Tennessee 2025-2026 Regular Session

Tennessee Senate Bill SB0040 Compare Versions

Version 1 (Old)

Version 2 (New)

Old	New		Differences
1	1
2		-	HOUSE BILL 1047
3		-	By Marsh
	2	+	<BillNo> <Sponsor>
4	3
5	4		SENATE BILL 40
6	5		By Walley
7	6
8	7
9	8		SB0040
10	9		000042
11	10		- 1 -
12	11
13	12		AN ACT to amend Tennessee Code Annotated, Title 4;
14	13		Title 8; Title 9; Title 12, Chapter 3; Title 45; Title
15	14		50; Title 56, Chapter 1 and Title 67, relative to
16	15		employee-owned businesses.
17	16
18	17		BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF TENNESSEE:
19	18		SECTION 1. This act is known and may be cited as the "Employee Ownership,
20	19		Empowerment, and Expansion Act."
21	20		SECTION 2. Tennessee Code Annotated, Title 67, Chapter 4, Part 20, is amended by
22	21		adding the following as a new section:
23	22		67-4-2024.
24	23		(a) The purposes of this section are to:
25	24		(1) Provide an incentive for businesses to establish employee stock
26	25		ownership plans or employee ownership trusts or to convert to a worker-owned
27	26		cooperative, which allows companies to share ownership with employees without
28	27		requiring employees to invest their own money; and
29	28		(2) Encourage business owners to sell, through three (3) different
30	29		options, their businesses to the very employees that contributed to their success.
31	30		(b) As used in this section:
32	31		(1) "Conversion costs":
33	32		(A) Means all costs incurred by a qualified business for the
34	33		transition of a business to an employee ownership trust, an employee
35	34		stock ownership plan, or a worker-owned cooperative; and
36	35		(B) Includes, but is not limited to:
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38	37
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41	40		(i) The cost of professional services, including accounting,
42	41		legal, and business advisory services;
43	42		(ii) Expenses necessary or incident to determining the
44	43		feasibility and structure of the conversion; and
45	44		(iii) The cost of tax planning, audits, valuations, travel, pro-
46	45		formas, and trustee or third-party administration;
47	46		(2) "Employee ownership trust" means an indirect form of employee
48	47		ownership in which a trust holds a controlling stake in a qualified business and
49	48		benefits all employees on an equal basis;
50	49		(3) "Employee stock ownership plan" has the same meaning as set forth
51	50		in § 4975(e)(7) of the Internal Revenue Code (26 U.S.C. § 4975(e)(7)), as
52	51		amended;
53	52		(4) "Qualified business" means a taxpayer subject to tax under this part,
54	53		including a C corporation, S corporation, limited liability company, or limited
55	54		liability partnership, that:
56	55		(A)
57	56		(i) Is not owned in whole or in part by an employee
58	57		ownership trust;
59	58		(ii) Does not have an employee stock ownership plan; or
60	59		(iii) Is not, in whole or in part, a worker-owned cooperative;
61	60		and
62	61		(B) Is approved by the department for the tax incentives in this
63	62		section; and
64	63		(5) "Worker-owned cooperative" has the same meaning as set forth in §
65	64		1042(c)(2) of the Internal Revenue Code (26 U.S.C. § 1042(c)(2)), as amended.
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67	66
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70	69		(c) For tax years commencing on or after January 1, 2026, but prior to January
71	70		1, 2031, there is allowed a credit with respect to the taxes imposed pursuant to this part
72	71		in the tax year in which the conversion is completed, as follows:
73	72		(1) Up to fifty percent (50%) of the conversion costs, not to exceed
74	73		twenty-five thousand dollars ($25,000), incurred by a qualified business for
75	74		converting the qualified business to a worker-owned cooperative or an employee
76	75		ownership trust; or
77	76		(2) Up to fifty percent (50%) of the conversion costs, not to exceed one
78	77		hundred thousand dollars ($100,000), incurred by a qualified business for
79	78		converting the qualified business to an employee stock ownership plan.
80	79		(d) To request a credit, the taxpayer shall file an application with the
81	80		commissioner on a form prescribed by the commissioner, and include a cost certification
82	81		of the estimated conversion costs.
83	82		(e) The commissioner may conduct audits or require the filing of additional
84	83		information necessary to substantiate or adjust the amount of the credit allowed by this
