UPDATE: CME-CBOE Illinois Tax-Break Bill Faces More Hurdles

An Illinois Senate committee endorsed legislation Thursday that would cut by about half state taxes paid by Chicago's derivatives exchanges.

However, the measure lacks bipartisan support necessary for passage, said a spokesman for the Senate president who authored the bill.

The city's two largest exchanges, CME Group Inc. (CME) and CBOE Holdings Inc. (CBOE), threatened to leave Illinois because of what they call an unfair tax burden.

The legislature in January raised the state's corporate income tax to 7% from 4.8% to help fill gaping budget holes, costing CME an extra $50 million a year, according to Chairman Terry Duffy.

The bill introduced Monday by Democratic Senate President John Cullerton would reduce CME and CBOE's tax bill by about 50%, Cullerton said.

Its key provision would have the state tax only about 27.5% of all electronic trades performed at the exchanges, rather than the 100% now. Cullerton said he came up with the 27.5% figure based on U.S. census data approximating the proportion of electronic trades that are performed in Illinois.

Electronic platforms expand exchanges' worldwide reach, far beyond traditional trading floors.

Cullerton delayed committee action on the bill for a day after Senate Republicans announced they would push for "other important jobs climate issues," said Patty Schuh, spokeswoman for Senate Minority Leader Christine Radogno.

Thursday's committee vote was 10-0, with four members voting "present."

In the full Senate, 36 votes are required for passage. Democrats hold 35 seats in the chamber.

To win broader support, Cullerton recommended a five-year extension of a research-and-development tax credit for all state businesses, with an estimated cost to the state of about $25 to $30 million.

The bill next moves to the full Senate for consideration. It must also win favor in the Democratic party-controlled Illinois House of Representatives and from Gov. Pat Quinn, who is also a Democrat.

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

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