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. However, CME Chairman Terry Duffy sought prompt action on the proposal, claiming earlier this month that he didn't want to limit the options of CME's board of directors.

Sears executives still plan to make a decision by year's end on the site for its headquarters, which employs 6,100 people, said spokesman Chris Brathwaite.

"We are disappointed that [Tuesday], the legislature was not able to reach agreement and pass a package that will help us remain an Illinois company," Brathwaite said in a prepared statement.

"It is our hope that lawmakers will achieve a compromise very soon," said Brathwaite.

Sears would pay lower taxes through the renewal of a special taxing district in the Chicago suburb of Hoffman Estates.

As it currently stands, the legislation would also 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 wouldn't kick in for CME and CBOE until the start of the next fiscal year, which begins July 1.

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.

Gov. Pat Quinn supported the Senate version's of the bill providing low-to-middle income workers with a 10% increase in earned income tax credits by fiscal year 2014.

"The Governor will continue to fight for working families," said Quinn spokeswoman Brooke Anderson.

"From day one, we have insisted that any tax relief bill also include help for working families and employers. It is clear that the legislature is deeply divided over this issue," Anderson said in a prepared statement.

Only the trading floors, located at the CME-owned Chicago Board of Trade, would remain in the city, said CME's 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, House member Jack Franks urged his colleagues.

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

It isn't acceptable, Duffy added, that CME pays 6% of all corporate taxes collected by the Illinois government.

The CME chairman told the House committee earlier this month that the exchange operator's directors are reviewing "very, very lucrative" offers from other states.

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

CME (NASDAQ:CME)
Historical Stock Chart
From May 2024 to Jun 2024