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updated: 8/23/2011 6:30 PM

RTA sues to stop 'tax havens'

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  • Metra, Pace and the CTA are losing revenues because of sales tax havens downstate, the RTA claims.

    Metra, Pace and the CTA are losing revenues because of sales tax havens downstate, the RTA claims.
    Daily Herald file photo

  • Regional Transportation Authority Board chairman John S. Gates Jr.

    Regional Transportation Authority Board chairman John S. Gates Jr.
    Daily Herald file photo


The Regional Transportation Authority is suing Channahon and Kankakee, alleging the towns are acting as tax havens for companies and improperly allowing millions of dollars in sales taxes to be diverted from Metra, Pace and the CTA.

"We believe the crux of this matter is fairness and common sense," RTA Chairman John S. Gates Jr. said Tuesday in announcing the lawsuit.

"These businesses are being induced by consultants and tax experts to enter into arrangements wherein they claim that their sales are occurring in phony offices that only exist to avoid paying sales tax in the six-county region," Gates said.

"These 'sham shops' forward phone calls, faxes and mail on to final destinations outside Kankakee and Channahon on behalf of multiple companies, solely for the purpose of paying less sales tax than would otherwise be required of them in Cook, DuPage, Kane, Lake, McHenry and Will counties."

Only those six counties contribute sales tax to the RTA.

In a related matter, eight municipalities including Arlington Heights, Bloomingdale, Elmhurst, Geneva and Naperville wrote to Illinois Department of Revenue officials Tuesday, requesting the state examine why the towns are no longer receiving sales tax from Plass Appliance stores in their communities.

Those sales taxes are being channeled through Channahon, contends Bloomingdale Village Administrator Martin Bourke. Most of the revenues go back to the appliance store, Bourke said, instead of to the towns that provide services such as police, fire and maintenance.

Someone buying an appliance doesn't realize "all they're doing is paying taxes to give back to the vendor they bought the refrigerator from," he said.

Plass officials could not be reached for comment.

Gates criticized "sham shops," saying the practice allows companies headquartered in the metropolitan region to set up makeshift locations in tax-friendly Kankakee and Channahon.

Officials from those towns called the agency's claims ridiculous.

"I don't see how they have any standing to sue us," Kankakee Mayor Nina Epstein said. "I take exception to calling these offices shams. They've been in existence nearly 10 years and are set up following the rules and regulations laid out by the Illinois Department of Revenue."

All the enterprises had been audited and passed muster, Epstein added.

Channahon Interim Village Administrator Ignacio Pena also defended the legality of the sales offices. "Make no mistake that Channahon intends to aggressively protect its revenues on behalf of our citizens," a statement from the village indicated.

The lawsuit filed in Cook County circuit court also lists as defendants five consulting firms, which set up the tax-shelter arrangements for retailers.

"It's a false paper trail to appear as if sales occur in Kankakee and Channahon," RTA Director William Coulson of Glenview said.

The RTA, which has financial authority for Metra, Pace and the CTA, campaigned this spring to toughen state law to close loopholes permitting tax shelters in Illinois.

The issue surfaced this spring after proponents of an amendment to the State Finance Act sought to allow companies more flexibility in moving their sales offices, arguing it reduced the tax burden on private enterprise.

The Illinois Department of Revenue became involved in a legal dispute with the Hartney Fuel Oil Co. in connection with the tax shelter issue in 2007. The fuel company is based in Cook County but its point of sale is in the town of Mark in low-tax Putnam County.