Bill H.2998

HOUSE DOCKET, NO. 3390 FILED ON: 2/19/2021

HOUSE . . . . . . . . . . . . . . . No. 2998

By Representatives Mark of Peru and Uyterhoeven of Somerville, a petition (accompanied by bill, House, No. 2998) of Paul W. Mark, Erika Uyterhoeven and Maria Duaime Robinson relative to the taxation of employee-owned businesses and cooperatives. Revenue.

The Commonwealth of Massachusetts

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In the One Hundred and Ninety-Second General Court
(2021-2022)

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An Act to create and sustain jobs through development of employee-owned businesses and cooperatives.

Be it enacted by the Senate and House of Representatives in General Court assembled, and by the authority of the same, as follows:

SECTION 1. Paragraph (2) of subsection (a) of section 2 of chapter 62 of the General laws is hereby amended by inserting after subparagraph (Q) the following 2 subparagraphs:-

(R) For taxable years beginning on or after January 1, 2023, to the extent included in federal adjusted gross income and to the extent otherwise subject to taxation pursuant to this chapter, an amount equal to any gain recognized on the sale by the taxpayer of an ownership interest in a qualified business if the business was transferred to:

(1) An employee stock ownership plan as defined in section 4975(e)(7) of the Code,;

(2) An S corporation of the commonwealth owned by an employee stock ownership plan;

(3) An eligible worker-owned cooperative as defined in section 1042(c)(2) of the Code;

(4) A worker-owner cooperative operating as a for-profit entity organized under Massachusetts law, whose articles of organization, bylaws, or other similar organizational documents provide for a class of voting membership interests that may only be owned by workers of the entity and which, except for limited major decisions, are the only class of membership interests in the entity given voting power and give each worker-owner one vote on each matter put to the worker-owners for a vote; or

(5) If the business provides housing, a cooperative housing corporation organized under chapter 157B;

provided that, the transferee entity owns and controls at least 51 per cent of all outstanding employer securities issued by the qualified business.

For purposes of this subparagraph, "qualified business" means a business with fewer than 500 employees whose securities are not publicly traded on any stock exchange and that is organized in the commonwealth or whose principal place of business is within the commonwealth

including a corporation, an S corporation, a limited liability company, a limited liability partnership, a sole proprietorship and all private entities related by common ownership or control.

(S) For taxable years beginning on or after January 1, 2023, to the extent included in federal adjusted gross income and to the extent otherwise subject to taxation pursuant to this chapter, an amount equal to the interest received during the taxable year by the taxpayer with respect to a qualified business acquisition loan.

For purposes of this subparagraph:

(1) "Qualified business" means a business with fewer than 500 employees whose securities are not publicly traded on any stock exchange and that is organized in the commonwealth or whose principal place of business is within the commonwealth including a corporation, an S corporation, a limited liability company, a limited liability partnership, a sole proprietorship and all private entities related by common ownership or control; and

(2) "Qualified business acquisition loan," including a loan or part of a series of loans, means:

(a) A loan of which at least 90 per cent of the proceeds are applied to the acquisition of majority ownership of a qualified business not owned by 1 of the following entities and that is given to 1 of the following entities, where the entity owns and controls at least 51 per cent of all outstanding employer securities issued by the qualified business:

(i) An employee stock ownership plan as defined in section 4975(e)(7) of the Code;

(ii) An S corporation of the commonwealth owned by an employee stock ownership plan;

(iii) An eligible worker-owned cooperative as defined in section 1042(c)(2) of the Code;

voting membership interests that may only be owned by workers of the entity and which, except for limited major decisions, are the only class of membership interests in the entity given voting power and give each worker-owner one vote on each matter put to the worker-owners for a vote; or

(v) If the business provides housing, a cooperative housing corporation organized under chapter 157B;

(b) A loan to a corporation that sponsors an employee stock ownership plan if all proceeds of the loan are loaned to the employee stock ownership plan to acquire for the plan all outstanding employer securities in a qualified business and the plan's repayment terms are substantially similar to the corporation's repayment terms; or

SECTION 2. Chapter 63 of the General Laws is hereby amended by inserting after section 31N the following 2 sections:-

Section 31O. (a) In determining the net income subject to taxation under this chapter for taxable years beginning on or after January 1, 2023, a business corporation may deduct, to the extent included in federal adjusted gross income and to the extent otherwise subject to taxation pursuant to this chapter, an amount equal to any gain recognized on the sale by the business corporation of an ownership interest in a qualified business if the business was transferred to:

(1) An employee stock ownership plan as defined in section 4975(e)(7) of the Code;

(2) An S corporation of the commonwealth owned by an employee stock ownership plan;

(3) An eligible worker-owned cooperative as defined in section 1042(c)(2) of the Code;

limited major decisions, are the only class of membership interests in the entity given voting power and give each worker-owner one vote on each matter put to the worker-owners for a vote; or

(5) If the business provides housing, a cooperative housing corporation organized under chapter 157B; provided that, the transferee entity owns and controls at least 51 per cent of all outstanding employer securities issued by the qualified business.

(b) For purposes of this paragraph, "qualified business" means a business with fewer than 500 employees whose securities are not publicly traded on any stock exchange and that is organized in the commonwealth or whose principal place of business is within the commonwealth including a corporation, an S corporation, a limited liability company, a limited liability partnership, a sole proprietorship and all private entities related by common ownership or control.

Section 31P. (a) In determining the net income subject to taxation under this chapter for taxable years beginning on or after January 1, 2023, a business corporation may deduct, to the extent included in federal adjusted gross income and to the extent otherwise subject to taxation pursuant to this chapter, an amount equal to the interest received during the taxable year by the business corporation with respect to a qualified business acquisition loan.

(b) For purposes of this section:

(2) "Qualified business acquisition loan," including a loan or part of a series of loans, means:

(a) A loan of which at least 90% of the proceeds are applied to the acquisition of majority ownership of a qualified business not owned by 1 of the following entities and that is given to 1 of the following entities, where the entity owns and controls at least 51 per cent of all outstanding employer securities issued by the qualified business:

(i) An employee stock ownership plan as defined in section 4975(e)(7) of the Code;

(ii) An S corporation of the commonwealth owned by an employee stock ownership plan;

(iii) An eligible worker-owned cooperative as defined in section 1042(c)(2) of the Code;

(iv) A worker-owner cooperative operating as a for-profit entity organized under Massachusetts law, whose articles of organization, bylaws, or other similar organizational documents provide for a class of voting membership interests that may only be owned by workers of the entity and which, except for limited major decisions, are the only class of membership interests in the entity given voting power and give each worker-owner one vote on each matter put to the worker-owners for a vote; or

(v) If the business provides housing, a cooperative housing corporation organized under chapter 157B;

Name:	District/Address:	Date Added:
Paul W. Mark	2nd Berkshire	2/19/2021
Erika Uyterhoeven	27th Middlesex	2/19/2021
Maria Duaime Robinson	6th Middlesex	2/25/2021
Mindy Domb	3rd Hampshire	4/20/2021