(The Center Square) – Businesses that convert to employee ownership could soon receive a $100,000 tax credit in Wisconsin.
Assembly Bill 17, which passed the Assembly with unanimous bipartisan support Tuesday, would offer businesses that transition to worker-owner cooperatives a nonrefundable income tax credit amounting to 70% of conversion costs, while businesses that enact an employee stock ownership plan could receive tax credit for up to 50% of conversion costs.
Eligible businesses can claim up to $100,000 in tax credits and the total program would be capped at $5 million annually statewide.
“Selling to employees is not only a visible exit strategy for aging business owners, but may be the best option,” Kristin Forde, a member of the University of Wisconsin Center for Cooperatives, previously said at a public hearing for the bill.
Forde argued the tax credit could help keep businesses local and prevent them from selling to out-of-state buyers, saying, “This legislation ties together education and financial incentives to ensure that employee-owned cooperatives are a feasible solution to retaining jobs and services in our communities.”
AB 17 would eliminate state capital gains taxes on the sale of a business to an ESOP or cooperative, provided the employee entity owns more than 50% of the company after the sale.
The bill would additionally require the Department of Revenue to run a statewide program promoting employee ownership through education, outreach, training and technical assistance.
Eligible businesses must apply and be certified by DOR, and cannot already be partially or wholly employee-owned at the time of conversion.
Bill co-author Sen. Jesse James, R-Thorp, stated incentivizing ESOPs would be good for both employees and the local state economy.
“ESOPs are much less likely to lay off employees en masse or move operations out of Wisconsin when it comes time for business succession,” James said in a statement.
James added that several states have recently enacted bipartisan legislation to incentivize such business transitions.
“This legislation is pro-growth, pro-small business, and pro-Wisconsin,” James concluded.
Ryan Kauth, executive director of Wisconsin Center for Employee Ownership, said the tax credit would remove significant obstacles to businesses that want to become employee-owned.
“Besides education, one of the main barriers to employee ownership is the upfront costs of required feasibility studies and other expenses to begin the employee-ownership transaction or conversion process,” Kauth said.
“The conversion costs tax credit and tax deduction on capital gains from the transfer of a business to employee ownership would absolutely help removing this barrier,” Kauth concluded.
The bill’s companion, Senate Bill 21, awaits approval via floor vote in the Wisconsin Senate before the tax credit could be signed into law.
