Illinois Senate Approves Tax Relief For Chicago Exchanges, Sears

Date : 12/13/2011 @ 5:24PM
Source : Dow Jones News
Stock : Nasdaq, Inc. (MM) (NDAQ)
Quote : 72.88  0.24 (0.33%) @ 12:28PM

Illinois Senate Approves Tax Relief For Chicago Exchanges, Sears

Cme Grp. Inc. (MM) (NASDAQ:CME)
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Illinois government's attempt to keep Chicago's largest derivatives exchanges and a major retailer in the state cleared its final legislative hurdle on Tuesday.

The Illinois Senate sent to the Governor a proposal providing tax relief to CME Group Inc. (CME), CBOE Holdings Inc. (CBOE) and Sears Holdings Corp. (SHLD). All three are considering relocating their headquarters to other states, putting at risk thousands of Illinois jobs.

The Senate vote was 44-9. The bill passed the Illinois House on Monday, and Democratic Gov. Pat Quinn has indicated he will sign the legislation.

Quinn pushed for the deal to also include tax relief for low-income workers in the form of earned income tax credits. It also provides aid for small businesses and family farms.

CME and options exchange CBOE loudly protested the Democratic-controlled legislature's vote in January to boost the cash-strapped state's corporate tax rate to 7%, from 4.8%.

For CME, the tax hike costs an extra $50 million per year, according to Chairman Terry Duffy.

However, Democratic Senate President John Cullerton said he and Duffy agreed that the tax increase was not the problem, but rather the "unfairness of how it's applied to his company."

The tax rate for CME and CBOE would stay at 7%, however the state would tax the exchanges on only 27.54% of all electronic trades, which is the dominant method of buying and selling derivatives contracts.

Currently, the exchanges pay taxes on all electronic transactions, even though most of the trades are not based in Illinois.

Tax breaks would start for the next fiscal year, which begins July 1. Initially, CME lobbied for the deal to take effect this fiscal year.

Sears would pay lower taxes through renewal of a special taxing district in the Chicago suburb of Hoffman Estates, where approximately 6,100 people are employed.

CME employs about 2,000 people in Illinois, but 130,000 jobs are tied to the exchange industry, said CME chief financial officer Jamie Parisi, during testimony before a state House committee on Monday.

Some lawmakers questioned the fairness of picking winners and losers in the deal.

Republican Sen. Chris Lauzen deemed the bill "corporate welfare" and a "give-away to a favored few."

However, Sen. Kirk Dillard, also a Republican, said he's comforted that CME and Sears are "long-standing Illinois entities."

"These two companies that we're picking as winners have been here for a long-time," said Dillard.

CME has called Chicago its home for all of its 163 years in business. If it moves elsewhere, all that would remain are the two trading floors at CME-owned Chicago Board of Trade, CME Chairman Duffy said in early November.

Open outcry trading in the CBOT pits represent less than 5% of CME's business, according to Duffy.

-By Howard Packowitz, Dow Jones Newswires; 312-750-4132; howard.packowitz@dowjones.com

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