SENATE BILL 40
By Walley
HOUSE BILL 1047
By Marsh
HB1047
000042
- 1 -
AN ACT to amend Tennessee Code Annotated, Title 4;
Title 8; Title 9; Title 12, Chapter 3; Title 45; Title
50; Title 56, Chapter 1 and Title 67, relative to
employee-owned businesses.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
SECTION 1. This act is known and may be cited as the "Employee Ownership,
Empowerment, and Expansion Act."
SECTION 2. Tennessee Code Annotated, Title 67, Chapter 4, Part 20, is amended by
adding the following as a new section:
67-4-2024.
(a) The purposes of this section are to:
(1) Provide an incentive for businesses to establish employee stock
ownership plans or employee ownership trusts or to convert to a worker-owned
cooperative, which allows companies to share ownership with employees without
requiring employees to invest their own money; and
(2) Encourage business owners to sell, through three (3) different
options, their businesses to the very employees that contributed to their success.
(b) As used in this section:
(1) "Conversion costs":
(A) Means all costs incurred by a qualified business for the
transition of a business to an employee ownership trust, an employee
stock ownership plan, or a worker-owned cooperative; and
(B) Includes, but is not limited to:
- 2 - 000042
(i) The cost of professional services, including accounting,
legal, and business advisory services;
(ii) Expenses necessary or incident to determining the
feasibility and structure of the conversion; and
(iii) The cost of tax planning, audits, valuations, travel, pro-
formas, and trustee or third-party administration;
(2) "Employee ownership trust" means an indirect form of employee
ownership in which a trust holds a controlling stake in a qualified business and
benefits all employees on an equal basis;
(3) "Employee stock ownership plan" has the same meaning as set forth
in § 4975(e)(7) of the Internal Revenue Code (26 U.S.C. § 4975(e)(7)), as
amended;
(4) "Qualified business" means a taxpayer subject to tax under this part,
including a C corporation, S corporation, limited liability company, or limited
liability partnership, that:
(A)
(i) Is not owned in whole or in part by an employee
ownership trust;
(ii) Does not have an employee stock ownership plan; or
(iii) Is not, in whole or in part, a worker-owned cooperative;
and
(B) Is approved by the department for the tax incentives in this
section; and
(5) "Worker-owned cooperative" has the same meaning as set forth in §
1042(c)(2) of the Internal Revenue Code (26 U.S.C. § 1042(c)(2)), as amended.
- 3 - 000042
(c) For tax years commencing on or after January 1, 2026, but prior to January
1, 2031, there is allowed a credit with respect to the taxes imposed pursuant to this part
in the tax year in which the conversion is completed, as follows:
(1) Up to fifty percent (50%) of the conversion costs, not to exceed
twenty-five thousand dollars ($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 fifty percent (50%) of the conversion costs, not to exceed one
hundred thousand dollars ($100,000), incurred by a qualified business for
converting the qualified business to an employee stock ownership plan.
(d) To request a credit, the taxpayer shall file an application with the
commissioner on a form prescribed by the commissioner, and include a cost certification
of the estimated conversion costs.
(e) The commissioner may 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.
(f) The commissioner shall review the documentation submitted by the taxpayer
and notify the taxpayer of the approved credit.
(g) Unused credit may be carried forward in any tax period until the credit is
taken; provided, however, that the credit must not be carried forward for more than
twenty-five (25) years.
(h) The department shall conduct statewide outreach efforts, within existing
resources, to minority-owned businesses, as defined in § 4-28-102, about the availability
of the tax credit allowed in this section.
- 4 - 000042
(i) The commissioner is authorized to promulgate rules to effectuate the
purposes of this section. The rules must be promulgated in accordance with the Uniform
Administrative Procedures Act, compiled in title 4, chapter 5.
(j) On or before January 1, 2026, the department shall submit a one-time report
to the finance, ways and means committees of the house of representatives and the
senate, setting forth the clear, relevant, and ascertainable metrics and data requirements
that the department will track under this section in order to allow the general assembly to
measure the effectiveness of the tax expenditure allowed in this section in achieving the
purposes set forth in subsection (a).
SECTION 3. Tennessee Code Annotated, Section 67-4-712, is amended by adding the
following as a new subsection:
(g) The tax imposed by this part does not apply to a worker-owned cooperative,
an employee ownership trust, or an employee stock ownership plan, as defined in § 67-
4-2024.
SECTION 4. Tennessee Code Annotated, Section 12-3-1102, is amended by adding
the following as new, appropriately designated subdivisions:
( ) "Employee ownership trust" means an indirect form of employee ownership
in which a trust holds a controlling stake in a qualified business and benefits all
employees on an equal basis;
( ) "Tennessee employee-owned business" means a business that is a
continuing, independent, for-profit business that performs a commercially useful function,
and is at least fifty-one percent (51%) owned and controlled by:
(A) An employee ownership trust;
(B) An employee stock ownership plan as defined in 26 U.S.C. §
4975(e)(7); or
- 5 - 000042
(C) A worker-owned cooperative as defined in 26 U.S.C. § 1042(c)(2).
SECTION 5. Tennessee Code Annotated, Section 12-3-1103(a), is amended by
inserting the language "Tennessee employee-owned businesses," immediately before the
language "and small businesses".
SECTION 6. Tennessee Code Annotated, Section 12-3-1104, is amended by inserting
the language "Tennessee employee-owned business," immediately before the language "or
small business" wherever it appears in subdivision (a)(1) and subsections (b) and (c).
SECTION 7. Tennessee Code Annotated, Section 12-3-1104(a)(2), is amended by
inserting the language "Tennessee employee-owned businesses," immediately after the
language "disabilities," wherever it appears; and by deleting the language "five (5)
subcategories of businesses" and substituting instead the language "six (6) subcategories of
businesses".
SECTION 8. Tennessee Code Annotated, Title 12, Chapter 3, Part 11, is amended by
inserting the language "Tennessee employee-owned business," immediately before the
language "or small business" wherever it appears in Sections 12-3-1105, 12-3-1106, and 12-3-
1107.
SECTION 9.
(a) Section 3 of this act takes effect January 1, 2026, the public welfare requiring
it, and applies to tax periods that begin on or after January 1, 2026.
(b) Sections 4, 5, 6, 7, and 8 of this act take effect July 1, 2025, the public
welfare requiring it.
(c) All remaining sections of this act take effect upon becoming a law, the public
welfare requiring it, and apply to tax periods that begin on or after January 1, 2026.