This bill enacts the "Employee Ownership, Empowerment, and Expansion Act," which creates tax incentives for small businesses to establish employee stock ownership plans or employee ownership trusts, or to convert to a worker-owned cooperative, as discussed below.
TAX CREDIT
For tax years commencing on or after January 1, 2024, but prior to January 1, 2029, this bill creates an excise tax credit in the tax year in which a conversion is completed, as follows:
(1) Up to 50 percent of the conversion costs, not to exceed $25,000, incurred by a qualified business for converting the qualified business to a worker-owned cooperative or an employee ownership trust; or
(2) Up to 50 percent of the conversion costs, not to exceed $100,000, incurred by a qualified business for converting the qualified business to an employee stock ownership plan.
For purposes of this bill, a "qualified business" means a taxpayer subject to a state excise tax, including a C corporation, S corporation, limited liability company, partnership, limited liability partnership, sole proprietorship, or other similar pass-through entity, that is not owned by an employee ownership trust, does not have an employee stock ownership plan, or is not a worker owned cooperative, and is approved by the department of revenue for the tax incentives. In the case of a qualified business that is a C corporation or a limited liability company, the credit is allowed to the qualified business; but in the case of a qualified business that is a partnership, a sole proprietorship, or an S corporation, the credit is allowed to the owner.
This bill allows unused credit to be carried forward in any tax period until the credit is taken, as long as the credit is not carried forward for more than 15 years.
This bill requires tax credits issued under this bill to a partnership or an S corporation to be passed through to the partners, members, or owners, including a nonprofit entity that is a partner, member, or owner, respectively, on a pro rata basis according to their ownership percentage.
To request a credit, this bill requires the taxpayer to file an application with the commissioner on a form prescribed by the commissioner, and include a cost certification of the estimated conversion costs. Additionally, the taxpayer must claim a tax credit under this bill at the time of filing its excise tax return. The commissioner is required to review the documentation submitted by the taxpayer and to notify the taxpayer of an approved credit.
This bill authorizes the commissioner to promulgate rules to effectuate this bill; to conduct audits or require the filing of additional information necessary to substantiate or adjust the amount of the credit allowed by this section; and to determine that the taxpayer has complied with all statutory requirements for the credit.
This bill requires the department to do the following:
(1) Conduct statewide outreach efforts, within existing resources, to minority-owned businesses about the availability of the tax credit allowed in this bill; and
(2) On or before January 1, 2023, submit a one-time report to the finance, ways and means committees of the house of representatives and senate, setting forth the metrics and data requirements that the department will track in order to allow the general assembly to measure the effectiveness of the tax expenditure allowed under this bill.
The tax credit will be repealed on December 31, 2035.
TAX EXEMPTIONS
This bill exempts from taxes imposed under the Business Tax Act a worker-owned cooperative, an employee ownership trust, or an employee stock ownership plan. This provision takes effect January 1, 2024, and applies to tax periods that begin on or after that date.
OTHER INCENTIVES
This bill extends the application of the Tennessee Minority-Owned, Woman-Owned, Service-Disabled Veteran-Owned, Business Owned by Persons with Disabilities, and Small Business Procurement and Contracting Act, which governs public contracts with such entities, to employee-owned businesses in this state.

Statutes affected:
Introduced: 67-4-712, 12-3-1102, 12-3-1103(a), 12-3-1103, 12-3-1104, 12-3-1104(a)(2)