House Bill Analysis — SSB 5096, Employee Ownership (Washington, Hearing 3/14/23)

Summary

House Bill Analysis of SSB 5096, Concerning employee ownership, by the Office of Program Research for the Innovation, Community & Economic Development, & Veterans Committee, with a hearing date of 3/14/23 and Cassie Jones listed as staff. The brief summary states that the bill creates the Washington Employee Ownership Program at the Department of Commerce, establishes the Washington Employee Ownership Commission, and provides a business and occupation tax credit for costs of converting a qualifying business to an employee ownership structure. The analysis states that qualified businesses may receive up to 50 percent of conversion costs, not to exceed $25,000, for a worker-owner cooperative or an employee ownership trust, or not to exceed $100,000 for an employee stock ownership plan.

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
                                       SSB 5096
Brief Description: Concerning employee ownership.

Sponsors: Senate Committee on Business, Financial Services, Gaming & Trade (originally
    sponsored by Senators Padden, Pedersen, Hasegawa and Schoesler).


                               Brief Summary of Substitute 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: 3/14/23

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




     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-                                        SSB 5096
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.

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 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


House Bill Analysis                            -2-                                        SSB 5096
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:
   • 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:
   • one representative of a small business utilizing employee ownership structures, with an
      initial four-year term;
   • one representative of a large business utilizing employee ownership structures, with an
      initial four-year term;
   • one representative of a statewide business association, with an initial two-year term;
   • one economic development expert from the private sector, with an initial four-year term;
   • one representative from a financial institution with expertise in transitions to employee
      ownership, with an initial two-year term;
   • one economic development expert from the public sector, with an initial four-year term;
      and
   • 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 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:
   • 50 percent of the conversion costs, not to exceed $25,000, for converting to a worker-
      owner cooperative or an employee ownership trust; or


House Bill Analysis                            -3-                                          SSB 5096
    • 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: Available.

Effective Date: The bill takes effect 90 days after adjournment of the session in which the bill is
passed.




House Bill Analysis                            -4-                                        SSB 5096


File and source

File

2023-03-14_a31008_d256571_bill-analysis.pdf

Size

10,906 bytes

SHA-256

a38b36bcb897985c0ced0cd5ed464d679984c7939eb36e856d8eca96873f4c05

Our copy

2023-03-14_a31008_d256571_bill-analysis.pdf

Original

No public link identified.