Illinois Corporate Taxes

This morning $CME Executive Chairman Terry Duffy was on The Jack B Show. Jack asked Terry about taxes, specifically the ones CME pays to the state of Illinois.

CME pays 6% of all corporate taxes to the state. That’s more than companies much larger than them. Why do they pay all this tax?

It has to do with Illinois law.

If a customer from Europe or Asia transacts business on the CME platform, the CME has to pay tax on that transaction. The reason they do is because the clearinghouse and matching engine are located here.

The state of Illinois goes by the address of the brokerage firm, not where the transaction was initiated. This is opposite of how taxes on transactions usually work. Think about it. You don’t pay sales tax on out of state transactions when you buy products online. You get your VAT taxes rebated when you go to Europe and buy things. But Illinois doesn’t see things that way.

Other Illinois corporations simply leave profit in banks overseas. They don’t bring it back, and can use their multi national status to keep from declaring revenue in the state. CME can’t do that.

There are two answers to the problem. One, Illinois can stop taxing CME revenue, since most of it comes from out of state. Or, CME can move it’s headquarters, clearinghouse, and matching engines out of state and pay 0% tax.

Interestingly, yesterday at the Occupy WallStreet/LaSalle Street protest in Chicago, groups called for a transaction tax. I think I can just about guarantee that all exchanges would leave the city immediately if a transaction tax were to pass. Just the floating of the idea shows how idiotic and misinformed the protestors are.

One other note. Corporations never pay taxes anyway so it’s silly to have a corporate income tax. They are tax aggregators. They pass the cost of increased taxes to their customers. In effect, their customers (you) pay the tax.

Duffy said CME would do what’s best for its shareholders. Hopefully Illinois politicians are listening.

  • pointsnfigures

    not one protestor today at the FIA expo.  Must have been because the unions couldn’t give them the day off.

    • Kwr446

      wish i could have been there (FIA Expo) to hear Chairman Gensler’s talk. I’ve been mpressed with him. Implementing the Dodd-Frank Act reforms is a key piece in reducing the swap market risks that can collapse financial institutions. this is one proactive way of protecting every american from future taxpayer sponsored bailouts. A step in the right direction.

      • pointsnfigures

        actually Dodd-Frank makes it worse, and more expensive.  It does nothing.  Search this blog, and I would urge you to go to Streetwise Professor’s blog to educate yourself. 

        Clearing houses are part of the answer, but forced clearing isn’t the magic bullet.  Dodd-Frank forces more and more trading underground, as does the Gensler/Chilton proposals.  This lessens transparency.  Less transparency, higher costs and significantly higher risks.