Mayor Emanuel’s budget a critical step towards closing airline tax loopholes: 12billion.org

Chicago Mayor Rahm Emanuel’s 2015 budget, passed by the City Council on November 19, closes a significant portion of the airline jet fuel sales tax loophole. In 2013 United (NYSE:UAL) and American Airlines (NASDAQ:AAL) avoided an estimated $52 million in sales taxes on jet fuel for flights from O’Hare International Airport. Emanuel’s budget will collect an estimated $17 million in taxes airlines had previously avoided.

UNITE HERE members rallied with Mayor Emanuel at the City Council vote, applauding the mayor for taking great leadership in closing the airline tax loophole. For weeks, airline catering workers from Gate Gourmet at O’Hare visited City Hall to encourage aldermen to support Mayor Emanuel’s proposal. Workers gave aldermen picture frames with photos of their children and the message: “Workers who cook the food for the airlines are paid too little to support our families. We have about 2,000 children in Chicago Public Schools. Mayor Emanuel’s proposal to close the airline jet fuel tax loophole will pay for our children’s education.”

United and American Airlines have had purchasing offices to avoid paying Chicago sales tax for jet fuel used at O’Hare since 2001 and 2004 respectively. These arrangements cost Chicago, Cook County and the Regional Transportation Authority an estimated $52 million combined in sales taxes each year. The jet fuel sales tax loophole is in addition to an estimated $85 million in explicit tax breaks all airlines receive on jet fuel purchases throughout Illinois – an exemption on fuel used for international flights and an exemption from state environmental fuel taxes.

In two ongoing legal battles, the RTA has sued United Airlines and American Airlines for their jet fuel purchasing practices. The RTA alleged that the airlines were buying jet fuel in empty offices where the tax rate is lower than at O’Hare, costing Chicago and Cook County taxpayers nearly $300 million in the past 7 years. As of November 22, 2014, the cases were still pending, as is a case filed in the end of June by the RTA against the Department of Revenue about its tax regulations.

12billion.org, a project of UNITE HERE, is a first-of-its-kind analysis of all 50 states’ tax codes revealing that airlines reap the benefits of tax breaks worth over an estimated $1 billion on 12 billion gallons of jet fuel in 2013.