BILL ANALYSIS ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 323| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 323 Author: Oropeza (D), et al Amended: 6/1/09 Vote: 21 SENATE REVENUE & TAXATION COMMITTEE : 5-2, 4/22/09 AYES: Wolk, Alquist, Florez, Padilla, Wiggins NOES: Walters, Runner NO VOTE RECORDED: Ashburn SENATE APPROPRIATIONS COMMITTEE : 7-5, 05/28/09 AYES: Kehoe, Corbett, DeSaulnier, Hancock, Leno, Oropeza, Yee NOES: Cox, Denham, Runner, Walters, Wyland NO VOTE RECORDED: Wolk SUBJECT : Taxation: deposits: qualified tuition programs SOURCE : Author DIGEST : This bill allows taxpayers to direct any amount in excess of their tax liability to a Qualified Tuition Program account. Sunsets on December 31, 2014. ANALYSIS : Current federal law, to which California conforms, provides tax exempt status to Qualified Tuition Programs (QTPs) through Section 529 of the Internal Revenue Code. QTPs are programs established and maintained by the state to encourage savings for education. Distributions CONTINUED SB 323 Page 2 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 Internal Revenue Service to provide the Franchise Tax Board (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: 1. 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. 2. Requires the FTB to revise the current tax forms to include the amount of the designation and the routing number and account number of the QTP. 3. 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. 4. Requires the Scholarshare Investment Board to reimburse the FTB to reimburse the FTB for the actual cost of implementing and maintaining this designation on the form of the return, as provided. The reimbursement by the Scholarshare Investment Board to the FTB for costs incurred to implement and maintain this chapter shall be made in the same fiscal year in which the FTB incurred the costs. 5. Sunsets on December 31, 2014. Comments 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 SB 323 Page 3 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. This bill 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. 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. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No According to the FTB, this bill will have the following revenue loss: ------------------------------------------------------------ ------------------------------------------------------------ This 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. SUPPORT : (Verified 6/1/09) Association of Independent California Colleges and Universities California Catholic Conference State Treasurer Bill Lockyer DLW:mw 6/1/09 Senate Floor Analyses SB 323 Page 4 SUPPORT/OPPOSITION: SEE ABOVE **** END ****