AB 2480: Income taxes: credit: Scholarship Tax Credit Program Act.
- Session Year: 2017-2018
- House: Assembly
- Latest Version Date: 2018-03-19
The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.
This bill, for each taxable year beginning on or after January 1, 2018, 2019, would allow a credit in an amount equal to the total contributions made to a scholarship granting organization that provides scholarships to eligible students to cover all or part of the tuition and fees at a qualified school, as defined, during the taxable year, not to exceed a specified amount. The bill would impose specified duties on the Franchise Tax Board, the State Department of Education, and the Employment Development Department in administering the credits.
This bill would take effect immediately as a tax levy.
The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.
This bill, for each taxable year beginning on or after January 1, 2018, would allow a credit in an amount equal to the total contributions made to a scholarship granting organization that provides scholarships to eligible students to cover all or part of the tuition and fees at a qualified school, as defined, during the taxable year, not to exceed a specified amount. The bill would impose specified duties on the Franchise Tax Board, the State Department of Education, and the Employment Development Department in administering the credits.
This bill would take effect immediately as a tax levy.
This act shall be known, and may be cited, as the Scholarship Tax Credit Program Act.
SEC. 2.Section 17053.99 is added to the Revenue and Taxation Code, to read:17053.99.(a)For each taxable year beginning on or after January 1, 2018, 2019, there shall be allowed to a qualified taxpayer as a credit against the net tax, as defined in Section 17039, an amount equal to the total contributions made to a scholarship granting organization during the taxable year, not to exceed 100 percent of the qualified taxpayers net tax for the taxable year.
(b)For purposes of this section:
(1)Educational scholarship means a grant made to an eligible student to cover all or part of the tuition and fees, including transportation to a qualified school outside of the eligible students resident school district, at either a public or nonpublic a qualified school.
(2)(A)Eligible student means either of the following:
(i)A student who is a member of a household whose total annual income during the calendar year before he or she receives an educational scholarship from a scholarship granting organization does not exceed an amount equal to two and one-half times the income standard used to qualify for a free or reduced lunch price reduced-price lunch under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.), who was eligible to attend a public school in the semester preceding receipt of the educational scholarship or is attending school in California for the first time, and who resides in California while receiving the educational scholarship.
(ii)A student who qualifies for a free or reduced price reduced-price lunch under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.).
(B)A student remains an eligible student under this section until he or she graduates high school or reaches 21 years of age, regardless of household income.
(3)Parent means a parent, a legal guardian, a conservator, a person acting as a parent of a child, or any other person with legal authority to act on behalf of the child.
(4)Qualified school means a public elementary or secondary school located in California that is outside of the eligible students resident school district or a nonpublic private elementary or secondary school in California that complies with the requirements of this section. A qualified school shall comply with all state laws that apply to nonpublic private schools regarding criminal background checks for employees and exclude from employment any person not permitted by state law to work in a school.
(5)Qualified taxpayer means a taxpayer who files an income tax return in this state and is not claimed as a dependent for income tax purposes by any other taxpayer.
(6)Scholarship granting organization means an organization that complies with the requirements of this section and provides educational scholarships to eligible students attending qualified schools of their parents choice.
(7)Test means either the Standardized Testing and Reporting Program or a nationally norm-referenced test chosen by the qualifying school.
(c)No credit shall be allowed pursuant to this section unless the scholarship granting organization does all of the following:
(1)Notifies the Franchise Tax Board of its intent to provide educational scholarships to eligible students attending qualified schools.
(2)Provides the Franchise Tax Board with a letter of determination from the Internal Revenue Service of tax-exempt status as an organization described in Section 501(c)(3) of the Internal Revenue Code.
(3)Provides the qualified taxpayer with a Franchise Tax Board-approved receipt substantiating the contribution made by the qualified taxpayer to the scholarship granting organization.
(4)Ensures that at least 90 percent of its revenue from donations is expended on educational scholarships.
(5)Spends a portion of expenditures each year on educational scholarships for students eligible under clause (ii) of subparagraph (A) of paragraph (2) of subdivision (b) equal to the percentage of low-income eligible students in the county where the scholarship granting organization expends the majority of its educational scholarships.
(6)Cooperates with the Franchise Tax Board, or its designee, in conducting criminal background checks of all of its employees and board members and excludes from employment or governance any individual who might reasonably pose a risk to the appropriate use of contributed funds.
(7)Ensures that educational scholarships are portable during the school year and may be used at any qualified school that accepts the eligible student according to a parents wishes. If an eligible student moves to a new qualified school during a school year, the educational scholarship may be prorated.
(8)(A)Demonstrates its financial accountability to the Franchise Tax Board by submitting a financial information report, conducted by a certified public accountant, that complies with uniform financial accounting standards and is certified by an auditor as free of material misstatements.
(B)If a scholarship granting organization provides five hundred thousand dollars ($500,000) or more in scholarships to eligible students through this program, it shall provide to the Franchise Tax Board a report on the results of an annual financial audit of the organization or its relevant accounts and records pertaining to credit eligibility donations conducted by an independent certified public accountant in accordance with auditing standards generally accepted in the United States, government auditing standards, and rules promulgated by the Franchise Tax Board. The audit report shall include a report on financial statements presented in accordance with generally accepted accounting principles. Audit reports shall be provided to the Franchise Tax Board within 180 days after completion of the scholarship granting organizations fiscal year. The Franchise Tax Board shall review all audit report reports submitted pursuant to this paragraph. The Franchise Tax Board shall require any significant items that were omitted in violation of a rule adopted by the Franchise Tax Board. The items shall be provided within 45 days of the date of the request.
(9)Ensures that educational scholarships are not provided to eligible students to attend a qualified school with paid staff or board members, or relatives thereof, in common with the scholarship granting organization.
(10)Prioritize the awarding of scholarships to first-time recipients in the following order:
(A)Siblings of students who are currently receiving a scholarship.
(B)Low-income students.
(11)Grant only one year of scholarship in one approval process.
(d)No credit shall be allowed pursuant to this section unless a qualified school that accepts educational scholarships from a scholarship granting organization does all of the following:
(1)Complies with all health and safety laws or codes that apply to schools.
(2)Obtains a valid occupancy permit for its grounds if required by its municipality.
(3)Certifies that it will not discriminate in accordance with Section 1981 of Title 42 of the United States Code.
(4)Provides academic accountability to the parent of eligible students who receive educational scholarships by regularly reporting to the parent on the students progress.
(5)Exclude from employment any person not permitted by law to work in a school.
(6)Annually administer either the Standardized Testing and Reporting Program or national norm-referenced tests that measure learning gains in math and language arts, and may provide for value-added assessment, to all participating students in grades that require testing under accountability testing laws for schools.
(7)Pay for the tests of scholarship students with the scholarship moneys distributed by the scholarship granting organizations.
(8)Provide the parents parent of each student who was tested with a copy of the results of the tests on an annual basis, beginning with the first year of testing after January 1, 2018.
(9)Provide the test results to the State Department of Education on an annual basis.
(10)Report student information that would allow the state to aggregate data by grade level, gender, family income level, and race.
(11)Provide rates of high school graduation for participating students to the State Department of Education in a manner consistent with nationally recognized standards.
(12)Provide the results from an annual parental satisfaction survey, including information about the number of years that the parents child has participated in the scholarship program to the State Department of Education. The annual satisfaction survey shall ask parents of eligible students receiving educational scholarships to express:
(A)Their satisfaction with their childs academic achievement, including academic achievement at the school their child attended through the scholarship program versus academic achievement at the school previously attended, if applicable.
