states and regions in the country have their own sales tax rates, a business wanting to reduce the effective tax rate can do so by shifting to one of these locations. Before you decide to move parts or all of your business to a lower tax rate area, you should consult with a tax lawyer who can examine the legal implications of the move and explain how to structure the business to enjoy a lower tax rate without attracting the attention of the regulators.
The Right Way
A tax lawyer will be able to provide information on which locations have a lower tax rate for your business model. Many states offer tax incentives to businesses in order to attract new business and employment opportunities for their residents. As such there are legitimate ways of shifting a part of your enterprise’s work to a low tax state or county. However, you need to consult with a tax lawyer who will be able to advice you on the best way to restructure your business to take advantage of the tax breaks.
Both of these companies should just leave Chicago and move to Dallas. Dallas has lower taxes.