RTA files suit, says 2 towns acting as tax havens

August 24, 2011 4:42:02 AM PDT
The agency that runs Metra, the Chicago Transit Authority and Pace is suing two Illinois towns, accusing them of acting as tax havens.

The Regional Transit Agency claims it is losing millions of dollars in tax revenue because it says Kankakee and Channahon are acting as tax havens for businesses looking to save money on sales tax.

The City of Chicago is also filing a lawsuit over the matter.

Channahon, a town with 13,000 residents, sits more than 40 miles west of Chicago. It is alleged in a lawsuit that for years, the village has acted as a tax haven for companies trying to escape paying high sales tax in Chicago and surrounding counties.

"Companies should pay sales taxes in the jurisdictions where they do business and receive government services and not try to shift the burden to others, particularly the riders of transit in northeast Illinois," said RTA Chairman John Gates, Jr.

The RTA relies on sales tax revenue for almost 50 percent of the funding needed to keep Pace, Metra and the CTA in service. In its lawsuit, the RTA says Channahon and the city of Kankakee are allowing a variety of unnamed companies using tax consultants as the middleman to claim their sales are occurring, but in phony offices.

"These sham shops, as we call them, forward phone calls faxes and mail on to final destinations outside of Kankakee and Channahon on behalf of multiple companies solely for the purpose of paying less sales tax," said Gates.

The RTA claims this practice is costing the CTA, Metra, and Pace over $100 million in revenue. The mayors of Channahon and Kankakee say their towns are not doing anything illegal.

"We would say there is legitimate sales operations going on within the village of Channahon, and it's been upheld by the fact that Department of Revenue is allocating sales tax dollars here," said Village of Channahon Mayor Joe Cook.

"I'm not sure the RTA has any standing to tell a business what a sales tax office should look like, nor, quite frankly, do I think the State of Illinois has any business doing that. These are legitimate offices," said Kankakee Mayor Nina Epstein.

Epstein says the majority of the businesses that take advantage of Kankakee's tax incentive program are from out of the state, not from Chicago or Cook County.

Kankakee's sales tax is about 3.5 percent lower than Chicago's.

While the RTA names five tax consultant companies in its lawsuit, it is not suing the companies those consultants represent. The RTA is still legally trying to get the names of those companies.

On Tuesday afternoon, the City of Chicago also filed a lawsuit against Kankakee, Channahon and the tax brokers.

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