SB21: Bill Text

2025 SENATE BILL 21

February 5, 2025 - Introduced by Senators James, Larson and Tomczyk, cosponsored by Representatives Sortwell, Franklin, Kaufert, Madison, Anderson, Clancy, Cruz, DeSmidt, Goeben, Goodwin, Gundrum, Hong, Hysell, Kreibich, Maxey, Miresse, Novak, Piwowarczyk, Prado, Stroud, Tusler, Udell and Wichgers. Referred to Committee on Agriculture and Revenue.

SB21,1,7 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.

Analysis by the Legislative Reference Bureau

This bill creates tax incentives related to businesses in this state converting to an employee ownership business structure and requires the Department of Revenue to establish an outreach and education program to promote employee ownership business structures.

Employee ownership conversion costs tax credit

Under the bill, DOR may certify a business to claim a nonrefundable income tax credit for an amount equal to 70 percent of costs related to converting the business to a worker-owned cooperative or 50 percent of the costs related to converting the business to an employee stock ownership plan. The credit is limited to a maximum amount of $100,000. A business is qualified to receive the credit if the business is subject to income and franchise taxes in this state and, at the time the business receives the credit, does not have an employee stock ownership plan and is not, in whole or in part, a worker-owned cooperative.

Capital gain deduction

The bill also creates an individual income tax subtraction and a corporate income and franchise tax deduction for the amount of the capital gain realized from the transfer of ownership of a business in this state to an employee stock ownership plan or worker-owned cooperative.

Employee ownership outreach and education

Finally, the bill directs DOR to establish an economic development program for the purpose of promoting employee ownership business structures, including the business structures of employee stock ownership plans and worker-owned cooperatives, through education, outreach, technical assistance, and training related to converting existing businesses to an employee ownership business structure or starting new businesses with an employee ownership business structure. The bill directs DOR to submit an application to the U.S. secretary of labor for a grant under 29 USC 3228 for use in administering the program created in the bill.

Because this bill relates to an exemption from state or local taxes, it may be referred to the Joint Survey Committee on Tax Exemptions for a report to be printed as an appendix to the bill.

For further information see the state fiscal estimate, which will be printed as an appendix to this bill.

The people of the state of Wisconsin, represented in senate and assembly, do enact as follows:

SB21,1 Section 1. 71.05 (6) (a) 15. of the statutes is amended to read:

SB21,2,7 71.05 (6) (a) 15. The amount of the credits computed under s. 71.07 (2dm), (2dx), (2dy), (3g), (3h), (3n), (3q), (3s), (3t), (3w), (3wm), (3y), (4k), (4n), (5i), (5j), (5k), (5r), (5rm), (6n), and (10), and (12) and not passed through by a partnership, limited liability company, or tax-option corporation that has added that amount to the partnership’s, company’s, or tax-option corporation’s income under s. 71.21 (4) or 71.34 (1k) (g).

SB21,2 Section 2. 71.05 (6) (b) 57. of the statutes is created to read:

SB21,3,6 71.05 (6) (b) 57. a. For taxable years beginning after December 31, 2024, to the extent otherwise included in Wisconsin taxable income if not for this subdivision, the amount of the capital gain as computed under the Internal Revenue Code from the transfer of ownership of a business in this state to an employee stock ownership plan or a worker-owned cooperative.

SB21,3,9 b. No modification may be claimed under this subdivision unless an employee stock ownership plan or worker-owned cooperative owns more than 50 percent of the business whose transfer results in a capital gain described in subd. 57. a.

SB21,3,11 c. In this subdivision, “employee stock ownership plan” has the meaning given in 26 USC 4975 (e) (7).

SB21,3,13 d. In this subdivision, “worker-owned cooperative” has the meaning given for “eligible worker-owned cooperative” in 26 USC 1042 (c) (2).

SB21,3 Section 3. 71.07 (12) of the statutes is created to read:

SB21,3,16 71.07 (12) Employee ownership conversion costs credit. (a) Definitions. In this subsection:

SB21,3,19 1. “Claimant” means a person that owns an interest in a qualified business prior to its conversion to an employee stock ownership plan or worker-owned cooperative and that files a claim under this subsection.

SB21,3,20 2. “Conversion costs” has the meaning given in s. 73.03 (79) (b) 1.

SB21,3,22 3. “Employee stock ownership plan” has the meaning given in 26 USC 4975 (e) (7).

SB21,3,23 4. “Qualified business” has the meaning given in s. 73.03 (79) (b) 3.

SB21,4,2 5. “Worker-owned cooperative” has the meaning given for “eligible worker- owned cooperative” in 26 USC 1042 (c) (2).

SB21,4,7 (b) Filing claims. For taxable years beginning after December 31, 2024, and subject to the limitations provided in this subsection, a claimant may claim as a credit against the tax imposed under s. 71.02 for the taxable year during which a conversion to an employee stock ownership plan or a worker-owned cooperative is complete, up to the amount of those taxes, all of the following:

SB21,4,9 1. An amount equal to 70 percent of the conversion costs, up to $100,000, incurred by a qualified business for converting to a worker-owned cooperative.

