House Bill Analysis — HB 1743, Employee Ownership (Office of Program Research, 2/10/23)

Summary

House Bill Analysis of HB 1743 concerning employee ownership, prepared by the Washington State House of Representatives Office of Program Research for the Innovation, Community & Economic Development, & Veterans Committee, with a hearing date of 2/10/23. The brief summary states that the bill creates the Washington Employee Ownership Program at the Department of Commerce, establishes the Washington Employee Ownership Commission to oversee the program, and provides a business and occupation tax credit for costs of converting a qualifying business to an employee ownership structure. The analysis lists Appropriation: None and a fiscal note requested on February 3, 2023. It states that the bill contains multiple effective dates.

Summary drafted by a model from the document's text below and checked by script against that text before publication. It is a navigation aid, not a reading of what the document proves. Where AI is used

Full text

Washington State                  BILL
House of Representatives
Office of Program Research   ANALYSIS
Innovation, Community & Economic
Development, & Veterans Committee
                                        HB 1743
Brief Description: Concerning employee ownership.

Sponsors: Representatives Doglio, Volz, Schmidt, Reed, Walen, Ormsby and Pollet.


                                     Brief Summary of Bill
          • Creates the Washington Employee Ownership Program (Program) at the
            Department of Commerce to support efforts of businesses considering a
            sale to an employee structure.
          • Establishes the Washington Employee Ownership Commission to
            oversee the Program.
          • Provides a business and occupation tax credit for costs related to
            converting a qualifying business to an employee ownership structure.


Hearing Date: 2/10/23

Staff: Cassie Jones (786-7303).

Background:

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




     This analysis was prepared by non-partisan legislative staff for the use of legislative
     members in their deliberations. This analysis is not part of the legislation nor does it
     constitute a statement of legislative intent.

House Bill Analysis                             -1-                                         HB 1743
cooperatives, which are member-owned business entities in which worker-owners have a
controlling interest.

Summary of Bill:

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:
    • create a network of technical support and service providers for businesses considering
      employee ownership structures;
    • work with state agencies whose regulations and programs affect employee-owned
      businesses, and businesses with the potential to become employee owned, to enhance
      opportunities and reduce barriers;
    • partner with relevant private, nonprofit, and public organizations including, but not limited
      to, professional and trade associations, financial institutions, unions, small business
      development centers, economic and workforce development organizations, and nonprofit
      entities to promote employee ownership benefits and succession models;
    • develop and make available materials regarding employee ownership benefits and
      succession models;
    • provide a referral service to help qualified business owners find appropriate legal,
      financial, and technical employee ownership resources and services;
    • work with the Department of Financial Institutions and appropriate state, private, and
      nonprofit entities to shape and implement guidance on lending to broad-based employee
      ownership vehicles;
    • create an inventory of employee-owned businesses in the state including employee stock
      ownership plans, worker cooperatives, and employee ownership trusts; and
    • establish a revolving loan program to assist existing small businesses to finance a
      transition to employee ownership.

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 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 state. The first report
must include rules and guidelines for the administration of the Program, as established by the


House Bill Analysis                            -2-                                         HB 1743
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 eleven members:
    • one member from each of the two major caucuses of the House of Representatives,
       appointed by the Speaker of the House;
    • one member from each of the two major caucuses of the Senate, appointed by the
       President of the Senate; and
    • seven of the following members appointed by the Governor:


    1. one representative of a small business using an employee ownership structure, with an
       initial four-year term;
    2. one representative of a large business using an employee ownership structure, with an
       initial four-year term;
    3. one representative of a statewide business association, with an initial two-year term;
    4. one economic development expert from the private sector, with an initial four-year term;
    5. one representative from a financial institution with expertise in transitions to employee
       ownership, with an initial two-year term;
    6. one economic development expert from the public sector, with an initial four-year term;
       and
    7. one representative from Commerce, with an initial four-year term.

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 Occupations 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:
   • 50 percent of the conversion costs, not to exceed $25,000, for converting to a worker-


House Bill Analysis                            -3-                                         HB 1743
      owner cooperative or an employee ownership trust; or
    • 50 percent of the conversion costs, not to exceed $100,000, for converting to an employee
      stock ownership plan.

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.

Appropriation: None.

Fiscal Note: Requested on February 3, 2023.

Effective Date: The bill contains multiple effective dates.




House Bill Analysis                            -4-                                      HB 1743


File and source

File

2023-02-15_a30790_d252333_bill-analysis.pdf

Size

10,872 bytes

SHA-256

6ce1d66917675618087e9ac4b227c6d7fd57eb827b68759159edf9388699169f

Our copy

2023-02-15_a30790_d252333_bill-analysis.pdf

Original

No public link identified.