CHICAGO -- A Chicago-area transportation agency on Wednesday alleged that some of the nation's largest and best known companies including AT&T, Sears Holdings Corp., Verizon and Target are running "sham" offices as part of a scheme with two small northern Illinois communities to avoid paying millions of dollars in taxes in Chicago and Cook County.
The Regional Transportation Authority released the names of companies or their subsidiaries that it contends have dozens of small offices in Kankakee and Channahon – some upstairs from a cash for gold business and a hair braiding shop – where it says little if any work is done and often nobody so much as answers a knock on the door. And in many cases, according to the RTA, there are no signs on the street or office directories in the buildings that identify these companies as tenants.
"Whatever work they are doing is just enough to create a sham office in order for these sales transactions to be cited to these cities," said Jordan Matyas, the RTA's chief of staff. "In some places you have 20 companies procuring millions of dollars in goods from these offices where there is minimal staff doing minimal work."
The release of the names Wednesday is the latest chapter in a legal battle between the RTA and small communities over tax incentive programs that the agency characterizes as a scam and the communities defend as sound and legal strategies that provide funds they desperately need to provide city services.
The communities say their tax incentive programs are a perfectly legal way to take advantage of the fact that their sales tax rates are lower than those in and around Chicago.
"They have higher taxes and they're blaming us," said Kankakee's assistant city attorney, L. Patrick Power.
Some companies the RTA names, including AT&T, Sears Holdings Corp., and Verizon said they have done nothing wrong and are following Illinois tax laws.
"Given the millions of dollars that go uncollected each year in violation of applicable sales and use taxes, we believe a focus on companies that don't comply with applicable sales and use tax law is more appropriate than a focus on those of us who do," Sears Holdings Corp. spokesman Howard Riefs said in a statement, adding that the company "no longer seeks or receives any benefits from Kankakee ..."
Target Corp. issued a statement saying the company closed its Kankakee office in October 2010 but declined to comment further.
In 2011, the RTA, the city of Chicago and Cook County sued Kankakee and Channahon, with the RTA following that lawsuit with another one this year against the community of Sycamore and United Airlines. All the lawsuits alleged that the communities are luring companies there by offering deals that call for them to share a portion of the sales tax with the companies through a rebate, costing Chicago and Cook County tens of millions of dollars. The RTA has not sued any of the approximately 70 companies that it says has entered into the tax rebate agreements with Kankakee or Channahon.
The RTA, which relies on sales tax revenues for much of its funding to oversee three Chicago-area mass transit agencies that provide more than 2 million rides a day, said it needs the money to keep the trains and buses running. The agency also said it is entitled to the funds because the arrangements between Channahon, Kankakee and Sycamore amount to little more than an effort to dodge taxes.
The RTA obtained the names of the companies through Freedom of Information Act requests, and Matyas said a judge issued an order late last week that allows the RTA to release the names to the public.
"We are pushing this case in both the courts and in Springfield (where state legislators meet) because we need Springfield to understand how widespread of a problem this is and how many companies and how much money is involved," he said.
Officials in the communities say they're confident that they will prevail. The village manager of 13,000-resident Channahon, Joe Pena, said a trial court and appellate court have already ruled against the RTA in a similar case involving a small oil company that relocated its sales office outside of Cook County to take advantage of the lower taxes. The RTA hopes to argue the case before the state Supreme Court this summer.
"It's interesting that they are referring to the sham offices in Channahon and they referred to Hartney Oil's office as a sham office," Pena said of the RTA. "The courts have said that's not the case and has ruled against the RTA."
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