WA Employee Ownership Program

The Washington State Department of Commerce (Commerce) is tasked by the legislature to launch the Washington State Employee Ownership Program. This program is designed to support businesses considering a transition to an employee ownership structure. The Washington Employee Ownership Program (WA-EOP) will be administered by Commerce and overseen by the Washington Employee Ownership Program Commission.

About WA-EOP

To complete what tasks Commerce has been entrusted with, the agency will:

  1. Create the WA-EOP:  As outlined in RCW 43.330.590, the program will have a dedicated Program Manager responsible for providing outreach and technical services to promote Employee Stock Ownership Plans (ESOPs), worker cooperatives, and employee ownership trusts (EOTs).
  2. Establish an Employee Ownership Commission: An eleven member commission of appointees will be established to oversee the program, representing a wide range of stakeholders, including members from the state legislature, private industry, and the private sector, as specified in RCW 43.330.592.
  3. Implement a Tax Credit: A feasibility assessment will be conducted, followed by the implementation of a tax credit for ESOPs, worker cooperatives, and EOTs. This tax credit will cover up to 50% of the first $100,000 for ESOPs and $25,000 for worker cooperatives and EOTs, with an annual cap of $2 million.
  4. Create a Revolving Loan Fund: If federal funds become available, Commerce will create a revolving loan fund to provide financial support for ESOP and worker cooperative conversion transactions. The State Small Business Credit Initiative (SSBCI) program could potentially be used for this loan fund.
  • The WA Employee Ownership Program is housed within the Office of Economic Development & Competitiveness, part of the Department of Commerce. This program falls under the Small Business Finance and Community Support division and operates under the leadership of Linda Womack.
  • In February 2024, Lorena Lowell was hired as the Program Manager for the WA Employee Ownership Program.
  • In May 2024, the WA Employee Ownership Program held its inaugural meeting, appointing Mr. Joey Nestegard as Chair and Mr. John McNamara as Vice Chair.
  • The Program Manager is currently developing a network of national and state agencies, as well as for-profit and non-profit organizations, with the goal of maximizing the use of existing resources and support systems. The ultimate aim is to create a referral system that leverages these established resources.
  • The Program Manager is identifying challenges and opportunities for current, newly formed, and future employee ownership structures in Washington State. The goal is to create a network of technical assistance providers and resources to support these businesses.
  • A registration system is being developed to maintain an accessible and accurate inventory of any EOP structures in the state

Employee ownership refers to an arrangement in which no one person has the most shares or control over an organization. Some of the most common forms of employee ownership include Employee Stock Ownership Plans (ESOPs), Employee Ownership Trusts (EOTs), and Cooperatives (Co-Ops).

  • Employee Stock Ownership Plans (ESOPs) are recognized under federal tax law as qualified defined contribution retirement plans. An ESOP must be designed to invest primarily in qualifying employer securities and meet certain other requirements. The IRS and the United States Department of Labor share jurisdiction over some ESOP features.
  • Cooperatives (Co-ops) are member-owned business entities in which worker-owners have a controlling interest, and who elect the governing body on a one-member-one-vote basis.
  • Employee Ownership Trusts (EOTs) are not recognized as retirement plans under federal law. An EOT is a perpetual trust, in which employees may receive certain financial benefits and governance rights.

Qualifications

 For this program, Employee-owned business” means:

  1. An employee cooperative established under chapters 78 RCW, 23.86 RCW, 23.100 RCW, or 24.06 RCW that has at least 50% of its board of directors consisting of, and elected by its employees; or
  2. An entity owned in whole or in part by employee stock ownership plans as defined in 26 U.S.C. Sec. 4975(e)(7).
  3. “Qualified business” means a person subject to tax under Title 82 RCW, including but not limited to a C corporation, S corporation, limited liability company, partnership, limited liability partnership, sole proprietorship, or other similar pass-through entity, that is not owned in whole or in part by an employee ownership trust, that does not have an employee stock ownership plan, or that is not, in whole or in part, a worker-owned cooperative.
  4. Program support shall only be made available to businesses headquartered in Washington State. For the purposes of this section, “headquartered in Washington State” means that Washington State is its principal place of business or the state where it is incorporated.

WA-EOP tax credit

Beginning July 1, 2024, an occupation tax credit for costs related to converting a qualifying business to an employee ownership structure is established. The total amount of credits may not exceed $2 million per year and are available on a first-come, first-served basis. Unused credits may be carried over for up to 12 months from the end of the tax reporting period in which the credit was earned.

Qualified businesses may receive up to:

  • 50% of the conversion costs, not to exceed $25,000, for converting to a worker-owner cooperative or an employee-ownership trust.
  • 50% of the conversion costs, not to exceed $100,000, for converting to an Employee Stock Ownership Plan (ESOP).

The WA Department of Revenue administers the Employee Ownership Program B&O Tax Credit. Information about the credit is available from the WA Department of Revenue June 6, 2024 Special Notice (PDF).

Businesses will be required to submit the application through their My DOR account.. The listed documentation will be required with the application:

  • A Completed Expenditure Worksheet documenting all qualifying costs associated with the conversion
  • Notarized Corporate Resolution establishing the new employee ownership structure type or Notarized Stock Purchase Agreements
  • Articles of Incorporation
  • A letter signed by a third-party CPA that attests the expenses listed on the Expenditures Worksheet were in conjunction with the employee ownership program, the amount spent on the conversion is accurate, the costs incurred by the applicant, and the expenses are qualified and eligible.

Contact

Please email us at WAEOP@commerce.wa.gov with any questions.

Lorena Lowell, Program Manager
Lorena.Lowell@Commerce.wa.gov