Illinois House Votes Down CME-CBOE, Sears Tax Breaks

The Illinois House on Tuesday overwhelmingly shot down tax breaks for Chicago's derivatives exchanges and a major retailer, with headquarters in the Chicago suburbs.

Only eight House members voted in favor of the bill, which was approved by the state Senate earlier in the day.

The rejection places in jeopardy legislative efforts to prevent CME Group Inc. (CME), CBOE Holdings Inc. (CBOE), and Sears Holdings Corp. (SHLD) from moving their headquarters to other states with lower taxes.

CME and CBOE representatives declined comment. A Sears representative couldn't immediately be reached for comment. Governor Pat Quinn also has yet to comment on the matter.

As it currently stands, the legislation would allow CME and the CBOE options exchange to be taxed on 27.54% of all electronic trades, which account for the vast majority of the business performed at the exchanges. The exchanges now pay taxes on 100% of their electronic transactions.

The tax breaks would not kick in for CME and CBOE until the start of the next fiscal year, which begins July 1, 2012.

Retailer Sears would pay lower taxes through the renewal of a special taxing district in the Chicago suburb of Hoffman Estates, which is Sears' headquarters.

Some lawmakers have criticized CME, in particular, for threatening to leave the fiscally troubled state even as it posts healthy earnings. CME reported profit of $361.1 million in the third quarter, up from $244 million in the same period a year ago.

Rep. William Davis argued that low-income residents "should get something out of this."

In an attempt to win political support, lawmakers expanded the tax deal to provide relief to Illinois's small businesses and individual workers.

Workers would receive a 10% increase in earned income tax credits by fiscal year 2014, less than what was proposed by Gov. Quinn.

Only the trading floors, located at the CME-owned Chicago Board of Trade, would remain in the city, said CME Chairman Terry Duffy at a legislative hearing earlier this month. Chicago trading-floor activity represents less than 5% of CME's entire business, according to Duffy.

CME and CBOE protested the state legislature's vote in January to raise the state's corporate tax to 7%, from 4.8%.

Instead of providing the tax breaks, the legislature should rescind the tax hike, said House member Jack Franks.

The tax increase costs CME an extra $50 million per year, according to Duffy.

It was not acceptable, Duffy said, that CME pays 6% of all corporate taxes collected by the Illinois government.

The CME chairman told the House committee that the exchange operator's board of directors is reviewing "very, very lucrative" offers from other states.

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

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