SB21,4,12 2. An amount equal to 50 percent of the conversion costs, up to $100,000, incurred by a qualified business for converting to an employee stock ownership plan.

SB21,4,17 (c) Limitations. 1. No credit may be allowed under this subsection unless the claimant files an application with the department, at the time and in the manner prescribed by the department, and the department approves the application. The claimant shall submit a copy of the certification under s. 73.03 (79) (a) 3. with the claimant’s return.

SB21,5,2 2. Partnerships, limited liability companies, and tax-option corporations may not claim the credit under this subsection, but the eligibility for and the amount of the credit are based on the amounts paid by the entities under par. (b). A partnership, limited liability company, or tax-option corporation shall compute the amount of the credit that each of its partners, members, or shareholders may claim and shall provide that information to each of them. Partners, members, and shareholders may claim the credit in proportion to their ownership interests.

SB21,5,4 (d) Administration. Section 71.28 (4) (e) to (h), as it applies to the credit under s. 71.28 (4), applies to the credit under this subsection.

SB21,4 Section 4. 71.10 (4) (em) of the statutes is created to read:

SB21,5,6 71.10 (4) (em) Employee ownership conversion costs credit under s. 71.07 (12).

SB21,5 Section 5. 71.21 (4) (a) of the statutes is amended to read:

SB21,5,11 71.21 (4) (a) The amount of the credits computed by a partnership under s. 71.07 (2dm), (2dx), (2dy), (3g), (3h), (3n), (3q), (3s), (3t), (3w), (3wm), (3y), (4k), (4n), (5g), (5i), (5j), (5k), (5r), (5rm), (6n), and (10), and (12) and passed through to partners shall be added to the partnership’s income.

SB21,6 Section 6. 71.26 (2) (a) 4. of the statutes is amended to read:

SB21,5,18 71.26 (2) (a) 4. Plus the amount of the credit computed under s. 71.28 (1dm), (1dx), (1dy), (3g), (3h), (3n), (3q), (3t), (3w), (3wm), (3y), (5g), (5i), (5j), (5k), (5r), (5rm), (6n), and (10), and (12) and not passed through by a partnership, limited liability company, or tax-option corporation that has added that amount to the partnership’s, limited liability company’s, or tax-option corporation’s income under s. 71.21 (4) or 71.34 (1k) (g).

SB21,7 Section 7. 71.26 (2) (a) 13. of the statutes is created to read:

SB21,5,23 71.26 (2) (a) 13. a. Minus the amount of the capital gain as computed under the Internal Revenue Code, to the extent included in federal taxable income, from the transfer of ownership of a business in this state to an employee stock ownership plan or a worker-owned cooperative.

SB21,6,3 b. The deduction under this subdivision does not apply unless an employee stock ownership plan or worker-owned cooperative owns more than 50 percent of the business whose transfer results in a capital gain described in subd. 13. a.

SB21,6,5 c. In this subdivision, “employee stock ownership plan” has the meaning given in 26 USC 4975 (e) (7).

SB21,6,7 d. In this subdivision, “worker-owned cooperative” has the meaning given for “eligible worker-owned cooperative” in 26 USC 1042 (c) (2).

SB21,8 Section 8. 71.28 (12) of the statutes is created to read:

SB21,6,10 71.28 (12) Employee ownership conversion costs credit. (a) Definitions. In this subsection:

SB21,6,13 1. “Claimant” means a person that owns an interest in a qualified business prior to its conversion to an employee stock ownership plan or worker-owned cooperative and that files a claim under this subsection.

SB21,6,14 2. “Conversion costs” has the meaning given in s. 73.03 (79) (b) 1.

SB21,6,16 3. “Employee stock ownership plan” has the meaning given in 26 USC 4975 (e) (7).

SB21,6,17 4. “Qualified business” has the meaning given in s. 73.03 (79) (b) 3.

SB21,6,19 5. “Worker-owned cooperative” has the meaning given for “eligible worker- owned cooperative” in 26 USC 1042 (c) (2).

SB21,7,2 (b) Filing claims. For taxable years beginning after December 31, 2024, and subject to the limitations provided in this subsection, a claimant may claim as a credit against the tax imposed under s. 71.23 for the taxable year during which a conversion to an employee stock ownership plan or worker-owned cooperative is complete, up to the amount of those taxes, all of the following:

SB21,7,4 1. An amount equal to 70 percent of the conversion costs, up to $100,000, incurred by a qualified business for converting to a worker-owned cooperative.

SB21,7,7 2. An amount equal to 50 percent of the conversion costs, up to $100,000, incurred by a qualified business for converting to an employee stock ownership plan.

SB21,7,12 (c) Limitations. 1. No credit may be allowed under this subsection unless the claimant files an application with the department, at the time and in the manner prescribed by the department, and the department approves the application. The claimant shall submit a copy of the certification under s. 73.03 (79) (a) 3. with the claimant’s return.

