Four Illinois municipalities — including the Village of Lemont — signed on to a Regional Transportation Authority lawsuit Thursday that claims the towns of Kankakee and Channahon are using shell offices to improperly divert $20 million in sales tax revenue each year.
The RTA complaint, filed Aug. 23 in Cook County Circuit Court, alleges that Kankakee and Channahon have benefited from a tax loophole that has some Chicago businesses routing their sales through satellite offices in municipalities with low sales tax rates. The result, according to a Chicago Tribune report, is that companies can sell products at a lower tax cost and make their products more marketable.
Chicago officials claim that Kankakee and Channahon are benefiting from the sales tax, costing the RTA region millions of dollars each year. RTA is looking to recoup at least $100 million in funds diverted since 2004, according to Channahon-Minooka Patch.
On Thursday, the RTA announced that the villages of Lemont, Tinley Park, Stickney and Forest View have joined the lawsuit as plaintiffs, citing the need "to maintain a level playing field for all businesses and a desire end the detrimental practice of Kankakee and Channahon’s tax avoidance agreements on economic development throughout the region."
Lemont Mayor Brian K. Reaves, Forest View Village President Richard Grenvich, Stickney Village President Daniel O'Reilly and Tinley Park Mayor Edward Zabrocki released the following joint statement:
“It is unfortunate that today we have to join litigation in which our municipalities are suing another municipality.
As municipal executives, we all face difficult budget issues and are sympathetic to the challenges facing Channahon and Kankakee. However, because we feel so strongly that these tax avoidance agreements are the wrong answer to these challenges, we have joined the RTA’s lawsuit.
This is an issue of fairness. Our region requires a level playing field for businesses to compete with one another and for municipalities to use economic development tools as the law intends. Businesses that utilize municipal services because their company and their employees are located in our jurisdictions should pay their proper share of taxes.
We have no intention of bankrupting another municipality and sincerely hope that this dispute will end as soon as possible and that we can find a legislative solution to end these practices.”
According to the RTA release, the lawsuit is based on legislation passed in 2004 that forbids any municipality from entering into a tax sharing agreement with a company that does not conduct legitimate business within the municipality and should be paying taxes to another local government.
“The municipalities that are joining the lawsuit today represent just a fraction of the communities across the state that is being hurt by sales tax avoidance," said Joe Costello, Executive Director of the RTA. "It is our hope that we can avoid drawn-out litigation and work with the General Assembly to pass legislation to stop sales tax avoidance agreements.”
In a statement released Aug. 23, Channahon Interim Village Manager and Police Chief Joe Pena said the village is following the law and that the responsibility of allocating sales tax falls on the Department of Revenue, not individual municipalities in Illinois.
"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 (residents) whose annual budget is less than half of 1 percent of Chicago's annual budget," Pena said in the statement.
Last month, Channahon Village President Joe Cook said the village plans to vigorously defend itself.
Lemont Mayor Brian Reaves was not immediately available for comment Friday morning.
Dawn Aulet contributed to this report.