AN ACT to amend Tennessee Code Annotated, Title 4; Title 8; Title 9; Title 12, Chapter 3; Title 45; Title 50; Title 56, Chapter 1 and Title 67, relative to employee-owned businesses.
SB0040, the “Employee Ownership, Empowerment, and Expansion Act,” creates a new state tax incentive to encourage Tennessee businesses to convert to employee ownership structures. The bill authorizes a franchise and excise tax credit for qualified businesses that incur conversion costs to form an employee stock ownership plan (ESOP), an employee ownership trust, or a worker-owned cooperative. The credit is available for tax years beginning on or after January 1, 2026, and before January 1, 2031, and generally covers up to 50% of conversion costs, capped at $25,000 for conversions to a worker-owned cooperative or employee ownership trust and $100,000 for conversions to an ESOP.
The bill also exempts worker-owned cooperatives, employee ownership trusts, and ESOPs from the tax imposed under Tennessee Code Annotated, Title 67, Chapter 4, Part 7, beginning in 2026. In addition, it expands Tennessee’s small-business-related procurement and business preference framework by defining “Tennessee employee-owned business” and adding that category to multiple provisions in Title 12, Chapter 3, Part 11. To qualify, a business must be a continuing, independent, for-profit business performing a commercially useful function and be at least 51% owned and controlled by one of the employee-ownership structures identified in the bill.
The bill requires businesses seeking the credit to apply to the commissioner, submit cost certification, and potentially provide additional documentation for audit or verification. It also directs the Department of Revenue to conduct outreach, within existing resources, to minority-owned businesses about the credit and to submit a one-time report by January 1, 2026, describing the metrics and data it will track to evaluate the tax expenditure’s effectiveness. The commissioner is authorized to adopt rules to implement the new provisions.
Overall, the bill appears designed to promote employee ownership as a business succession and wealth-building strategy, while also integrating employee-owned firms into existing state preference programs. Because there were no recorded committee transcripts or votes provided, there is no documented public debate in the supplied materials, and the general sentiment cannot be measured from discussion history. Based on the bill text alone, the policy direction is supportive of employee-owned enterprises and small-business transition planning.
No specific points of contention are documented in the provided record, but potential areas of legislative concern include the cost of the tax credit, the size of the ESOP cap versus the other ownership models, the administrative burden of certification and audits, and whether the new preferences should extend to employee-owned businesses in state procurement and related programs.
The bill amends Tennessee tax and procurement statutes to create a new employee-ownership tax credit, exempt certain employee-owned entities from a state tax under Title 67, and add “Tennessee employee-owned business” as a recognized category in state business preference laws under Title 12. It affects businesses converting to ESOPs, employee ownership trusts, and worker-owned cooperatives, as well as the Department of Revenue and agencies administering small-business preference programs.
No committee discussion or vote record was provided, so there is no direct evidence of support or opposition from the legislative process in the supplied materials. The bill’s text reflects a clearly pro-employee-ownership policy, suggesting a generally favorable intent toward business succession, employee wealth-building, and cooperative ownership models.
The provided materials do not identify any explicit objections or amendments. Potential points of contention, based on the bill’s structure, could include the fiscal impact of the new tax credit and exemptions, the differing credit caps for ESOPs versus cooperatives and trusts, the need for audits and administrative oversight, and whether employee-owned businesses should receive the same treatment as small businesses in state preference programs.