85	84		section, and to determine that the taxpayer has complied with all statutory requirements
86	85		for the credit.
87	86		(f) The commissioner shall review the documentation submitted by the taxpayer
88	87		and notify the taxpayer of the approved credit.
89	88		(g) Unused credit may be carried forward in any tax period until the credit is
90	89		taken; provided, however, that the credit must not be carried forward for more than
91	90		twenty-five (25) years.
92	91		(h) The department shall conduct statewide outreach efforts, within existing
93	92		resources, to minority-owned businesses, as defined in § 4-28-102, about the availability
94	93		of the tax credit allowed in this section.
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96	95
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98	97
99	98		(i) The commissioner is authorized to promulgate rules to effectuate the
100	99		purposes of this section. The rules must be promulgated in accordance with the Uniform
101	100		Administrative Procedures Act, compiled in title 4, chapter 5.
102	101		(j) On or before January 1, 2026, the department shall submit a one-time report
103	102		to the finance, ways and means committees of the house of representatives and the
104	103		senate, setting forth the clear, relevant, and ascertainable metrics and data requirements
105	104		that the department will track under this section in order to allow the general assembly to
106	105		measure the effectiveness of the tax expenditure allowed in this section in achieving the
107	106		purposes set forth in subsection (a).
108	107		SECTION 3. Tennessee Code Annotated, Section 67-4-712, is amended by adding the
109	108		following as a new subsection:
110	109		(g) The tax imposed by this part does not apply to a worker-owned cooperative,
111	110		an employee ownership trust, or an employee stock ownership plan, as defined in § 67-
112	111		4-2024.
113	112		SECTION 4. Tennessee Code Annotated, Section 12-3-1102, is amended by adding
114	113		the following as new, appropriately designated subdivisions:
115	114		( ) "Employee ownership trust" means an indirect form of employee ownership
116	115		in which a trust holds a controlling stake in a qualified business and benefits all
117	116		employees on an equal basis;
118	117		( ) "Tennessee employee-owned business" means a business that is a
119	118		continuing, independent, for-profit business that performs a commercially useful function,
120	119		and is at least fifty-one percent (51%) owned and controlled by:
121	120		(A) An employee ownership trust;
122	121		(B) An employee stock ownership plan as defined in 26 U.S.C. §
123	122		4975(e)(7); or
124	123
125	124
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127	126
128	127		(C) A worker-owned cooperative as defined in 26 U.S.C. § 1042(c)(2).
129	128		SECTION 5. Tennessee Code Annotated, Section 12-3-1103(a), is amended by
130	129		inserting the language "Tennessee employee-owned businesses," immediately before the
131	130		language "and small businesses".
132	131		SECTION 6. Tennessee Code Annotated, Section 12-3-1104, is amended by inserting
133	132		the language "Tennessee employee-owned business," immediately before the language "or
134	133		small business" wherever it appears in subdivision (a)(1) and subsections (b) and (c).
135	134		SECTION 7. Tennessee Code Annotated, Section 12-3-1104(a)(2), is amended by
136	135		inserting the language "Tennessee employee-owned businesses," immediately after the
137	136		language "disabilities," wherever it appears; and by deleting the language "five (5)
138	137		subcategories of businesses" and substituting instead the language "six (6) subcategories of
139	138		businesses".
140	139		SECTION 8. Tennessee Code Annotated, Title 12, Chapter 3, Part 11, is amended by
141	140		inserting the language "Tennessee employee-owned business," immediately before the
142	141		language "or small business" wherever it appears in Sections 12-3-1105, 12-3-1106, and 12-3-
143	142		1107.
144	143		SECTION 9.
145	144		(a) Section 3 of this act takes effect January 1, 2026, the public welfare requiring
146	145		it, and applies to tax periods that begin on or after January 1, 2026.
147	146		(b) Sections 4, 5, 6, 7, and 8 of this act take effect July 1, 2025, the public
148	147		welfare requiring it.
149	148		(c) All remaining sections of this act take effect upon becoming a law, the public
150	149		welfare requiring it, and apply to tax periods that begin on or after January 1, 2026.