Massachusetts Senate bill S. 1950, An Act to Promote Employee Ownership, would exempt capital gains from the sale of a Massachusetts business with 500 or fewer employees from capital gains taxation. The bill was introduced by Democrat Julian Cyr and referred to committee. Long-term capital gains in the state are taxed at 5%.
The bill inserts section 38OO into Chapter 63 (taxation of corporations) of the Massachusetts state laws, stating:
Section 38OO. In determining the net income subject to tax under this chapter, a business corporation may deduct an amount equal to its earnings from capital gains from the sale of employer securities of a non-publicly traded business with fewer than 500 employees to an employee stock ownership plan, as defined in chapter 23D, that owns no less than 49 per cent of all outstanding employer securities issued by the business; provided, however, that the business corporation must be the sponsor of the employee stock ownership plan.
If passed, Massachusetts would become the third state to provide a capital gains tax incentive for selling to an ESOP. Missouri and Iowa provide a 50% exclusion of capital gains from taxation.