BILL ANALYSIS
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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
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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
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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:
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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
Los Angeles Area Chamber of Commerce
New Economics for Women
State Treasurer Bill Lockyer
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DLW:mw 6/1/09 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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