Fiscal Note — HB 1743, Expanding Employee Ownership (Department of Revenue)
Summary
Individual State Agency Fiscal Note for HB 1743, an act relating to expanding employee ownership, from the Department of Revenue. Part I estimates GF-State Business and Occupation Tax cash receipts of (229,000) for 2023-2025, and expenditures of 483,500 for 2023-2025. The narrative states that the fiscal note addresses sections of the bill that impact the department, and describes the business and occupation tax as a gross receipts tax. A revenue impact detail lists the receipts by fiscal year and by biennium.
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“Fiscal Note — HB 1743, Expanding Employee Ownership (Department of Revenue).”
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Individual State Agency Fiscal Note
Bill Number: HB 1743 Bill Title: AN ACT Relating to expanding employee Agency: 140
ownership Department of Revenue
Part I: Estimates
[ ] No Fiscal Impact
Estimated Cash Receipts to:
Fund Fiscal Year 2024 Fiscal Year 2025 2023-2025 Total 2025-27 Biennium 2027-29 Biennium
GF-State Business and
(229,000) (229,000) (852,000) (925,000)
Occupation Tax
Total (229,000) (229,000) (852,000) (925,000)
Estimated Expenditures from:
Fiscal Year 2024 Fiscal Year 2025 2023-2025 Total 2025-27 Biennium 2027-29 Biennium
FTE Staff Years 2.43 .2 1.32 .2 .2
Fund
GF-State 001 462,600 20,900 483,500 41,800 41,800
Total 462,600 20,900 483,500 41,800 41,800
The revenue and expenditures estimates on this page represent the most likely fiscal impact. Factors impacting the precision of
these estimates, and alternate ranges (if appropriate), are explained in Part II.
Check applicable boxes and follow corresponding instructions:
[X] If fiscal impact is greater than $50,000 per fiscal year in the current biennium or in subsequent
biennia, complete entire fiscal note form Parts I-V.
[ ] If fiscal impact is less than $50,000 per fiscal year in the current biennium or in subsequent biennia,
complete this page only (Part I).
[ ] Capital budget impact, complete Part IV.
[ ] Requires new rule making, complete Part V.
Legislative Contact: CASSIE JONES Phone: 360-786-7303 Date: 2/6/2023
Agency Preparation: SARA DEL MORAL Phone: (360) 534-1525 Date: 2/6/2023
Agency Approval Marianne McIntosh Phone: (360) 534-1505 Date: 2/8/2023
OFM Review: Phone: Date:
OFM Form FN (10/95)
Fiscal Note # 1743-1
Bill # HB 1743
1
Part II: Narrative Explanation
II. A - Brief Description Of What The Measure Does That Has Fiscal Impact
This fiscal note addresses sections 4 and 5 of the bill, which impact the Department of Revenue (department).
CURRENT LAW:
The business and occupation (B&O) tax is a gross receipts tax. It is measured on the value of products, gross proceeds of
sale, or gross income of each business. The tax rate varies by classification. Rates for the major classifications range from
0.471% to 1.750%. Preferential rates are available for certain activities.
Several credits against the B&O tax are available. However, state law does not allow a credit for the cost of converting a
business to an employee-owned structure.
PROPOSAL:
A credit against the B&O tax is provided for each qualifying business that converts to using any of the following
employee ownership structures:
- employee stock ownership plan (ESOP)
- worker-owned cooperative
- employee ownership trust
For each business that converts to using an ESOP, the credit is equal to the greater of the following:
- 50% of conversion costs
- $100,000
For each business converting to a worker-owned cooperative or employee ownership trust, the credit is equal to the
greater of the following:
- 50% of conversion costs
- $25,000
Each business may carry over unused credit to subsequent tax periods, as long it does so within 12 months of conversion.
Statewide, the total amount of credits authorized is $2 million for each calendar year.
“Conversion costs” means amounts spent on accounting, legal and other professional services to pay for a feasibility study
and/or a transition to an employee-owned structure.
“Qualified business” means an entity that is:
- subject to the B&O tax
- does not already have one of employee-owned structures for which the credit is available
- approved by the department for the credit.
The credit expires on July 1, 2030.
EFFECTIVE DATE:
The bill takes effect 90 days after final adjournment of the session, except for the sections that create the credit, which
take effect on July 1, 2024.
II. B - Revenue Impact
OFM Form FN (10/95)
Fiscal Note # 1743-1
Bill # HB 1743
2
ASSUMPTIONS:
- The department conducts significant outreach about the credit, leading to a greater number of conversions.
- The number of businesses annually converting to employee ownership is:
- 13 during the first year the credit is available
- 15 for subsequent years
- All converting businesses use the credit.
- For each converted business that uses the credit, the credit equals:
- $45,000 for an employee stock ownership plan
- $25,000 for a worker-owned cooperative
- Businesses using the credit in Washington are similar to Colorado businesses granted a credit for conversions during
2022 with regards to annual revenues and type of employee ownership.
- The B&O tax base grows as forecasted by the Economic and Revenue Forecast Council.
- Currently, tribes with compacts receive a share of certain business and occupation taxes (RCW 43.06.523). Under this
proposal the amount of revenue shared with tribes and local governments may decline.
