UPDATE 2-Illinois house votes down CME, Sears tax relief


* Legislation giving CME $85 million in relief loses

* Sears would have gotten $15 mln of relief annually

* Companies have threatened to move to other states (Updates with Illinois House legislature)

By Andrew Stern

CHICAGO, Nov 29 (Reuters) - The Illinois house voted down a proposal on Tuesday that would have given $100 million in tax relief to CME Group and Sears Holdings , which have threatened to move to other states.

The state house voted overwhelming 99 to 8 to kill the total $250 million tax relief package that proponents said spread benefits around to individual taxpayers and small businesses. Earlier, the state senate 36-18 voted in favor of the package.

Opponents in the legislature, meeting in the state capital of Springfield, objected to large companies using their lobbying influence to push for tax breaks, while smaller companies get little or no relief from steep across-the-board tax increases imposed in January.

Some Democrats said it took away too much of the proposed tax breaks intended for poor and middle-income taxpayers.

CME, Sears and some other employers in Illinois have threatened to move to other states if they fail to get relief.

CME executives say they have talked to officials in Texas, Florida and Tennessee about potential moves. A CME spokesman said he had no comment on the vote.

A Sears spokesman said that the legislature is still meeting and he would reserve comment until the session ended. Tuesday is final day of the current legislative session until next year.

The Sears spokesman said earlier that the company has received proposals from about a third of the 50 U.S. states, and executives have visited Columbus, Ohio and Austin, Texas, to explore possible sites.

Though cash-strapped Illinois can ill afford a reduction in tax revenue, it has handed tax relief to several companies including $100 million to Motorola Mobility Inc , $65 million to Navistar and $3.5 million to Groupon Inc , opponents of the bill said.

"The third wave (of local companies seeking tax relief) is now forming out to sea," Republican state senator Chris Lauzen said during the floor debate. "The little guys, the small businesses, continue to pay. The powerful, the politically connected, come for their bailout."

The bill's supporters said there was no choice, given the competitive environment among the states and globally.

Illinois faces billions of dollars in unpaid bills and billions more in unfunded pensions, and it is one of several states grappling with a strained budget.

Illinois in January raised corporate tax rates to 7 percent from 4.8 percent, and individual rates to 5 percent from 3 percent, to close a chronic budget deficit and begin paying overdue bills.

CME and Sears each employ thousands of people.

CME, which operates the Chicago Mercantile Exchange and the Chicago Board of Trade, would receive $85 million in annual tax savings, roughly halving its tax bill. The bill limits state taxes to income on 27.54 percent of electronic transactions on local exchanges, a change that proponents said was overdue.

Sears, which owns Sears and Kmart stores, would get a tax break of $15 million yearly over the next decade as long as it keeps its headquarters in the Chicago suburb of Hoffman Estates. The company, which has 6,100 employees in Hoffman Estates, said it backed the measure.

Under the proposal, all Illinois businesses would have claimed up to $100,000 in tax credits from past net operating losses, helping small firms, and a research and development tax credit would be extended for five years. Individuals would have seen a bump in the personal tax exemption, the estate tax exemption would have been raised, and the earned income tax credit for poor taxpayers would have risen.

The tax relief package was to be funded in the first year by letting expire an allowance for companies to accelerate depreciation of capital investments.

Democratic Governor Pat Quinn, who had indicated he backed parts of the tax relief proposal, also announced a bipartisan agreement to keep open seven state healthcare facilities through the fiscal year. The facilities had been slated for closure. (Additional reporting by Karen Pierog, Dhanya Skariachan and Thomas Polansek; editing by John Wallace and Carol Bishopric)


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