Employee ownership refers to the arrangement where no one person has the most shares or control over an organization. The most common form of employee ownership in the United States is the employee stock ownership plan (ESOP), a structure that provides tax benefits in return for sharing ownership with employees. The ESOPs are recognized under federal tax law as a qualified defined contribution retirement plan. Other types of employee ownership include employee ownership trusts, where a business is owned or partially owned by a perpetual trust from which employees may receive certain financial benefits and governance rights, and cooperatives, which are member-owned business entities in which worker-owners have a controlling interest.
Washington Employee Ownership Program.
The Washington Employee Ownership Program (Program) is created to support efforts of businesses considering a sale to an employee ownership structure. The Program is administered by Department of Commerce (Commerce) and overseen by the Washington Employee Ownership Commission (Commission).
In implementing the Program, Commerce must:
Subject to an award of federal funding for this purpose, Commerce must establish within the Program a revolving loan program to assist existing small businesses to finance a transition to employee ownership. Loans offered by the revolving loan program must be used to facilitate the purchase of an interest in an employee stock ownership plan or worker-owned cooperative from the owner or owners of a qualified business.
By December 1 of each year, Commerce must submit a report to the appropriate committees of the Legislature on Program activities and the number of employee-owned businesses and employee-owned trusts in the state, including recommendations for improvement and barriers for businesses considering employee ownership structures in Washington. The first report must include rules and guidelines for the administration of the Program, as established by the Commission.
Program support is only available to businesses headquartered in Washington, meaning that Washington is a business's principal place of business or where it is incorporated.
Washington Employee Ownership Commission.
The Commission is created to develop and supervise the Program. The Commission shall consist of the following 11 members:
The Commerce representative shall chair the first meeting, until a chair is elected. All gubernatorial appointments must first be nominated from recognized organizations that represent the entities or interests identified. After initial appointments, all members shall serve four-year terms and hold office until successors are appointed.
The Commission shall develop, in consultation with Commerce, the rules and guidelines for the administration of the Program.
Business and Occupation Tax Credit.
Beginning July 1, 2024, a business and occupation tax credit for costs related to converting a qualifying business to a worker-owned cooperative, employee ownership trust, or an employee stock ownership plan is established. The total amount of credits may not exceed $2 million per year and are available on a first-in-time basis. Unused credit may be carried over up to 12 months from the end of the tax reporting period in which the credit was earned.
Qualified businesses may receive up to:
A tax preference performance statement is included. The Legislature’s specific public policy objective is to encourage business owners to create an employee ownership plan or employee ownership trust or convert to a worker-owner cooperative that allows the company to share ownership with their employees without requiring employees to invest their own money. If the review finds that the number of employee ownership structures has increased because of the tax credit, then the Legislature intends for the Joint Legislative Audit and Review Committee to recommend extending the expiration date of the tax preference.
The substitute bill makes the following changes to the original bill:
(In support) This bill removes important barriers to employee ownership, including access to capital and access to professional and technical services. In Washington, infrastructure already exists in the field to do this work. The bill ties in with recent developments that have occurred nationally, including federal legislation and policy. This bill will put Washington in a good position to take advantage of federal programs.
This bill is modeled after similar bipartisan bills that have passed in other states. It significantly increases opportunities for employees to buy businesses from their employers through the use of tax incentives and technical support. There is a lot of data regarding the aging of business owners and this bill will help workers buy a business and become a worker-owned business. There are lots of benefits to employee ownership. Some businesses operate better when more people have a stake in the business. These businesses survive longer, are less likely to lay off workers, and provide great employee benefits such as higher pay.
Worker cooperatives provide a viable succession path for small businesses when their owners are ready to retire. Becoming a worker cooperative may be the best option to preserve and grow jobs at a business. One of the biggest obstacles is raising money to buy the business. Most banks do not understand the cooperative model and want personal guarantees for funding. This is a big risk and a hardship for workers. The tax credits and loan provisions in the bill can go a long way toward helping small businesses form cooperatives. The low number of employee-owned businesses is caused by lack of awareness, capital, and state-level incentives and technical assistance. This bill addresses all three of these roadblocks. Employee ownership can help bridge the wealth gap and preserve legacy businesses.
(Opposed) None.