DATA SOURCES:
- Colorado Office of Economic Development and International Trade
- Economic and Revenue Forecast Council, November 2022 forecast
- National Center for Employee Ownership
REVENUE ESTIMATES:
This bill decreases state revenues by an estimated $229,000 in the 11 months of impacted collections in fiscal year 2025,
and by $417,000 in fiscal Year 2026, the first full year of impacted collections.
STATE GOVERNMENT IMPACT:
State Government (cash basis, $000):
FY 2024 - $ 0
FY 2025 - ($ 229)
FY 2026 - ($ 417)
FY 2027 - ($ 435)
FY 2028 - ($ 453)
FY 2029 - ($ 472)
LOCAL GOVERNMENT IMPACT:
Local Government, if applicable (cash basis, $000): None
II. C - Expenditure Impact
ASSUMPTIONS:
This bill affects less than 20 taxpayers annually.
FIRST YEAR COSTS:
The department will incur total costs of $462,600 in fiscal year 2024. These costs include:
Labor Costs - Time and effort equate to 2.4 FTEs.
- Adopt one new administrative rule.
- Set up, program and test computer systems for a new credit type. This includes a new credit ID and associated return
processing and system indicator codes, a new E-file worksheet, and modifications to reports and data files.
- Gathering requirements, implementation meetings, documentation, and testing of system changes due to new credit.
OFM Form FN (10/95)
Fiscal Note # 1743-1
Bill # HB 1743
3
- Assist taxpayers with reporting questions and respond to inquiries via email, web message, and paper
correspondence.
Object Costs - $132,000.
- Computer system changes, including contract programming.
SECOND YEAR COSTS:
The department will incur total costs of $20,900 in fiscal year 2025. These costs include:
Labor Costs - Time and effort equate to 0.2 FTE.
- Continued computer system testing, monitoring and maintenance for new credit.
- Process returns, verify credits taken and all associated work items, including issuing assessments for return errors and
underpayments.
ONGOING COSTS:
Ongoing costs for the 2026-27 biennium equal $41,800 and include similar activities described in the second-year costs.
Time and effort equate to 0.2 FTE.
Part III: Expenditure Detail
III. A - Expenditures by Object or Purpose:
Fiscal Year 2024 Fiscal Year 2025 2023-2025 Total 2025-27 Biennium 2027-29 Biennium
Salaries and Wages 208,000 13,500 221,500 27,000 27,000
Benefits 68,600 4,500 73,100 9,000 9,000
Personal Service Contracts 132,000 132,000
Supplies & Material 37,100 2,300 39,400 4,600 4,600
Office Equipment 16,900 600 17,500 1,200 1,200
Total 462,600 20,900 483,500 41,800 41,800
III. B - FTE Detail:
Job Classification Salary FY 2024 FTEs FY 2025 FTEs 2023 - 2025 Total 2025 - 2027 2027 - 2029
EMS BAND 4 126,619 .01 .01
EMS BAND 5 147,919 .01 .01
EXCISE TAX EX 3 61,632 .1 .1 .1 .1 .1
IT SYS ADM-JOURNEY 92,844 1.6 .8
MGMT ANALYST4 73,260 .61 .1 .36 .1 .1
TAX POLICY SP 2 75,120 .01 .01
TAX POLICY SP 3 85,020 .07 .04
TAX POLICY SP 4 91,524 .01 .01
WMS BAND 3 107,685 .01 .01
Total 2.43 .2 1.35 .2 .2
III. C - Expenditures by Program (optional):
Fiscal Year 2024 Fiscal Year 2025 2023-2025 Total 2025-27 Biennium 2027-29 Biennium
Total
OFM Form FN (10/95)
Fiscal Note # 1743-1
Bill # HB 1743
4
Part IV: Capital Budget Impact
None.
Part V: New Rule Making Required
Should this legislation become law, the department will use the standard process to adopt WAC 458-20-NEW, titled:
"New rule on employee ownership". Persons affected by this rulemaking would include qualifying businesses that convert
to worker-owned cooperatives, employee ownership trusts, or employee stock ownership plans.
OFM Form FN (10/95)
Fiscal Note # 1743-1
Bill # HB 1743
5
Revenue Impact Detail
First Biennium Second Biennium Third Biennium
FUND SOURCE CODE 1st YEAR 2nd YEAR 3rd YEAR 4th YEAR 5th YEAR 6th YEAR
GF-State Business and Occupation Tax 0105 (229,000) (417,000) (435,000) (453,000) (472,000)
Total (229,000) (417,000) (435,000) (453,000) (472,000)
OTHER
Total
Net (229,000) (417,000) (435,000) (453,000) (472,000)
Revenue Impact - by Biennium
FUND SOURCE CODE 1st Biennium 2nd Biennium 3rd Biennium
GF-State Business and Occupation Tax 0105 (229,000) (852,000) (925,000)
Total (229,000) (852,000) (925,000)
OTHER
Total
Net (229,000) (852,000) (925,000)
OFM Form FN (10/95)
Fiscal Note # 1743-1
Bill # HB 1743
6
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