RTA sues Channahon, Kankakee over tax-avoidance efforts

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Updated: November 16, 2011 1:56AM

CHICAGO — The Regional Transportation Authority filed a lawsuit Tuesday against Channahon and Kankakee for allegedly conspiring with businesses to deprive the metropolitan area of sales tax revenue.

Mayor Rahm Emanuel said on Monday that the city also will sue Kankakee and Channahon, towns that the RTA has identified as having enticed companies to set up sham sales offices.

The businesses purchase goods in Chicago or the suburbs but use the sham offices to record sales as having occurred in Kankakee or Channahon, said Jordan Matyas, deputy executive director at the RTA.

The companies benefit from lower sales tax rates compared with Cook County. They also get rebates that Matyas said can amount to 75 percent to 85 percent of the town’s share of the sales tax.

The RTA is attacking the practice because it relies on sales taxes to fund mass transit. Taxes apportioned to Kankakee or Channahon would otherwise go to the agency and to Chicago-area municipalities.

“People are practicing a way of cheating the system and there are people in the business of helping people cheat the system,” Emanuel said.

He added, “That’s not right and it puts a further burden on taxpayers.”

Channahon officials issued a press release on Tuesday responding to the allegations.

“We find it surprising that the third-largest city in the country would like to file a lawsuit against a small community of 13,000 whose annual budget is less than 1/2 of 1 percent of Chicago’s annual budget,” according to the release.

It’s the job of the retailers and the Illinois Department of Revenue to allocate sales tax dollars, the release continued.

“ … and we are confident that they are making appropriate decisions in that allocation. We are also certain and confident that Channahon has, and continues to act lawfully and within the Illinois’ long-standing tax code.”

The release stated that Channahon plans to “aggressively” protect its revenues on behalf of its citizens, but that village officials hope for a quick resolution to the legal issues involved.

Kankakee Mayor Nina Epstein did not return a call. The city’s attorney, Chris Bohlen, told the Daily Journal of Kankakee that the sales tax rebate program has been vetted by the state Legislature and that it has raised $124 million for Kankakee since 1999.

Matyas said his agency knows of 33 companies getting sales tax rebates from Kankakee and eight from Channahon. He said Sears Holdings Corp. is among the companies involved.

Matyas said the practice came to light about a year ago when a bill was introduced into the General Assembly to essentially guarantee its legality. He said the RTA opposed the bill and has been working with House Majority Leader Barbara Flynn Currie, D-Chicago, to outlaw abuses in the system.

The state’s Revenue Department is auditing 26 Chicago-area municipalities believed to have lost money because of the practice, Matyas said. The state agency would not confirm information about audits.

The Revenue Department has two suits going against energy firms, Hartney Fuel Oil Co. of Forest View and Mohr Oil Co. of Forest Park, both for asserting their sales take place downstate. Hartney prevailed in a lower court ruling and the case is on appeal.

Herald-News staff contributed
to this report.