CME's Duffy Reluctant To Give Illinois More Time On Tax Break
November 08 2011 - 7:42PM
Dow Jones News
The Chairman of CME Group Inc. (CME) told Illinois lawmakers
late Tuesday that the derivatives exchange would have already
accepted "very, very lucrative" offers from other states if the
company was determined to leave the state.
However, Chairman Terry Duffy indicated during his testimony
that he would be reluctant to grant the legislature more time to
consider reducing the exchange's tax load.
House Revenue and Finance Committee Chairman John Bradley
requested more time, perhaps delaying action until a special
session at the end of this month.
Duffy explained that he couldn't limit the options of CME's
board of directors, which is considering leaving Illinois after 163
years as the exchange's home base.
"I will do what I need to do in the best interests of the
shareholders of CME Group," said Duffy, who intends to remain at
the state capital in Springfield the rest of this week.
CME and options exchange CBOE Holdings Inc. (CBOE) complained
they were hit too hard by the corporate tax increase adopted by the
legislature in January to fill the state's gaping budget holes.
The tax rate rose to 7%, from 4.8%, costing CME an additional
$50 million a year, according to Duffy.
Duffy said it is "not acceptable" that CME accounted for 6% of
the state's entire corporate tax collections even before the
legislature raised the tax.
A bill being considered would cut taxes by about half for the
two exchanges. The key provision would sharply reduce what CME and
CBOE pay for electronic derivatives trades.
The state would tax the exchanges only about 27.5% of all
electronic trades, rather than the current 100%.
"We are not here for a handout," Duffy assured the committee.
But, it's his "legal fiduciary" duty to explore other options, he
also said.
To win support from both parties, the legislation has broadened
in scope to include tax breaks to prevent Sears Holdings Corp.
(SHLD) from leaving the state, and a multiyear extension of a
research-and-development tax credit for all state businesses.
At the urging of the state's Democratic governor, Pat Quinn, the
bill would provide tax relief for Illinois workers.
The tax break for CME and CBOE would cost the already
cash-strapped state approximately $85 million over two years, said
House Majority Leader Barbara Flynn Currie, who's the second in
command in the Democratic-controlled Illinois House of
Representatives.
A senate committee endorsed the proposal two weeks ago, but
Democratic Senate President John Cullerton said the bill needed
Republican support for passage.
If CME departs, Duffy said it would move its Globex electronic
control center from its Aurora, Ill. facility. All that would
remain would be the trading floors at the Chicago Board of Trade,
which accounts for less than 5% of CME's business, Duffy also
said.
Under a new deal, CME's chairman said the exchange operator
would continue to pay $60 million a year in Illinois taxes.
"I would appreciate [for lawmakers] to look at it as an
apportionment issue," said Duffy.
"We are not threatening anybody," Duffy told committee
members.
-By Howard Packowitz, Dow Jones Newswires; 312 750 4132;
howard.packowitz@dowjones.com
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