(B)Their satisfaction with school safety at the school their child attends including school safety at the school their child attended through the scholarship program versus safety at the school previously attended, if applicable.
(C)Whether their child would have been able to attend their school of choice without the scholarship.
(D)Their opinions on other topics, items, or issues that the State Department of Education determines would elicit information about the effectiveness of the scholarship program.
(13)If a private school receives donations of fifty thousand dollars ($50,000) or more during the school year, the private school shall demonstrate its financial accountability by either of the following:
(A)Filing a surety bond with the Franchise Tax Board, payable to the State of California, in an amount equal to the aggregate amount of contributions expected to be received during the school year.
(B)Filing financial information prior to the school year with the Franchise Tax Board that demonstrates the financial viability of the scholarship granting organization.
(e)On or before June 1 of each calendar year, a scholarship granting organization shall report to the Franchise Tax Board the following information prepared by a certified public accountant regarding the previous calendar years educational scholarships:
(1)The name and address of the scholarship granting organization.
(2)The total number and dollar amount of contributions received during the previous calendar year.
(3)The total number and dollar amount of educational scholarships awarded during the previous calendar year, the total number and total dollar amount of educational scholarships awarded during the previous year to eligible students qualifying for the federal free and reduced price reduced-price lunch program, and the percentage of first-time recipients of educational scholarships who were continuously enrolled in a public school during the previous year.
(f)For purposes of this section, the Franchise Tax Board shall do all of the following:
(1)Provide a standardized format for a receipt to be issued by a scholarship granting organization to a qualified taxpayer to indicate the value of a received contribution. The Franchise Tax Board shall require a qualified taxpayer to provide a copy of this receipt when claiming a credit under this section.
(2)Provide a standardized format for scholarship granting organizations to report the information required by paragraph (8) of subdivision (d).
(3)Conduct either a financial review or audit of a scholarship granting organization if in possession of evidence of fraud.
(4)(A)Bar a scholarship granting organization from being a scholarship granting organization if the Franchise Tax Board establishes that the scholarship granting organization has intentionally failed to comply with the requirements of this section.
(B)If the Franchise Tax Board bars a scholarship granting organization, it shall notify any affected eligible students and his or her parent of this decision as soon as possible.
(5)Ensure compliance with privacy laws.
(g)The State Department of Education shall do the following:
(1)Collect all test results.
(2)Provide the test results and associated learning gains to the public on its Internet Web site after the third year of test and test-related data collection. The findings shall be aggregated by the grade level, gender, family income level, number of years of participation in the scholarship program, and race of the student.
(h)In the case where the credit allowed by this section exceeds the net tax, the excess may be carried over to reduce the net tax in the following year, and the succeeding year if necessary, until the credit is exhausted.
(i)Any deduction otherwise allowed under this part for any amount paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit allowed under this section.
(j)The Employment Development Department shall allow a qualified taxpayer to divert a prorated share of state income tax withholdings to a scholarship granting organization of the qualified taxpayers choice, up to the maximum credit allowed by law, including carryover credits.
(k)It is the intent of the Legislature to comply with Section 41.
SEC. 3.Section 23699 is added to the Revenue and Taxation Code, to read:23699.(a)For each taxable year beginning on or after January 1, 2018, 2019, there shall be allowed to a qualified taxpayer as a credit against the tax, as defined in Section 23036, an amount equal to the total contributions made to a scholarship granting organization during the taxable year, not to exceed 100 percent of the qualified taxpayers tax for the taxable year.
(b)For purposes of this section:
(1)Educational scholarship means a grant made to an eligible student to cover all or part of the tuition and fees, including transportation to a qualified school outside of the eligible students resident school district, at either a public or nonpublic a qualified school.
(2)(A)Eligible student means either of the following:
(i)A student who is a member of a household whose total annual income during the calendar year before he or she receives an educational scholarship from a scholarship granting organization does not exceed an amount equal to two and one-half times the income standard used to qualify for a free or reduced lunch price reduced-price lunch under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.), who was eligible to attend a public school in the semester preceding receipt of the educational scholarship or is attending school in California for the first time, and who resides in California while receiving the educational scholarship.
(ii)A student who qualifies for a free or reduced price reduced-price lunch under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.).
(B)A student remains an eligible student under this section until he or she graduates high school or reaches 21 years of age, regardless of household income.
(3)Parent means a parent, a legal guardian, a conservator, a person acting as a parent of a child, or any other person with legal authority to act on behalf of the child.
(4)Qualified school means a public elementary or secondary school located in California that is outside of the eligible students resident school district or a nonpublic private elementary or secondary school in California that complies with the requirements of this section. A qualified school shall comply with all state laws that apply to nonpublic private schools regarding criminal background checks for employees and exclude from employment any person not permitted by state law to work in a school.
(5)Qualified taxpayer means a taxpayer who files a franchise tax return in this state.
(6)Scholarship granting organization means an organization that complies with the requirements of this section and provides educational scholarships to eligible students attending qualified schools of their parents choice.
(7)Test means either the Standardized Testing and Reporting Program or a nationally norm-referenced test chosen by the qualifying school.
(c)No credit shall be allowed pursuant to this section unless the scholarship granting organization does all of the following:
(1)Notifies the Franchise Tax Board of its intent to provide educational scholarships to eligible students attending qualified schools.
(2)Provides the Franchise Tax Board with a letter of determination from the Internal Revenue Service of tax-exempt status as an organization described in Section 501(c)(3) of the Internal Revenue Code.
(3)Provides the qualified taxpayer with a Franchise Tax Board-approved receipt substantiating the contribution made by the qualified taxpayer to the scholarship granting organization.
(4)Ensures that at least 90 percent of its revenue from donations is expended on educational scholarships.
(5)Spends a portion of expenditures each year on educational scholarships for students eligible under clause (ii) of subparagraph (A) of paragraph (2) of subdivision (b) equal to the percentage of low-income eligible students in the county where the scholarship granting organization expends the majority of its educational scholarships.
(6)Cooperates with the Franchise Tax Board, or its designee, in conducting criminal background checks of all of its employees and board members and excludes from employment or governance any individual who might reasonably pose a risk to the appropriate use of contributed funds.
(7)Ensures that educational scholarships are portable during the school year and may be used at any qualified school that accepts the eligible student according to a parents wishes. If an eligible student moves to a new qualified school during a school year, the educational scholarship may be prorated.
(8)(A)Demonstrates its financial accountability to the Franchise Tax Board by submitting a financial information report, conducted by a certified public accountant, that complies with uniform financial accounting standards and is certified by an auditor as free of material misstatements.
(B)If a scholarship granting organization provides five hundred thousand dollars ($500,000) or more in scholarships to eligible students through this program, it shall provide to the Franchise Tax Board a report on the results of an annual financial audit of the organization or its relevant accounts and records pertaining to credit eligibility donations conducted by an independent certified public accountant in accordance with auditing standards generally accepted in the United States, government auditing standards, and rules promulgated by the Franchise Tax Board. The audit report shall include a report on financial statements presented in accordance with generally accepted accounting principles. Audit reports shall be provided to the Franchise Tax Board within 180 days after completion of the scholarship granting organizations fiscal year. The Franchise Tax Board shall review all audit report reports submitted pursuant to this paragraph. The Franchise Tax Board shall require any significant items that were omitted in violation of a rule adopted by the Franchise Tax Board. The items shall be provided within 45 days of the date of the request.
(9)Ensures that educational scholarships are not provided to eligible students to attend a qualified school with paid staff or board members, or relatives thereof, in common with the scholarship granting organization.
(10)Prioritize the awarding of scholarships to first-time recipients in the following order:
(A)Siblings of students who are currently receiving a scholarship.
(B)Low-income students.
(11)Grant only one year of scholarship in one approval process.
(d)No credit shall be allowed pursuant to this section unless a qualified school that accepts educational scholarships from a scholarship granting organization does all of the following:
(1)Complies with all health and safety laws or codes that apply to schools.
(2)Obtains a valid occupancy permit for its grounds if required by its municipality.
(3)Certifies that it will not discriminate in accordance with Section 1981 of Title 42 of the United States Code.
(4)Provides academic accountability to the parent of eligible students who receive educational scholarships by regularly reporting to the parent on the students progress.
(5)Exclude from employment any person not permitted by law to work in a school.
(6)Annually administer either the Standardized Testing and Reporting Program or national norm-referenced tests that measure learning gains in math and language arts, and may provide for value-added assessment, to all participating students in grades that require testing under accountability testing laws for schools.
(7)Pay for the tests of scholarship students with the scholarship moneys distributed by the scholarship granting organizations.
(8)Provide the parents parent of each student who was tested with a copy of the results of the tests on an annual basis, beginning with the first year of testing after January 1, 2018.
(9)Provide the test results to the State Department of Education on an annual basis.
(10)Report student information that would allow the state to aggregate data by grade level, gender, family income level, and race.
(11)Provide rates of high school graduation for participating students to the State Department of Education in a manner consistent with nationally recognized standards.
(12)Provide the results from an annual parental satisfaction survey, including information about the number of years that the parents child has participated in the scholarship program to the State Department of Education. The annual satisfaction survey shall ask parents of eligible students receiving educational scholarships to express:
(A)Their satisfaction with their childs academic achievement, including academic achievement at the school their child attended through the scholarship program versus academic achievement at the school previously attended, if applicable.
(B)Their satisfaction with school safety at the school their child attends including school safety at the school their child attended through the scholarship program versus safety at the school previously attended, if applicable.
(C)Whether their child would have been able to attend their school of choice without the scholarship.
(D)Their opinions on other topics, items, or issues that the State Department of Education determines would elicit information about the effectiveness of the scholarship program.
(13)If a private school receives donations of fifty thousand dollars ($50,000) or more during the school year, the private school shall demonstrate its financial accountability by either of the following:
(A)Filing a surety bond with the Franchise Tax Board, payable to the State of California, in an amount equal to the aggregate amount of contributions expected to be received during the school year.
(B)Filing financial information prior to the school year with the Franchise Tax Board that demonstrates the financial viability of the scholarship granting organization.
(e)On or before June 1 of each calendar year, a scholarship granting organization shall report to the Franchise Tax Board the following information prepared by a certified public accountant regarding the previous calendar years educational scholarships:
(1)The name and address of the scholarship granting organization.
(2)The total number and dollar amount of contributions received during the previous calendar year.
(3)The total number and dollar amount of educational scholarships awarded during the previous calendar year, the total number and total dollar amount of educational scholarships awarded during the previous year to eligible students qualifying for the federal free and reduced price reduced-price lunch program, and the percentage of first-time recipients of educational scholarships who were continuously enrolled in a public school during the previous year.
(f)For purposes of this section, the Franchise Tax Board shall do all of the following:
(1)Provide a standardized format for a receipt to be issued by a scholarship granting organization to a qualified taxpayer to indicate the value of a received contribution. The Franchise Tax Board shall require a qualified taxpayer to provide a copy of this receipt when claiming a credit under this section.
(2)Provide a standardized format for scholarship granting organizations to report the information required by paragraph (8) of subdivision (d).
(3)Conduct either a financial review or audit of a scholarship granting organization if in possession of evidence of fraud.
(4)(A)Bar a scholarship granting organization from being a scholarship granting organization if the Franchise Tax Board establishes that the scholarship granting organization has intentionally failed to comply with the requirements of this section.
(B)If the Franchise Tax Board bars a scholarship granting organization, it shall notify any affected eligible students and his or her parent of this decision as soon as possible.
(5)Ensure compliance with privacy laws.
(g)The State Department of Education shall do the following:
(1)Collect all test results.
(2)Provide the test results and associated learning gains to the public on its Internet Web site after the third year of test and test-related data collection. The findings shall be aggregated by the grade level, gender, family income level, number of years of participation in the scholarship program, and race of the student.
(h)In the case where the credit allowed by this section exceeds the tax, the excess may be carried over to reduce the tax in the following year, and the succeeding year if necessary, until the credit is exhausted.
(i)Any deduction otherwise allowed under this part for any amount paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit allowed under this section.
(j)The Employment Development Department shall allow a qualified taxpayer to divert a prorated share of state income tax withholdings to a scholarship granting organization of the qualified taxpayers choice, up to the maximum credit allowed by law, including carryover credits.
(k)It is the intent of the Legislature to comply with Section 41.
SEC. 4.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
This act shall be known, and may be cited, as the Scholarship Tax Credit Program Act.
SEC. 2.Section 17053.99 is added to the Revenue and Taxation Code, to read:17053.99.(a)For each taxable year beginning on or after January 1, 2018, there shall be allowed to a qualified taxpayer as a credit against the net tax, as defined in Section 17039, an amount equal to the total contributions made to a scholarship granting organization during the taxable year, not to exceed 100 percent of the qualified taxpayers net tax for the taxable year.
(b)For purposes of this section:
(1)Educational scholarship means a grant made to an eligible student to cover all or part of the tuition and fees, including transportation to a qualified school outside of the eligible students resident school district, at either a public or nonpublic qualified school.
(2)(A)Eligible student means either of the following:
(i)A student who is a member of a household whose total annual income during the calendar year before he or she receives an educational scholarship from a scholarship granting organization does not exceed an amount equal to two and one-half times the income standard used to qualify for a free or reduced lunch price under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.), who was eligible to attend a public school in the semester preceding receipt of the educational scholarship or is attending school in California for the first time, and who resides in California while receiving the educational scholarship.
(ii)A student who qualifies for a free or reduced price lunch under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.).
(B)A student remains an eligible student under this section until he or she graduates high school or reaches 21 years of age, regardless of household income.
(3)Parent means a parent, a legal guardian, a conservator, a person acting as a parent of a child, or any other person with legal authority to act on behalf of the child.
(4)Qualified school means a public elementary or secondary school located in California that is outside of the eligible students resident school district or a nonpublic elementary or secondary school in California that complies with the requirements of this section. A qualified school shall comply with all state laws that apply to nonpublic schools regarding criminal background checks for employees and exclude from employment any person not permitted by state law to work in a school.
(5)Qualified taxpayer means a taxpayer who files an income tax return in this state and is not claimed as a dependent for income tax purposes by any other taxpayer.
(6)Scholarship granting organization means an organization that complies with the requirements of this section and provides educational scholarships to eligible students attending qualified schools of their parents choice.
(7)Test means either the Standardized Testing and Reporting Program or a nationally norm-referenced test chosen by the qualifying school.
(c)No credit shall be allowed pursuant to this section unless the scholarship granting organization does all of the following:
(1)Notifies the Franchise Tax Board of its intent to provide educational scholarships to eligible students attending qualified schools.
(2)Provides the Franchise Tax Board with a letter of determination from the Internal Revenue Service of tax-exempt status as an organization described in Section 501(c)(3) of the Internal Revenue Code.
(3)Provides the qualified taxpayer with a Franchise Tax Board-approved receipt substantiating the contribution made by the qualified taxpayer to the scholarship granting organization.
(4)Ensures that at least 90 percent of its revenue from donations is expended on educational scholarships.
(5)Spends a portion of expenditures each year on educational scholarships for students eligible under clause (ii) of subparagraph (A) of paragraph (2) of subdivision (b) equal to the percentage of low-income eligible students in the county where the scholarship granting organization expends the majority of its educational scholarships.
(6)Cooperates with the Franchise Tax Board, or its designee, in conducting criminal background checks of all of its employees and board members and excludes from employment or governance any individual who might reasonably pose a risk to the appropriate use of contributed funds.
(7)Ensures that educational scholarships are portable during the school year and may be used at any qualified school that accepts the eligible student according to a parents wishes. If an eligible student moves to a new qualified school during a school year, the educational scholarship may be prorated.
(8)(A)Demonstrates its financial accountability to the Franchise Tax Board by submitting a financial information report, conducted by a certified public accountant, that complies with uniform financial accounting standards and is certified by an auditor as free of material misstatements.
(B)If a scholarship granting organization provides five hundred thousand dollars ($500,000) or more in scholarships to eligible students through this program, it shall provide to the Franchise Tax Board a report on the results of an annual financial audit of the organization or its relevant accounts and records pertaining to credit eligibility donations conducted by an independent certified public accountant in accordance with auditing standards generally accepted in the United States, government auditing standards, and rules promulgated by the Franchise Tax Board. The audit report shall include a report on financial statements presented in accordance with generally accepted accounting principles. Audit reports shall be provided to the Franchise Tax Board within 180 days after completion of the scholarship granting organizations fiscal year. The Franchise Tax Board shall review all audit report submitted pursuant this paragraph. The Franchise Tax Board shall require any significant items that were omitted in violation of a rule adopted by the Franchise Tax Board. The items shall be provided within 45 days of the date of the request.
(9)Ensures that educational scholarships are not provided to eligible students to attend a qualified school with paid staff or board members, or relatives thereof, in common with the scholarship granting organization.
(10)Prioritize the awarding of scholarships to first-time recipients in the following order:
(A)Siblings of students who are currently receiving a scholarship.
(B)Low-income students.
(11)Grant only one year of scholarship in one approval process.
(d)No credit shall be allowed pursuant to this section unless a qualified school that accepts educational scholarships from a scholarship granting organization does all of the following:
(1)Complies with all health and safety laws or codes that apply to schools.
(2)Obtains a valid occupancy permit for its grounds if required by its municipality.
(3)Certifies that it will not discriminate in accordance with Section 1981 of Title 42 of the United States Code.
(4)Provides academic accountability to the parent of eligible students who receive educational scholarships by regularly reporting to the parent on the students progress.
(5)Exclude from employment any person not permitted by law to work in a school.
(6)Annually administer either the Standardized Testing and Reporting Program or national norm-referenced tests that measure learning gains in math and language arts, and may provide for value-added assessment, to all participating students in grades that require testing under accountability testing laws for schools.
(7)Pay for the tests of scholarship students with the scholarship moneys distributed by the scholarship granting organizations.
(8)Provide the parents of each student who was tested with a copy of the results of the tests on an annual basis, beginning with the first year of testing after January 1, 2018.
(9)Provide the test results to the State Department of Education on an annual basis.
(10)Report student information that would allow the state to aggregate data by grade level, gender, family income level, and race.
(11)Provide rates of high school graduation for participating students to the State Department of Education in a manner consistent with nationally recognized standards.
(12)Provide the results from an annual parental satisfaction survey, including information about the number of years that the parents child has participated in the scholarship program to the State Department of Education. The annual satisfaction survey shall ask parents of eligible students receiving educational scholarships to express:
(A)Their satisfaction with their childs academic achievement, including academic achievement at the school their child attended through the scholarship program versus academic achievement at the school previously attended, if applicable.
(B)Their satisfaction with school safety at the school their child attends including school safety at the school their child attended through the scholarship program versus safety at the school previously attended, if applicable.
(C)Whether their child would have been able to attend their school of choice without the scholarship.
(D)Their opinions on other topics, items, or issues that the State Department of Education determines would elicit information about the effectiveness of the scholarship program.
(13)If a private school receives donations of fifty thousand dollars ($50,000) or more during the school year, the private school shall demonstrate its financial accountability by either of the following:
(A)Filing a surety bond with Franchise Tax Board, payable to the State of California, in an amount equal to the aggregate amount of contributions expected to be received during the school year.
(B)Filing financial information prior to the school year with Franchise Tax Board that demonstrates the financial viability of the scholarship granting organization.
(e)On or before June 1 of each calendar year, a scholarship granting organization shall report to the Franchise Tax Board the following information prepared by a certified public accountant regarding the previous calendar years educational scholarships:
(1)The name and address of the scholarship granting organization.
(2)The total number and dollar amount of contributions received during the previous calendar year.
(3)The total number and dollar amount of educational scholarships awarded during the previous calendar year, the total number and total dollar amount of educational scholarships awarded during the previous year to eligible students qualifying for the federal free and reduced price lunch program, and the percentage of first-time recipients of educational scholarships who were continuously enrolled in a public school during the previous year.
(f)For purposes of this section, the Franchise Tax Board shall do all of the following:
(1)Provide a standardized format for a receipt to be issued by a scholarship granting organization to a qualified taxpayer to indicate the value of a received contribution. The Franchise Tax Board shall require a qualified taxpayer to provide a copy of this receipt when claiming a credit under this section.
(2)Provide a standardized format for scholarship granting organizations to report the information required by paragraph (8) of subdivision (d).
(3)Conduct either a financial review or audit of a scholarship granting organization if in possession of evidence of fraud.
(4)(A)Bar a scholarship granting organization from being a scholarship granting organization if the Franchise Tax Board establishes that the scholarship granting organization has intentionally failed to comply with the requirements of this section.
(B)If the Franchise Tax Board bars a scholarship granting organization, it shall notify any affected eligible students and his or her parent of this decision as soon as possible.
(5)Ensure compliance with privacy laws.
(g)The State Department of Education shall do the following:
(1)Collect all test results.
(2)Provide the test results and associated learning gains to the public on its Internet Web site after the third year of test and test-related data collection. The findings shall be aggregated by the grade level, gender, family income level, number of years of participation in the scholarship program, and race of the student.
(h)In the case where the credit allowed by this section exceeds the net tax, the excess may be carried over to reduce the net tax in the following year, and the succeeding year if necessary, until the credit is exhausted.
(i)Any deduction otherwise allowed under this part for any amount paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit allowed under this section.
(j)The Employment Development Department shall allow a qualified taxpayer to divert a prorated share of state income tax withholdings to a scholarship granting organization of the qualified taxpayers choice, up to the maximum credit allowed by law, including carryover credits.
(k)It is the intent of the Legislature to comply with Section 41.
SEC. 3.Section 23699 is added to the Revenue and Taxation Code, to read:23699.(a)For each taxable year beginning on or after January 1, 2018, there shall be allowed to a qualified taxpayer as a credit against the tax, as defined in Section 23036, an amount equal to the total contributions made to a scholarship granting organization during the taxable year, not to exceed 100 percent of the qualified taxpayers tax for the taxable year.
(b)For purposes of this section:
(1)Educational scholarship means a grant made to an eligible student to cover all or part of the tuition and fees, including transportation to a qualified school outside of the eligible students resident school district, at either a public or nonpublic qualified school.
(2)(A)Eligible student means either of the following:
(i)A student who is a member of a household whose total annual income during the calendar year before he or she receives an educational scholarship from a scholarship granting organization does not exceed an amount equal to two and one-half times the income standard used to qualify for a free or reduced lunch price under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.), who was eligible to attend a public school in the semester preceding receipt of the educational scholarship or is attending school in California for the first time, and who resides in California while receiving the educational scholarship.
(ii)A student who qualifies for a free or reduced price lunch under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.).
(B)A student remains an eligible student under this section until he or she graduates high school or reaches 21 years of age, regardless of household income.
(3)Parent means a parent, a legal guardian, a conservator, a person acting as a parent of a child, or any other person with legal authority to act on behalf of the child.
(4)Qualified school means a public elementary or secondary school located in California that is outside of the eligible students resident school district or a nonpublic elementary or secondary school in California that complies with the requirements of this section. A qualified school shall comply with all state laws that apply to nonpublic schools regarding criminal background checks for employees and exclude from employment any person not permitted by state law to work in a school.
(5)Qualified taxpayer means a taxpayer who files a franchise tax return in this state.
(6)Scholarship granting organization means an organization that complies with the requirements of this section and provides educational scholarships to eligible students attending qualified schools of their parents choice.
(7)Test means either the Standardized Testing and Reporting Program or a nationally norm-referenced test chosen by the qualifying school.
(c)No credit shall be allowed pursuant to this section unless the scholarship granting organization does all of the following:
(1)Notifies the Franchise Tax Board of its intent to provide educational scholarships to eligible students attending qualified schools.
(2)Provides the Franchise Tax Board with a letter of determination from the Internal Revenue Service of tax-exempt status as an organization described in Section 501(c)(3) of the Internal Revenue Code.
(3)Provides the qualified taxpayer with a Franchise Tax Board-approved receipt substantiating the contribution made by the qualified taxpayer to the scholarship granting organization.
(4)Ensures that at least 90 percent of its revenue from donations is expended on educational scholarships.
(5)Spends a portion of expenditures each year on educational scholarships for students eligible under clause (ii) of subparagraph (A) of paragraph (2) of subdivision (b) equal to the percentage of low-income eligible students in the county where the scholarship granting organization expends the majority of its educational scholarships.
(6)Cooperates with the Franchise Tax Board, or its designee, in conducting criminal background checks of all of its employees and board members and excludes from employment or governance any individual who might reasonably pose a risk to the appropriate use of contributed funds.
(7)Ensures that educational scholarships are portable during the school year and may be used at any qualified school that accepts the eligible student according to a parents wishes. If an eligible student moves to a new qualified school during a school year, the educational scholarship may be prorated.
(8)(A)Demonstrates its financial accountability to the Franchise Tax Board by submitting a financial information report, conducted by a certified public accountant, that complies with uniform financial accounting standards and is certified by an auditor as free of material misstatements.
(B)If a scholarship granting organization provides five hundred thousand dollars ($500,000) or more in scholarships to eligible students through this program, it shall provide to the Franchise Tax Board a report on the results of an annual financial audit of the organization or its relevant accounts and records pertaining to credit eligibility donations conducted by an independent certified public accountant in accordance with auditing standards generally accepted in the United States, government auditing standards, and rules promulgated by the Franchise Tax Board. The audit report shall include a report on financial statements presented in accordance with generally accepted accounting principles. Audit reports shall be provided to the Franchise Tax Board within 180 days after completion of the scholarship granting organizations fiscal year. The Franchise Tax Board shall review all audit report submitted pursuant this paragraph. The Franchise Tax Board shall require any significant items that were omitted in violation of a rule adopted by the Franchise Tax Board. The items shall be provided within 45 days of the date of the request.
(9)Ensures that educational scholarships are not provided to eligible students to attend a qualified school with paid staff or board members, or relatives thereof, in common with the scholarship granting organization.
(10)Prioritize the awarding of scholarships to first-time recipients in the following order:
(A)Siblings of students who are currently receiving a scholarship.
(B)Low-income students.
(11)Grant only one year of scholarship in one approval process.
(d)No credit shall be allowed pursuant to this section unless a qualified school that accepts educational scholarships from a scholarship granting organization does all of the following:
(1)Complies with all health and safety laws or codes that apply to schools.
(2)Obtains a valid occupancy permit for its grounds if required by its municipality.
(3)Certifies that it will not discriminate in accordance with Section 1981 of Title 42 of the United States Code.
(4)Provides academic accountability to the parent of eligible students who receive educational scholarships by regularly reporting to the parent on the students progress.
(5)Exclude from employment any person not permitted by law to work in a school.
(6)Annually administer either the Standardized Testing and Reporting Program or national norm-referenced tests that measure learning gains in math and language arts, and may provide for value-added assessment, to all participating students in grades that require testing under accountability testing laws for schools.
(7)Pay for the tests of scholarship students with the scholarship moneys distributed by the scholarship granting organizations.
(8)Provide the parents of each student who was tested with a copy of the results of the tests on an annual basis, beginning with the first year of testing after January 1, 2018.
(9)Provide the test results to the State Department of Education on an annual basis.
(10)Report student information that would allow the state to aggregate data by grade level, gender, family income level, and race.
(11)Provide rates of high school graduation for participating students to the State Department of Education in a manner consistent with nationally recognized standards.
(12)Provide the results from an annual parental satisfaction survey, including information about the number of years that the parents child has participated in the scholarship program to the State Department of Education. The annual satisfaction survey shall ask parents of eligible students receiving educational scholarships to express:
(A)Their satisfaction with their childs academic achievement, including academic achievement at the school their child attended through the scholarship program versus academic achievement at the school previously attended, if applicable.
(B)Their satisfaction with school safety at the school their child attends including school safety at the school their child attended through the scholarship program versus safety at the school previously attended, if applicable.
(C)Whether their child would have been able to attend their school of choice without the scholarship.
(D)Their opinions on other topics, items, or issues that the State Department of Education determines would elicit information about the effectiveness of the scholarship program.
(13)If a private school receives donations of fifty thousand dollars ($50,000) or more during the school year, the private school shall demonstrate its financial accountability by either of the following:
(A)Filing a surety bond with Franchise Tax Board, payable to the State of California, in an amount equal to the aggregate amount of contributions expected to be received during the school year.
(B)Filing financial information prior to the school year with Franchise Tax Board that demonstrates the financial viability of the scholarship granting organization.
(e)On or before June 1 of each calendar year, a scholarship granting organization shall report to the Franchise Tax Board the following information prepared by a certified public accountant regarding the previous calendar years educational scholarships:
(1)The name and address of the scholarship granting organization.
(2)The total number and dollar amount of contributions received during the previous calendar year.
(3)The total number and dollar amount of educational scholarships awarded during the previous calendar year, the total number and total dollar amount of educational scholarships awarded during the previous year to eligible students qualifying for the federal free and reduced price lunch program, and the percentage of first-time recipients of educational scholarships who were continuously enrolled in a public school during the previous year.
(f)For purposes of this section, the Franchise Tax Board shall do all of the following:
(1)Provide a standardized format for a receipt to be issued by a scholarship granting organization to a qualified taxpayer to indicate the value of a received contribution. The Franchise Tax Board shall require a qualified taxpayer to provide a copy of this receipt when claiming a credit under this section.
(2)Provide a standardized format for scholarship granting organizations to report the information required by paragraph (8) of subdivision (d).
(3)Conduct either a financial review or audit of a scholarship granting organization if in possession of evidence of fraud.
(4)(A)Bar a scholarship granting organization from being a scholarship granting organization if the Franchise Tax Board establishes that the scholarship granting organization has intentionally failed to comply with the requirements of this section.
(B)If the Franchise Tax Board bars a scholarship granting organization, it shall notify any affected eligible students and his or her parent of this decision as soon as possible.
(5)Ensure compliance with privacy laws.
(g)The State Department of Education shall do the following:
(1)Collect all test results.
(2)Provide the test results and associated learning gains to the public on its Internet Web site after the third year of test and test-related data collection. The findings shall be aggregated by the grade level, gender, family income level, number of years of participation in the scholarship program, and race of the student.
(h)In the case where the credit allowed by this section exceeds the tax, the excess may be carried over to reduce the tax in the following year, and the succeeding year if necessary, until the credit is exhausted.
(i)Any deduction otherwise allowed under this part for any amount paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit allowed under this section.
(j)The Employment Development Department shall allow a qualified taxpayer to divert a prorated share of state income tax withholdings to a scholarship granting organization of the qualified taxpayers choice, up to the maximum credit allowed by law, including carryover credits.
(k)It is the intent of the Legislature to comply with Section 41.
SEC. 4.This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.
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Date
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Status
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| Apr 30, 2018 | In committee: Set, first hearing. Hearing canceled at the request of author. |
| Mar 20, 2018 | Re-referred to Com. on REV. & TAX. |
| Mar 19, 2018 | From committee chair, with author's amendments: Amend, and re-refer to Com. on REV. & TAX. Read second time and amended. |
| Mar 5, 2018 | Referred to Com. on REV. & TAX. |
| Feb 15, 2018 | From printer. May be heard in committee March 17. |
| Feb 14, 2018 | Read first time. To print. |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
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Organization
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Position
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Date
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| California State PTA | ** Against | Apr 27, 2018 |
Date of Hearing: April 30, 2018
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Autumn R. Burke, Chairwoman
ABPCA Bill Id:AB 2480 (
Author:Voepel) – As Amended Ver:March 19, 2018
Majority vote. Tax levy. Fiscal committee.
SUBJECT: Income taxes: credit: Scholarship Tax Credit Program Act
SUMMARY: Enacts the Scholarship Tax Credit Program Act. Specifically, this bill:
- Allows, for taxable years beginning on or after January 1, 2019, a credit to a "qualified taxpayer" in an amount equal to the total contributions made to a "scholarship granting organization" during the taxable year, not to exceed 100% of the "qualified taxpayer's" tax liability for the taxable year.
- Allows the credit under both the Personal Income Tax (PIT) Law and the Corporation Tax (CT) Law.
- Defines a "qualified taxpayer" as:
- A taxpayer who files an income tax return in this state and is not claimed as a dependent for income tax purposes by any other taxpayer; or,
- A taxpayer who files a franchise tax return in this state.
- Defines a "scholarship granting organization" as an organization that complies with the requirements of this bill and provides "educational scholarships" to "eligible students" attending "qualified schools" of their "parent's" choice.
- Defines an "educational scholarship" as a grant made to an "eligible student" to cover all or part of the tuition and fees, including transportation, to a "qualified school" outside of the "eligible student's" resident school district, at a "qualified school".
- Defines an "eligible student" as either of the following:
- A student who is a member of a household whose total annual income during the calendar year before he or she receives an educational scholarship from a scholarship granting organization does not exceed two and one-half times the income standard used to qualify for a free or reduced-price lunch under the National School Lunch Act, who was eligible to attend a public school in the semester preceding receipt of the educational scholarship or is attending school in California for the first time, and who resides in California while receiving the educational scholarship; or,
- A student who qualifies for a free or reduced-price lunch under the National School Lunch Act.
- Specifies that a student remains an "eligible student" until he or she graduates high school or reaches 21 years of age, regardless of household income.
- Defines a "qualified school" as a public elementary or secondary school located in California that is outside of the eligible student's resident school district or a private elementary or secondary school in California that complies with the requirements of this bill. A qualified school shall comply with all state laws that apply to private schools regarding criminal background checks for employees and exclude from employment any person not permitted by state law to work in a school.
- Defines a "parent" to mean a parent, a legal guardian, a conservator, a person acting as a parent of a child, or any other person with legal authority to act on behalf of the child.
- Specifies that no credit shall be allowed unless the scholarship granting organization does all of the following:
- Notifies the Franchise Tax Board (FTB) of its intent to provide educational scholarships to eligible students attending qualified schools;
- Provides the FTB with a letter of determination from the Internal Revenue Service of tax-exempt status as an organization described in Internal Revenue Code (IRC) Section 501(c)(3);
- Provides the qualified taxpayer with a FTB-approved receipt substantiating the contribution made by the qualified taxpayer to the scholarship granting organization;
- Ensures that at least 90% of its revenue from donations is expended on educational scholarships;
- Spends a portion of expenditures each year on educational scholarships for students eligible for free or reduced-price lunch equal to the percentage of low-income eligible students in the county where the scholarship granting organization expends the majority of its educational scholarships;
- Cooperates with the FTB, or its designee, in conducting criminal background checks of all of its employees and board members and excludes from employment or governance any individual who might reasonably pose a risk to the appropriate use of contributed funds;
- Ensures that educational scholarships are portable during the school year and may be used at any qualified school that accepts the eligible student according to a parent's wishes. If an eligible student moves to a new qualified school during a school year, the educational scholarship may be prorated;
- Demonstrates its financial accountability to the FTB by submitting a financial information report, conducted by a certified public accountant, that complies with uniform financial accounting standards and is certified by an auditor as free of material misstatements;
- Ensures that educational scholarships are not provided to eligible students to attend a qualified school with paid staff or board members, or relatives thereof, in common with the scholarship granting organization;
- Prioritizes the awarding of scholarships to first-time recipients in the following order:
- Siblings of students who are currently receiving a scholarship;
- Low-income students; and,
- Grants only one year of scholarship in one approval process.
- Provides that no credit shall be allowed unless a qualified school that accepts educational scholarships from a scholarship granting organization does all of the following:
- Complies with all health and safety laws or codes that apply to schools;
- Obtains a valid occupancy permit for its grounds if required by its municipality;
- Certifies that it will not discriminate in accordance with Section 1981 of Title 42 of the United States Code;
- Provides academic accountability to the parent of eligible students who receive educational scholarships by regularly reporting to the parent on the student's progress;
- Excludes from employment any person not permitted by law to work in a school;
- Annually administers either the Standardized Testing and Reporting Program or national norm-referenced tests that measure learning gains in math and language arts, and may provide for value-added assessment, to all participating students in grades that require testing under accountability testing laws for schools;
- Pays for the tests of scholarship students with the scholarship moneys distributed by the scholarship granting organizations;
- Provides the parent of each student who was tested with a copy of the results of the tests on an annual basis, beginning with the first year of testing after January 1, 2018;
- Provides the test results to the State Department of Education on an annual basis;
- Reports student information that would allow the state to aggregate data by grade level, gender, family income level, and race;
- Provides rates of high school graduation for participating students to the State Department of Education in a manner consistent with nationally recognized standards;
- Provides the results from an annual parental satisfaction survey, including information about the number of years that the parent's child has participated in the scholarship program to the State Department of Education. The annual satisfaction survey shall ask parents of eligible students receiving educational scholarships to express:
- Their satisfaction with their child's academic achievement, including academic achievement at the school their child attended through the scholarship program versus academic achievement at the school previously attended, if applicable;
- Their satisfaction with school safety at the school their child attends including school safety at the school their child attended through the scholarship program versus safety at the school previously attended, if applicable;
- Whether their child would have been able to attend their school of choice without the scholarship; and,
- Their opinions on other topics, items, or issues that the State Department of Education determines would elicit information about the effectiveness of the scholarship program.
- Demonstrates, if a private school receives donations of $50,000 or more during the school year, its financial accountability by either of the following:
- Filing a surety bond with the FTB, payable to the State of California, in an amount equal to the aggregate amount of contributions expected to be received during the school year; or,
- Filing financial information prior to the school year with the FTB that demonstrates the financial viability of the scholarship granting organization.
- Requires, on or before June 1 of each year, a scholarship granting organization to report to the FTB the following information prepared by a certified public accountant regarding the previous calendar year's educational scholarships:
- The name and address of the scholarship granting organization;
- The total number and dollar amount of contributions received during the previous calendar year; and,
- The total number and dollar amount of educational scholarships awarded during the previous calendar year, the total number and total dollar amount of educational scholarships awarded during the previous year to eligible students qualifying for the federal free and reduced-price lunch program, and the percentage of first-time recipients of educational scholarships who were continuously enrolled in a public school during the previous year.
- Requires the FTB to do all of the following:
- Provide a standardized format for a receipt to be issued by a scholarship granting organization to a qualified taxpayer to indicate the value of a received contribution. The FTB shall require a qualified taxpayer to provide a copy of this receipt when claiming a credit;
- Provide a standardized format for scholarship granting organizations to report the information required by this bill;
- Conduct either a financial review or audit of a scholarship granting organization if in possession of evidence of fraud;
- Bar a scholarship granting organization from being a scholarship granting organization if the FTB establishes that the scholarship granting organization has intentionally failed to comply with the requirements of this bill; and,
- Ensure compliance with privacy laws.
- Requires the State Department of Education to do the following:
- Collect all test results; and,
- Provide the test results and associated learning gains to the public on its Web site after the third year of test and test-related data collection. The findings shall be aggregated by the grade level, gender, family income level, number of years of participation in the scholarship program, and race of the student.
- Provides that in cases where the credit allowed exceeds the taxpayer's tax liability, the excess credit amount may be carried over to reduce that liability in the following year, and the succeeding year if necessary, until the credit is exhausted.
- Provides that any deduction otherwise allowed for any amount paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit.
- Requires the Employment Development Department to allow a qualified taxpayer to divert a prorated share of state income tax withholdings to a scholarship granting organization of the qualified taxpayer's choice, up to the maximum credit allowed by law, including carryover credits.
- Specifies that it is the Legislature's intent to comply with Revenue and Taxation Code Section (R&TC) 41.
- Takes immediate effect as a tax levy.
EXISTING LAW:
- Allows various tax credits under both the PIT Law and the CT Law. These credits are generally designed to encourage socially beneficial behavior or to provide relief to taxpayers who incur specified expenses.
- Requires any bill authorizing a new credit to contain all of the following:
- Specific goals, purposes, and objectives that the tax credit will achieve;
- Detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives stated in the bill; and,
- Data collection requirements to enable the Legislature to determine whether the tax credit is meeting, failing to meet, or exceeding those specific goals, purposes, and objectives. The requirements shall include the specific data and baseline measurements to be collected and remitted in each year the credit is in effect, for the Legislature to measure the change in performance indicators, and the specific taxpayers, state agencies, or other entities required to collect and remit data. (R&TC Section 41.)
FISCAL EFFECT: The FTB estimates that this bill would reduce General Fund revenues by $9.8 million in fiscal year (FY) 2018-19, by $32 million in FY 2019-20, and by $55 million in FY 2020-21.
COMMENTS:
- The author notes the following in support of this bill:
There is never enough money in education. Every year, we seek to allocate additional funds to give our children the best possible chance at a bright future. Many middle-to-low-income families do not have the resources to send their child to the school of their choice. This measure supplies incentive for private donations to California schools, increasing the funding sources for our educational facilities. AB 2480 provides academic opportunities through a tax-credit scholarship program, allowing parents greater control of where and how their students are educated.
- This bill is opposed by the California State PTA, which notes the following:
The California State PTA is committed to the preservation, maintenance and strengthening of our public school system. We oppose efforts that divert money from public schools to private and religious schools. This includes vouchers, tuition tax credits, education savings accounts and tax deductions for K-12 school tuition and other education-related expenses. Public dollars should fund public schools. These kinds of bills are a threat to a strong public education system in California.
- The FTB raises a wide range of implementation concerns in its staff analysis of this bill, including the following:
- "It is unclear how the FTB would be able to verify that both the scholarship granting organization and the qualified schools that accept educational scholarships from a scholarship granting organization have met all the requirements of this bill prior to allowing a tax credit. The author may wish to designate a state agency with expertise in administering financial aid, for example the Department of Education, as the administering agency."
- "This bill lacks a funding mechanism for the administrative costs associated with the mandated activities. Lack of funding could result in delays in implementation as well as impact the department's ability to meet its core mission."
- "It is unprecedented that a state agency, in this case the FTB, would be required to assist a non-profit organization to conduct background checks for all of its employees and board members and [exclude] from employment or governance any individual who might reasonably pose a risk to the appropriate use of contributed funds. The author may want to amend the bill to require the scholarship granting organization to obtain the background checks."
- "The bill lacks administrative detail necessary to implement this credit. For example, the bill is silent on the following:
- “What does 'bar a scholarship organization' mean? How would the FTB make that determination and notify affected students and parents?
- “What is the FTB [. . .] to do with any submitted financial information reports or results of an annual financial audit of the organization or its relevant accounts and records pertaining to credit eligibility donations, and surety bonds, and under what timeframes?"
- "The bill requires on or before June 1 of each calendar year, a scholarship granting organization to report to the FTB the total number and dollar amount of contributions received during the previous calendar year. In order to allow the FTB to verify tax credits claimed the bill should be amended to require the taxpayer's name, tax identification number, and dollar amount received in the previous calendar year and the due date should be changed to on or before January 31 of each calendar year."
- "For consistency with the operative date change and to avoid confusion, the author may wish to amend the bill to substitute January 1, 2019, for January 1, 2018, as the initial year of testing with regard to test results that must be reported to a parent."
- Committee Staff Comments:
- What is a "tax expenditure"? Existing law provides various credits, deductions, exclusions, and exemptions for particular taxpayer groups. In the late 1960s, U.S. Treasury officials began arguing that these features of the tax law should be referred to as "expenditures" since they are generally enacted to accomplish some governmental purpose and there is a determinable cost associated with each (in the form of foregone revenues).
- How is a tax expenditure different from a direct expenditure? As the Department of Finance notes in its annual Tax Expenditure Report, there are several key differences between tax expenditures and direct expenditures. First, tax expenditures are typically reviewed less frequently than direct expenditures. Second, there is generally no control over the amount of revenue losses associated with any given tax expenditure. Finally, it should also be noted that, once enacted, it takes a two-thirds vote to rescind an existing tax expenditure absent a sunset date. This effectively results in a "one-way ratchet" whereby tax expenditures can be conferred by majority vote, but cannot be rescinded, irrespective of their efficacy or cost, without a supermajority vote.
- What would this bill do? This bill would establish a new tax expenditure program in the form of a credit available to qualified taxpayers under both the PIT Law and the CT Law. The credit amount would be equal to all contributions made to a "scholarship granting organization" during the taxable year, but would be capped at 100% of the taxpayer's tax liability for the taxable year. This bill defines a “scholarship granting organization” as an organization that, among other things, provides educational scholarships to eligible students attending a qualified school of their parent's choice. This bill defines a "qualified school", in turn, as a public elementary or secondary school located in California that is outside the student's resident school district or a private elementary or secondary school in California, as specified. According to the author, by expanding academic opportunities through private donations, this bill would give parents greater control over where and how their children are educated.
- The arguments on both sides: Proponents of this bill might argue that a tax credit would encourage both individuals and companies to contribute generously to scholarship granting organizations that provide educational scholarships to eligible students. With financial assistance, these students would be able to enroll either in a public school outside their resident school district or at a private school of their parent's choice. Proponents might also argue that, with scholarship aid, students from low-income households will be able to leave underperforming public schools and transfer to a better educational environment.
Critics of this approach, however, might argue that it is not the state's role to indirectly subsidize private schools through a tax credit. This is especially so when one considers the fact that tax expenditure programs generally decrease the amount of funding available for public education in the first instance. Finally, critics might argue that scarce General Fund dollars would be better spent improving underperforming public schools, which would benefit all of their students, rather than just those able to secure a financial scholarship.
- Origin story? It would appear that this bill's credit is based, at least in part, on a "Model Policy" adopted by the American Legislative Exchange Council (ALEC). Specifically, this bill is similar in many respects to the "Great Schools Tax Credit Program Act" finalized by ALEC in July 2009 and last amended in September 2017. The Great Schools Tax Credit Program Act includes "Endnotes" designed to "provide guidance to legislators on some of the key policy questions they will encounter in drafting and debating school choice tax credit legislation." These Endnotes, in turn, note the following:
- "In general, legislators and the public seek greater state regulation of programs directly funded by the government than of tax credit programs under the belief that tax credits are private funds kept by taxpayers rather than public funds expended by governments. However, insufficient accountability regulation can produce situations that undermine public and legislative support for the program. In recognition of this potential, we have chosen to recommend the establishment and state regulation of scholarship granting organizations rather than heavy government regulation of private contributions and private schools."
- "The goal of this legislation is to provide every parent with the opportunity to send their child to the school that best meets their child's needs regardless of their family's income. The need for scholarship assistance is obviously greatest among low-income families."
- Picking a percentage: Typically, credits are allowed in an amount equal to a specified percentage (e.g., 25%) of a taxpayer's qualifying expenditures, ensuring that taxpayers have some "skin in the game" by bearing at least part of the economic burden of the underlying activity.
- Origin story? It would appear that this bill's credit is based, at least in part, on a "Model Policy" adopted by the American Legislative Exchange Council (ALEC). Specifically, this bill is similar in many respects to the "Great Schools Tax Credit Program Act" finalized by ALEC in July 2009 and last amended in September 2017. The Great Schools Tax Credit Program Act includes "Endnotes" designed to "provide guidance to legislators on some of the key policy questions they will encounter in drafting and debating school choice tax credit legislation." These Endnotes, in turn, note the following:
This bill, however, would allow a credit "equal to" total contributions made to a scholarship granting organization, not to exceed 100% of the taxpayer's tax liability for the taxable year. Committee staff is not aware of any other tax expenditure program that provides a 100% tax credit to taxpayers. As such, the Committee may wish to consider specifying a credit percentage of 50% or less to ensure that the taxpayer is bearing a significant portion of the underlying expenses. This is especially true when one considers that the taxpayer will likely be able to deduct payments to scholarship granting organizations as a charitable contribution for federal purposes.
- Carrying things forward: Because this bill specifically limits the tax credit to 100% of a qualified taxpayer's tax liability in the taxable year, there would be no excess credit amount to carry forward to future years. As a result, the author may wish to delete this bill's "carry forward" provisions, which appear superfluous.
- A note on sunsets: As currently drafted, this bill's tax credit would be available indefinitely for all taxable years beginning on or after January 1, 2019. This Committee, however, has a longstanding practice of including an appropriate sunset date in new tax expenditure bills, allowing the Legislature to periodically review the expenditure's cost and overall effectiveness. As such, the Committee and author may wish to consider amendments adding a five-year sunset date.
- Section 41: On September 29, 2014, Governor Brown signed SB 1335 (Leno), Chapter 845, Statutes of 2014, which added R&TC Section 41. SB 1335 recognized that the Legislature should apply the same level of review used for government spending programs to tax expenditure programs, including tax credits. Thus, R&TC Section 41 requires any bill introduced on or after January 1, 2015 that allows a new income tax credit to contain specific goals, purposes, and objectives that the tax credit will achieve. In addition, Section 41 requires detailed performance indicators for the Legislature to use when measuring whether the tax credit meets the goals, purposes, and objectives so-identified. In its current form, this bill states the Legislature's intent to comply with R&TC Section 41, but does not identify the objectives and performance indicators to be used.
- Technical amendments: Committee staff suggests adoption of the following technical amendments:
- On page 4, in line 36, strike "Prioritize" and insert "Prioritizes";
- On page 5, in line 1, strike "Grant" and insert "Grants";
- On page 5, in line 14, strike "Exclude" and insert "Excludes";
- On page 5, in line 16, strike "administer" and insert "administers";
- On page 5, in line 21, strike "Pay" and insert "Pays";
- On page 5, in line 23, strike "Provide" and insert "Provides";
- On page 5, in line 26, strike "Provide" and insert "Provides";
- On page 5, in line 28, strike "Report" and insert "Reports";
- On page 5, in line 31, strike "Provide" and insert "Provides";
- On page 5, in line 34, strike "Provide" and insert "Provides";
- On page 7, in lines 9 and 10, correct the erroneous cross reference; and,
- Make conforming changes, as outlined above, to this bill's CT Law provisions.
- Prior legislation:
- AB 2422 (Nestande), of the 2013-14 Legislative Session, would have allowed a credit under the CT Law equal to 50% of a taxpayer's monetary contribution to a nonprofit educational improvement organization to fund a qualified grant for a K-12 education innovative program for pupils attending private, public, or charter schools. AB 2422 (Nestande) was held on this Committee's Suspense File.
- AB 2421 (Nestande), of the 2013-14 Legislative Session, would have allowed a credit under the CT Law for 50% of monetary contributions to qualified K-College education scholarship organizations, as defined, to fund qualified K-College education scholarships, as defined. AB 2421 (Nestande) was held on the Assembly Appropriations Committee's Suspense File.
- AB 943 (Nestande), of the 2013-14 Legislative Session, would have allowed a credit under the CT Law equal to 50% of a taxpayer's monetary contribution to a nonprofit organization that is either an education improvement organization, as defined, or an education scholarship organization, as defined. AB 943 (Nestande) was held on this Committee's Suspense File.
- AB 279 (Duvall), of the 2009-10 Legislative Session, would have allowed a credit equal to the amount of the total contribution made by a qualified taxpayer to a scholarship granting organization during the taxable year. AB 279 (Duvall) was held on this Committee's Suspense File.
REGISTERED SUPPORT / OPPOSITION:
Support
None on file
Opposition
California State PTA
Analysis Prepared by: M. David Ruff / REV. & TAX. / (916) 319-2098
Bill Author
Bill Co-Author(s):
