An Act to amend 71.05 (6) (a) 15., 71.21 (4) (a), 71.26 (2) (a) 4., 71.34 (1k) (g) and 71.45 (2) (a) 10.; to create 71.05 (6) (b) 57., 71.07 (12), 71.10 (4) (em), 71.26 (2) (a) 13., 71.28 (12), 71.30 (3) (am), 71.45 (2) (a) 25., 71.47 (12), 71.49 (1) (am), 73.03 (78) and 73.03 (79) of the statutes; Relating to: creating an employee ownership conversion costs tax credit, a deduction for capital gains from the transfer of a business to employee ownership, and an employee ownership education and outreach program. (FE)
SB21 creates a package of tax incentives and administrative support aimed at encouraging business succession into employee ownership structures in Wisconsin. The bill would allow a nonrefundable income tax credit for certain conversion costs when a qualified business converts to a worker-owned cooperative or an employee stock ownership plan (ESOP), with the credit generally equal to 70% of eligible conversion costs for a worker-owned cooperative or 50% for an ESOP, capped at $100,000 per conversion. It also creates related income and franchise tax deductions/subtractions for capital gains realized from the transfer of a business to an ESOP or worker-owned cooperative, so long as the employee-owned entity ends up owning more than 50% of the business.
In addition to the tax provisions, the bill directs the Department of Revenue to establish an employee ownership education and outreach program. That program would provide education, technical assistance, and training to employees and employers about employee ownership, succession planning, open-book management, and related business transition tools. DOR would also be required to apply for a federal grant to help administer the program, and it could contract with a third party to operate it.
The bill would amend multiple sections of Wisconsin’s tax code to add the new credit and deduction to the individual income tax, corporate income and franchise tax, and tax-option corporation and partnership pass-through provisions. It also creates certification and administration procedures within DOR, limits total annual credits under the new program to $5 million, and defines eligible conversion costs as professional services such as accounting, legal, and business advisory work tied to feasibility studies or the actual conversion process. The initial applicability date for the capital gains subtraction is taxable years beginning January 1, 2025.
Overall sentiment appears supportive of employee ownership as an economic development strategy, based on the bill’s broad bipartisan-style sponsorship list and the bill’s affirmative policy design, but the available record does not include committee testimony or recorded votes showing detailed debate. The bill ultimately failed to pass pursuant to Senate Joint Resolution 1, so despite the policy interest reflected in the proposal, it did not become law. No specific points of contention are documented in the provided materials, but the main policy issues likely concern the fiscal cost of the credits and deductions, the $5 million annual cap, and whether state tax incentives should be used to promote business conversions to ESOPs and worker-owned cooperatives.
SB21 would have added new tax expenditures to Wisconsin law by creating a conversion-costs income tax credit and a capital gains subtraction/deduction for business transfers into employee ownership structures. It would have affected individual income tax, corporate income and franchise tax, and pass-through entity tax treatment, while also requiring DOR to certify eligible businesses, administer the credit, and run an outreach program. The bill would have directly affected business owners considering succession planning, ESOPs, worker-owned cooperatives, and tax practitioners advising on business conversions.
The bill’s policy direction is generally favorable toward employee ownership and small-business succession planning, and the broad list of sponsors suggests at least some cross-party interest in the concept. However, there is no committee transcript or vote record in the provided materials to show detailed support or opposition. The bill did not advance to enactment and ultimately failed to pass pursuant to Senate Joint Resolution 1.
No explicit contention is documented in the provided record, but the likely areas of debate are the use of state tax credits and deductions to subsidize private business transitions, the annual $5 million credit allocation, and whether the benefits would be concentrated among a limited number of business owners. Another possible point of discussion is the administrative burden on DOR in certifying businesses and operating an outreach program, including the federal grant application requirement.