SB21,7,19 2. Partnerships, limited liability companies, and tax-option corporations may not claim the credit under this subsection, but the eligibility for and the amount of the credit are based on the amounts paid by the entities under par. (b). A partnership, limited liability company, or tax-option corporation shall compute the amount of the credit that each of its partners, members, or shareholders may claim and shall provide that information to each of them. Partners, members, and shareholders may claim the credit in proportion to their ownership interests.

SB21,7,21 (d) Administration. Subsection (4) (e) to (h), as it applies to the credit under sub. (4), applies to the credit under this subsection.

SB21,9 Section 9. 71.30 (3) (am) of the statutes is created to read:

SB21,7,23 71.30 (3) (am) Employee ownership conversion costs credit under s. 71.28 (12).

SB21,10 Section 10. 71.34 (1k) (g) of the statutes is amended to read:

SB21,8,5 71.34 (1k) (g) An addition shall be made for credits computed by a tax-option corporation under s. 71.28 (1dm), (1dx), (1dy), (3), (3g), (3h), (3n), (3q), (3t), (3w), (3wm), (3y), (4), (5), (5g), (5i), (5j), (5k), (5r), (5rm), (6n), and (10), and (12) and passed through to shareholders.

SB21,11 Section 11. 71.45 (2) (a) 10. of the statutes is amended to read:

SB21,8,13 71.45 (2) (a) 10. By adding to federal taxable income the amount of credit computed under s. 71.47 (1dm) to (1dy), (3g), (3h), (3n), (3q), (3w), (3y), (5g), (5i), (5j), (5k), (5r), (5rm), (6n), and (10), and (12) and not passed through by a partnership, limited liability company, or tax-option corporation that has added that amount to the partnership’s, limited liability company’s, or tax-option corporation’s income under s. 71.21 (4) or 71.34 (1k) (g) and the amount of credit computed under s. 71.47 (3), (3t), (4), (4m), and (5).

SB21,12 Section 12. 71.45 (2) (a) 25. of the statutes is created to read:

SB21,8,18 71.45 (2) (a) 25. a. By subtracting from federal taxable income, to the extent included in federal taxable income, the amount of the capital gain as computed under the Internal Revenue Code from the transfer of ownership of a business in this state to an employee stock ownership plan or a worker-owned cooperative.

SB21,8,21 b. The deduction under this subdivision does not apply unless an employee stock ownership plan or worker-owned cooperative owns more than 50 percent of the business whose transfer results in a capital gain described in subd. 25. a.

SB21,8,23 c. In this subdivision, “employee stock ownership plan” has the meaning given in 26 USC 4975 (e) (7).

SB21,9,2 d. In this subdivision, “worker-owned cooperative” has the meaning given for “eligible worker-owned cooperative” in 26 USC 1042 (c) (2).

SB21,13 Section 13. 71.47 (12) of the statutes is created to read:

SB21,9,5 71.47 (12) Employee ownership conversion costs credit. (a) Definitions. In this subsection:

SB21,9,8 1. “Claimant” means a person that owns an interest in a qualified business prior to its conversion to an employee stock ownership plan or worker-owned cooperative and that files a claim under this subsection.

SB21,9,9 2. “Conversion costs” has the meaning given in s. 73.03 (79) (b) 1.

SB21,9,11 3. “Employee stock ownership plan” has the meaning given in 26 USC 4975 (e) (7).

SB21,9,12 4. “Qualified business” has the meaning given in s. 73.03 (79) (b) 3.

SB21,9,14 5. “Worker-owned cooperative” has the meaning given for “eligible worker- owned cooperative” in 26 USC 1042 (c) (2).

SB21,9,19 (b) Filing claims. For taxable years beginning after December 31, 2024, and subject to the limitations provided in this subsection, a claimant may claim as a credit against the tax imposed under s. 71.43 for the taxable year during which a conversion to an employee stock ownership plan or worker-owned cooperative is complete, up to the amount of those taxes, all of the following:

SB21,9,21 1. An amount equal to 70 percent of the conversion costs, up to $100,000, incurred by a qualified business for converting to a worker-owned cooperative.

SB21,9,22 2. An amount equal to 50 percent of the conversion costs, up to $100,000, incurred by a qualified business for converting to an employee stock ownership plan.

SB21,10,7 (c) Limitations. 1. No credit may be allowed under this subsection unless the claimant files an application with the department, at the time and in the manner prescribed by the department, and the department approves the application. The claimant shall submit a copy of the certification under s. 73.03 (79) (a) 3. with the claimant’s return.

SB21,10,14 2. Partnerships, limited liability companies, and tax-option corporations may not claim the credit under this subsection, but the eligibility for and the amount of the credit are based on the amounts paid by the entities under par. (b). A partnership, limited liability company, or tax-option corporation shall compute the amount of the credit that each of its partners, members, or shareholders may claim and shall provide that information to each of them. Partners, members, and shareholders may claim the credit in proportion to their ownership interests.

SB21,10,16 (d) Administration. Section 71.28 (4) (e) to (h), as it applies to the credit under s. 71.28 (4), applies to the credit under this subsection.

SB21,14 Section 14. 71.49 (1) (am) of the statutes is created to read: