BILL ANALYSIS
SENATE REVENUE & TAXATION COMMITTEE
Senator Lois Wolk, Chair
SB 323 -Oropeza
Amended: April 15, 2009
Hearing: April 22, 2009 Fiscal: Yes
SUBJECT: Allows taxpayers to direct any amount in excess
of their tax liability to a Qualified Tuition
Program account
EXISTING LAW
Current federal law, to which California conforms, provides
tax exempt status to Qualified Tuition Programs (QTP)
through Section 529 of the Internal Revenue Code. QTPs are
programs established and maintained by the state to
encourage savings for education; distributions from a QTP
are not taxable. Contributions to a QTP are made after
taxes have been paid and are not deductible.
The Interagency Intercept Program requires state agencies
and the IRS to provide the FTB with a list of debtors and
amounts owed to be offset in the following tax filing
season. As returns are filed and refunds issued, any
refunds due a taxpayer are offset to satisfy the debts
identified by the participating agencies.
THIS BILL
Allows taxpayers to designate on their tax return that part
of their tax refund (over $1 and in full dollar amounts) to
be deposited in a QTP.
Requires FTB to revise the current tax forms to include the
amount of the designation, account numbers and named
beneficiaries of the QTP.
Requires that the tax liability is covered in full before
any designation may be made to a QTP. If more than one
beneficiary is named and there are insufficient funds the
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bill allows the deposits to be made on a prorated basis.
FISCAL EFFECT:
According to the FTB, this bill will have revenue losses of
approximately $250,000 annually. The bill will also have
departmental costs of approximately $2 million if the
number of pages in the income tax form must be increased to
accommodate the change. The author has agreed that this
bill will not require the tax form to exceed the current
number of pages.
COMMENTS:
A. Purpose of the bill
With the increasing cost of higher education it is more
important than ever to provide families with the financial
tools to save for college. One such investment tool is
qualified tuition programs, also known as 529 plans.
Qualified tuition programs are tax-advantaged plans which
allow the income earned on the account and distributions
from the account to be tax free provided the funds are used
for higher education expenses. Hundreds of thousands of
Californians invest in these qualified tuition programs.
SB 323 allows for a tax refund to be deposited directly
into a qualified tuition program, thereby making investment
into these programs easier. Additionally, placing such an
option on California's tax form would increase awareness of
these qualified tuition programs, as the tax form is
reviewed by all taxpayers.
B. Tax Form
The FTB points out that this bill could require changes to
existing tax forms and electronic applications which could
increase costs. If this change did necessitate a
three-page tax form, the bill could cost over $2 million
for revising the forms and instructions as well as
providing for printing and systems changes. The author's
staff has stated that they are continuing to work with the
FTB to ensure that an extra page is not required on the tax
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form.
Support and Opposition
Support:State Treasurer Bill Lockyer
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Consultant: Gayle Miller