AN ACT RELATING TO TAXATION -- EMPLOYEE OWNERSHIP TAX CREDIT (Establishes a tax credit for businesses transitioning to employee ownership.)

S2809

2026 -- S 2809
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LC004785
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STATE OF RHODE ISLAND
IN GENERAL ASSEMBLY
JANUARY SESSION, A.D. 2026
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A N A C T
RELATING TO TAXATION -- EMPLOYEE OWNERSHIP TAX CREDIT

Introduced By:
Senators Ciccone, and DiPalma

Date Introduced:
March 04, 2026

Referred To:
Senate Finance
(Lieutenant Governor)
It is enacted by the General Assembly as follows:
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SECTION 1. Findings and purpose.
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The general assembly finds and declares that the purposes of the tax credit created in
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chapter 73 of title 44 is to induce certain designated behavior by taxpayers, to create or retain jobs,
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and to provide income tax relief for certain businesses or individuals. Specifically, the tax credit
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facilitates employee ownership and the retention of community investment and wealth by business
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owners and employers in a community.
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SECTION 2. Title 44 of the General Laws entitled "TAXATION" is hereby amended by
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adding thereto the following chapter:
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CHAPTER 73
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EMPLOYEE OWNERSHIP TAX CREDIT
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44-73-1. Definitions.
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For the purposes of this section, unless the context otherwise requires:
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(1) "Alternate equity structure" means a mechanism under which an employer grants to
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employees a form of employee ownership including, but not limited to, an employee stock
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ownership plan, LLC membership, phantom stock, profit interest, restricted stock, stock
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appreciation right, stock option, or synthetic equity. An alternative equity structure must at a
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minimum:
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(i) Grant rights to or be offered at least twenty percent (20%) of an employer's eligible
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workers, or grant rights to or be offered to at least twenty percent (20%) of eligible workers of an

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employer that is owned by or operated for the benefit of eligible workers in a broad-based employee
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ownership transition. For the purposes of this definition, "eligible workers" means all full-time
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employees, regular employees, non-seasonal employees, non-managerial employees, and contract
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labor;
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(ii) Have the participation of at least twenty percent (20%) of an employer's eligible
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workers;
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(iii) Allocate at least twenty percent (20%) of the fully diluted securities or rights to a
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synthetic interest in securities to participating eligible workers, or allocate twenty percent (20%) of
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net profit from operations to participating eligible workers; and
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(iv) Grant to participating eligible workers informational rights, decision-making rights,
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and non-financial rights that are equal to or greater than the rights that are granted to holders of the
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employer's common stock or holders of the employer's residual membership interest.
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(2) "Conversion costs" means professional services, including accounting, legal, and
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business advisory services, for the transition of a business to employee ownership trust, an
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employee stock ownership plan, or a worker-owned cooperative. "Conversion costs" include costs
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to audit the cost certification as required in this section.
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(3) "Department" means the Rhode Island department of revenue.
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(4) "Employee ownership trust" means an indirect form of employee ownership in which
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a trust holds a controlling stake in a qualified business and benefits all employees on an equal basis.
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(5) "Employee stock ownership plan" has the same definition as set forth in 26 U.S.C. §
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4975 (e)(7) of the Internal Revenue Code, as amended.
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(6) "Expansion costs" means professional services, including accounting, legal, and
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business advisory services, as detailed in the guidelines issued by the office, for the expansion of a
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qualified employee-owned business's employee ownership trust, employee stock ownership plan,
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worker-owned cooperative, or alternate equity structure. Expansion costs include costs to audit the
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cost of certification.
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(7) "Office" means business development center as established in § 42-64-39
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(8) "Owner" means the owner of a qualified business before a conversion occurs.
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(9) "Qualified business" means a taxpayer subject to tax under this chapter including, but
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not limited to, a C Corporation, S Corporation, limited liability company, partnership, limited
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liability partnership, a sole proprietorship, or other similar pass-through entity, that is not owned in
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whole or in part by an employee ownership trust, that does not have an employee stock ownership
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plan, that is not, in whole or in part, a worker-owned cooperative, or does not have an alternate
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equity structure, and that is approved by the office for the tax incentives in this section.

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(10) "Qualified employee-owned business" means a taxpayer that is subject to tax under
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this chapter including, but not limited to, a C Corporation, S Corporation, limited liability company,
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partnership, limited liability partnership, a sole proprietorship, or other similar pass-through entity,
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that:
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(i) Is owned in whole or in part by an employee-ownership trust;
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(ii) Has an employee stock ownership program;
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(iii) Is in whole or in part a worker-owned cooperative; or
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(iv) Has an alternate equity structure; and
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(v) Is approved by the office for the tax incentives in this section.
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(11) "Worker-owned cooperative" has the same meaning as set forth in § 7-6.2-2.
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44-73-2. Tax Credit.
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(a) Subject to the certification by the office pursuant to this section, for income tax years
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commencing on or after January 1, 2026, but prior to January 1, 2029, a qualified business is
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allowed a credit with respect to the income taxes imposed as follows:
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(1) Up to fifty percent (50%) of the conversion costs, not to exceed one hundred thousand
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dollars ($100,000), incurred by a qualified business for converting the qualified business to a
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worker-owned cooperative or an employee-ownership trust;
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(2) Up to fifty percent (50%) of the conversion costs, not to exceed one hundred thousand
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dollars ($100,000), incurred by a qualified business to an employee stock ownership plan; or
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(3) Up to fifty percent (50%) of the conversion costs, not to exceed twenty-five thousand
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dollars ($25,000), incurred by a qualified business for converting the qualified business to an
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alternate equity structure.
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(b) Subject to the certification by the office pursuant to this section, for income tax years
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commencing on or after January 1, 2026, but prior to January 1, 2029, a qualified employee-owned
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business is allowed a credit with respect to the income taxes imposed of up to fifty percent (50%)
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of the expansion costs, not to exceed twenty-five thousand dollars ($25,000), incurred to expand a
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qualified employee-owned business's employee-ownership trust, employee stock ownership
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program, worker-owned cooperative, or alternate equity structure.
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(1) To be eligible for the credit allowed pursuant to this section, a qualified employee-
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owned business must expand its employee ownership trust, employee stock ownership program,
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worker-owned cooperative, or alternate equity structure by an increment of at least twenty percent
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(20%) of the total ownership of the entire qualified employee-owned business.
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(2) In the case of a qualified business or qualified employee-owned business that is a C
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Corporation, the credit is allowed to the qualified business or the qualified employee-owned

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business.
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(3) In the case of a qualified business or qualified employee-owned business that is a
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partnership or S Corporation, the credit is allowed to the owner of the business.
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44-73-3. Procedure.
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(a) The office shall develop guidelines for the administration of this chapter including, but
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not limited to:
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(1) Application requirements;
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(2) Guidelines for eligible conversion or expansion costs;
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(3) Guidelines and standards for certifying a business as a qualified employee-owned
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business; and
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(4) Guidelines for making known the existence of this tax credit, communicating with small
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business owners and chambers of commerce, and ensuring that there is equal access to this credit
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across language barriers.
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(b) A business shall submit an application to the office for the issuance of a credit certificate
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for the credit allowed in this chapter by the deadlines established in the office's guidelines. The
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application must include information, as set forth in the office's guidelines, regarding the type of
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conversion or expansion the business intends to undertake, a list of the expected conversion or
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expansion costs, and an estimated amount, as calculated by the business, of the expected conversion
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or expansion costs.
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(c) To claim the tax credit allowed in § 44-73-2, a qualified business or qualified employee-
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owned business must annually apply for and receive a tax credit certificate from the office. The
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submission of an application does not entitle the qualified business to the issuance of a tax credit
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certificate.
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(d) The office shall document the date and time that a complete application was received
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and shall review complete applications in the order in which they are received. If the office
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determines that an applicant is not entitled to a tax credit certificate, the office shall notify the
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applicant of its disapproval in writing.
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(e) If the office is satisfied that the requirements of this section and the office's guidelines
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for the tax credit are met, then the office shall issue to the qualified business or qualified employee-
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owned business a tax credit certificate that evidences their right to claim the tax credit allowed in
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this chapter. The office shall not issue tax credit certificates in excess of the maximum aggregate
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amount for any single income tax year specified in subsection (f) of this section.
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(f) The maximum aggregate amount of all tax credit certificates that the office may issue
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pursuant to this section in any single income tax year is one million dollars ($1,000,000).

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44-73-4. Claiming tax credit.
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To claim the tax credit allowed in § 44-73-2, the qualified business or qualified employee-
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owned business shall file the tax credit certificate with their state income tax return. If the amount
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of the tax credit exceeds the taxes due on the income of the qualified business or qualified
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employee-owned business for the taxable year for which the tax credit is claimed, the amount of
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the tax credit not used to offset income taxes must be refunded to the qualified business or qualified
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employee-owned business.
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44-73-5. Severability.
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If any portion of this law is found by a court of competent jurisdiction to be unlawful, such
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finding shall not affect any other portion of said law not specifically so found.
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SECTION 3. This act shall take effect upon passage.
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EXPLANATION
BY THE LEGISLATIVE COUNCIL
OF
A N A C T
RELATING TO TAXATION -- EMPLOYEE OWNERSHIP TAX CREDIT
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This act would establish a tax credit for businesses transitioning to employee ownership.
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This act would take effect upon passage.
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LC004785
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