BILL ANALYSIS REVISED 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. SB 323- Oropeza Page 2 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 bill allows the deposits to be made on a prorated basis. FISCAL EFFECT: According to the FTB, this bill will have the following revenue loss: ----------------------------------------------------------------- | Estimated Revenue Impact for SB 323 - As Introduced 2/25/09 | | Enactment Assumed After June 30, 2009 | | For Designations Made On Tax Returns Filed On Or After January | |1, 2010 | ----------------------------------------------------------------- |------------------+---------------+---------------+--------------| | Fiscal Year | 2009-10 | 2010-11 | 2011-12 | |------------------+---------------+---------------+--------------| | Revenue Loss | N/A | -$10,000 |-$10,000 | ----------------------------------------------------------------- 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. SB 323- Oropeza Page 2 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 form. Support and Opposition Support:State Treasurer Bill Lockyer Association of Independent California College and Universities California Catholic Conference --------------------------------- Consultant: Gayle Miller SB 323- Oropeza Page 2