BILL ANALYSIS
SB 323
Page 1
Date of Hearing: July 6, 2009
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Charles M. Calderon, Chair
SB 323 (Oropeza) - As Amended: June 1, 2009
Majority vote. Fiscal committee.
SENATE VOTE : 23-14
SUBJECT : Taxation: deposits: qualified tuition programs
SUMMARY : Allows taxpayers to direct an amount in excess of
their tax liability to a qualified tuition program (QTP)
account. Specifically, this bill :
1)Allows a taxpayer to designate on the personal income tax
(PIT) return that a contribution in excess of tax liability,
if any, be deposited to the credit of the taxpayer's QTP, as
defined in Internal Revenue Code Section 529, including the
state's Scholarshare QTP.
2)Directs the Franchise Tax Board (FTB) to revise the form of
the return to include a space for the designation, and any
other information that may be necessary.
3)Limits the designation to one QTP.
4)Specifies that, if a taxpayer designates a voluntary
contribution on the return and a direct deposit to a QTP, and
the amount in excess of tax liability is insufficient to cover
both designations, the amount in excess of tax liability shall
be allocated on a pro rata basis.
5)Requires the Scholarshare Investment Board (Board) to
reimburse FTB through an interagency agreement for the actual
cost of implementing this bill. The Board shall approve the
disbursement of any reimbursements. Moreover, reimbursement
shall be made in the same fiscal year (FY) in which FTB
incurred the costs. However, the total costs reimbursed by
the Board shall not exceed $475,000.
6)Sunsets on December 31, 2014.
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7)Amends the Golden State Scholarshare Trust Act to allow for
the reimbursement specified above.
EXISTING LAW :
1)Provides tax-exempt status to QTPs. QTPs are programs
established and maintained by a State (or by an eligible
educational institution) under which a person may purchase
tuition credits or make cash contributions to meet the
qualified higher education expenses of a designated
beneficiary. Contributions to a QTP cannot exceed the amount
necessary to provide for the beneficiary's qualified higher
education expenses. Distributions to a beneficiary are
excluded from income. However, contributions made to a QTP
are not deductible.
2)Allows taxpayers to designate on their PIT returns a
contribution to any of 15 voluntary contribution funds.
FISCAL EFFECT : FTB estimates that this bill would reduce
revenues by $10,000 in both FY 2010-11 and FY 2011-12. FTB
notes, "The revenue impact of this bill is dependent on the
extent taxpayers would realize a reduction in taxable interest
income as a result of depositing a refund into a QTP account
rather than a taxable interest-bearing account."
COMMENTS :
1)The author states, "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."
2)Supporters state, "Offering an easy-to-use means for
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depositing tax refunds directly into qualified tuition program
accounts makes saving for college more convenient. Adding a
direct deposit option to California's state tax forms will not
only make it easier for existing account holders to deposit
their tax refund but also make every filer aware of qualified
tuition programs, like ScholarShare, California's 529 college
savings plan."
3)FTB notes the following in its staff analysis of this bill:
a) "Because reimbursement for costs is required to be
implemented through an interagency agreement, the costs to
the department would be billed in arrears after the close
of the fiscal year. This would make it unfeasible for the
Scholarshare Investment Board to make the payment within
the same fiscal year, although it could be applied/accrued
to the same fiscal year when received after the payment is
remitted. It is recommended that the language be amended
to allow the payments to be applied to the same fiscal year
that the costs are incurred to accommodate the billing
process of the interagency agreements."
b) "Additionally, while the bill would provide
reimbursement to the department for the costs incurred to
implement and maintain its provisions, recent staff layoffs
have impacted the department's ability to perform the work
that would be needed to implement this bill. Additional
position authority is needed to implement the system
changes that would be required by this bill without
impacting the tax administration workloads the department
is charged to administer." FTB has provided proposed
amendment language to this end.
4)Committee Staff Comments:
a) Additional position authority : While Committee staff is
cognizant of the impact recent staff layoffs have had at
FTB, it seems highly irregular to request additional
position authority in the text of a bill. It is Committee
staff's understanding that such authority is normally
sought through a Budget Change Proposal. Nevertheless, FTB
notes, "Failure to add this language through the
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legislative process would require the department to seek
that authority through the normal budgetary process, which
would delay the implementation of this bill's provisions
until that authority can be secured."
b) Why $475,000? : This bill provides that the total costs
reimbursed by the Board shall not exceed $475,000. FTB, in
turn, has estimated that it would incur one-time costs of
approximately $373,000, with ongoing costs of $51,000
annually to implement this bill. Ostensibly, this means
that FTB's cost recovery would be limited to its
anticipated one-time costs and two years of ongoing costs.
c) Proposed technical amendment : As noted above, this bill
specifies that the designation shall be limited to one QTP.
Committee staff recommends amending this bill to clarify
that the designation shall be limited to one QTP per
return .
d) Related legislation : SB 918 (Oropeza), introduced in
the 2007-08 Legislative Session, would have also allowed
taxpayers to direct any amount in excess of their tax
liability to a QTP account. SB 918 passed out of this
Committee on a vote of 6-3, but was held in the Assembly
Appropriations Committee.
REGISTERED SUPPORT / OPPOSITION :
Support
Association of Independent California Colleges and Universities
California Catholic Conference
California State Treasurer Bill Lockyer
City and County of San Francisco
Los Angeles Area Chamber of Commerce
New Economics for Women
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098