SB 40 – HB 1047
FISCAL NOTE
Fiscal Review Committee
Tennessee General Assembly
February 11, 2025
Fiscal Analyst: Elizabeth Bransford | Email: elizabeth.bransford@capitol.tn.gov | Phone: 615-741-2564
SB 40 – HB 1047
SUMMARY OF BILL: Enacts the Employee Ownership, Empowerment, and Expansion Act.
Establishes tax incentives for businesses to create employee stock ownership plans (ESOPs), an
employee ownership trust (EOT), or to convert to a worker-owned cooperative (WOC).
Creates an excise tax credit to cover a portion of the cost to convert to employee ownership which
can be realized in the year the conversion is complete. Limits such tax credits to tax years
commencing on or after January 1, 2026 but prior to January 1, 2031. Allows unused tax credits to
be carried forward, up to 25 years, in any tax period until the credit is taken.
Exempts ESOPs, EOTs, and WOCs from the business tax, beginning with tax years beginning on
or after January 1, 2026.
Extends the application of the Tennessee Minority-Owned, Women-Owned, Service-Disabled Veteran-Owned,
Business Owned by Persons with Disabilities, and Small Business Procurement and Contracting Act (Act) to
Tennessee employee-owned businesses.
FISCAL IMPACT:
STATE GOVERNMENT
REVENUE General Fund
FY26-27 each through FY30-31 ($600,000)
FY31-32 & Subsequent Years ($50,000)
LOCAL GOVERNMENT
REVENUE Mandatory
FY26-27 & Subsequent Years ($50,000)
Assumptions:
• The proposed tax credit equals up to 50 percent of the conversion costs incurred by a
qualified business for converting to an ESOP, EOT, or WOC.
• Conversion costs include, but are not limited to: accounting, tax planning, business
advisement, audits, travel, third-party administration, legal services, and expenses necessary
to determine the feasibility and structure of conversion.
• The maximum tax credit for converting to a WOC or an EOT is $25,000. The maximum
tax credit for converting to an ESOP is $100,000.
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• According to the National Center for Employee Ownership (NCEO), 292 new ESOPs
were created in 2022.
• Based on data from the NCEO and the U.S. Federation of Worker Cooperatives, there are
currently 95 ESOPs and 5 WOCs in Tennessee.
• For the purpose of this analysis, it is estimated that, due to the proposed incentives, the
number of businesses that convert to ESOPs will increase by five percent each year,
resulting in approximately 5 (95 x 5%) new ESOPs annually.
• It is estimated that one business will convert to an EOT and a WOC each per year.
• Conversion costs are unknown, but it is assumed that businesses that undergo the
conversion to employee ownership will qualify for the maximum tax credits authorized.
• Due to the effective date of the proposed legislation applying to tax years ending on or after
January 1, 2026, and the payment structure of excise tax payments, the first year in which
the tax credits will be utilized is FY26-27.
• Although unused tax credits may be carried forward up to 25 years, it is assumed tax credits
will be utilized in the year they are received; therefore, the last fiscal year in which the tax
credits will be utilized is FY30-31.
• The decrease in state revenue in each FY26-27 through FY30-31 is estimated to be
$550,000 [($100,000 x 5 ESOPs) + ($25,000 x 1 EOT) + ($25,000 x 1 WOC)].
• The proposed legislation exempts ESOPs, EOTs, and WOCs from The Business Tax Act for
tax years beginning on or after January 1, 2026.
• The precise impact of such tax exemptions is unknown, but based on the average business
tax liability of entities required to pay the business tax, any decrease is revenue is estimated
to be relatively limited.
• For the purposes of this fiscal analysis, it is assumed that the decrease in revenue will not
exceed $50,000 for the state government and $50,000 for the local government. These
impacts will begin in FY26-27 and will continue into perpetuity.
• The total decrease in state revenue is estimated to be $600,000 ($550,000 + $50,000) in each
FY26-27 through FY30-31 and $50,000 in FY31-32 and subsequent years.
• The decrease in local revenue is estimated to be $50,000 in FY26-27 and subsequent years.
• The Department of Revenue will implement the proposed legislation utilizing existing staff
and resources, without any significant increase in departmental expenditures.
• Extending the Act to Tennessee employee-owned businesses will not result in a significant
direct fiscal impact on state or local government.
IMPACT TO COMMERCE:
BUSINESS IMPACT
FISCAL YEAR EXPENSES
FY26-27 each through FY30-31 ($650,000)
FY31-32 & Subsequent Years ($100,000)
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Assumptions:
• The proposed legislation will provide excise tax credits for businesses that convert to an
ESOP, EOT, or WOC and will exempt such businesses from the business tax. Such tax
credits and exemptions will decrease business expenditures.
• The total decrease in business expenditures is estimated to be $650,000 ($600,000 +
$50,000) in each FY26-27 through FY30-31 and $100,000 ($50,000 + $50,000) in FY31-32
and subsequent years.
• Any impact on the total number of jobs in this state is estimated to be not significant.
CERTIFICATION:
The information contained herein is true and correct to the best of my knowledge.
Bojan Savic, Executive Director