BILL ANALYSIS Ó
AB 1175
Page 1
Date of Hearing: May 2, 2011
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 1175 (Fletcher) - As Amended: April 15, 2011
Majority vote. Fiscal committee.
SUBJECT : Franchise Tax Board: refunds: direct deposit: 529
savings account
SUMMARY : Requires the Franchise Tax Board (FTB) to revise the
personal income tax (PIT) returns to allow taxpayers to
explicitly designate a 529 college savings account for direct
deposit of the taxpayer's refund. Specifically, this bill :
1)Requires the FTB to revise the form instructions to include
information about split refund options, including the ability
to directly deposit a portion of the taxpayer's refund into
the Golden State Scholarshare College Savings Trust
(Scholarshare Trust).
2)Requires the Scholarshare Investment Board to provide the FTB
with a description of the Scholarshare Trust on or before a
date specified by the FTB.
3)Requires the FTB to revise the returns and the taxpayer form
instructions in the most "cost-effective manner." For
purposes of the returns, "cost-effective manner" means, but is
not limited to, adding the 529 college savings account to the
return as an account type to which direct deposits can be
made.
4)Defines "Scholarshare Trust" by reference to Education Code
Section 69980(e).
EXISTING LAW :
1)Requires the FTB to refund any overpayment of taxes.
2)Provides tax-exempt status to qualified tuition programs
(QTPs) governed by Internal Revenue Code Section 529. QTPs
are programs established and maintained by a state (or by an
eligible educational institution) under which a person may
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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.
FISCAL EFFECT : The FTB estimates that this bill would not
impact income tax revenues.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
Research has shown that holding a college savings account
(e.g. a 529 account) makes it seven times more likely that
a child will attend college, regardless of income. Current
law allows holders of these accounts to designate that a
portion of their tax refund be directed into an existing
529 account. All that is needed is the account and routing
number of the 529 account. However, this option is not
stated in the state tax filing instruction and is not
commonly known. AB 1175 is a simple, low cost reform that
addresses this problem by highlighting the 529 account
funding option on state tax forms.
2)The New America Foundation (NAF) is sponsoring this bill.
Specifically, the NAF states:
Spikes in tuition outpace both inflation and income growth
making it increasingly difficult for low-income and
middle-income families to afford spending their kids to
college even after receiving financial aid. In 2009,
California had the 9th highest increase of tuition and fees
for public-four year colleges in the nation. As college
costs and fees continue to rise in California so does the
need to incentivize college savings opportunities. With
the cost of higher education rising at double the rate of
inflation, qualified tuition programs - known as 529
college savings plans - offer an advantageous way for
families to save for their Ýkids'] college education.
3)The FTB notes the following in its staff analysis of this
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bill:
a) "The present 540A, 540 2EZ, and 540NR Short Form have
limited space available for additional lines or boxes, and
this bill would increase the length of these forms from two
to three pages. As a result, this bill would impact the
department's printing, processing and storage costs for tax
returns. As the bill continues to move through the
legislative process, costs will be identified and an
appropriation will be requested, if necessary."
b) "By designating one specific type of savings account,
the Golden State Scholarshare 529 savings plan, on the
personal income tax returns, taxpayers could incorrectly
conclude they no longer have the ability to request all or
a part of their refund to other types of savings accounts,
such as a money market account, individual retirement
account, or brokerage account."
4)Committee Staff Comments:
a) This bill's purpose . Existing law already allows
individual taxpayers to designate a QTP for the deposit of
their PIT refund. To do so, taxpayers need only provide
their account and routing numbers. The author, however,
notes that this option is not widely known. Thus, this
bill would direct the FTB to revise the PIT returns to
allow taxpayers to explicitly designate a 529 college
savings account for direct deposit of the taxpayer's
refund. This bill would additionally require the FTB to
revise the form instructions to include information about
this option. NAF argues that, by promoting college
savings, this bill would increase access to higher
education in this state.
Committee staff appreciates fully the goal of increasing
college savings opportunities. It should be noted,
however, that this bill would not enable individuals to
establish a 529 college savings account. By making an
explicit reference to such accounts, however, this bill
could remind PIT filers with existing accounts of their
ability to deposit refund moneys into the account. An
explicit reference to 529 plans could also conceivably
incentivize filers to explore 529 plans as a potential
vehicle for college savings. These benefits must be
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weighed against the cost of revising the applicable PIT
returns and instructions. In addition, by highlighting 529
plans, this bill implicitly suggests that these savings
vehicles are preferable to other vehicles Ýsuch as 401(k)
plans] that theoretically could also be explicitly noted on
the returns.
b) Technical amendments :
i) On page 2, line 4, strike "filed," and insert
"filed";
ii) On page 2, line 18, strike "return" and insert
"returns";
iii) On page 2, line 19, strike "instruction" and insert
"instructions"; and,
iv) On page 2, line 20, strike "return," and insert
"returns,".
c) Related legislation :
i) SB 323 (Oropeza), of the 2009-10 Legislative
Session, would have allowed taxpayers to direct an amount
in excess of their tax liability to a QTP account. SB
323 would have additionally required the Scholarshare
Investment Board to reimburse the FTB for the actual
costs of implementation. SB 323 was held by the Assembly
Committee on Appropriations.
ii) SB 918 (Oropeza), of the 2007-08 Legislative
Session, would have allowed taxpayers to direct an amount
in excess of their tax liability to a QTP account. SB
918 was held by the Assembly Committee on Appropriations.
iii) AB 2437 (Baca), of the 2005-06 Legislative Session,
would have allowed taxpayers to designate a minimum
amount of $250 to be deposited to the credit of the
taxpayer's QTP. AB 2437 failed to pass out of this
Committee.
iv) AB 2439 (Klehs), Chapter 90, Statues of 2006,
required the FTB to revise PIT returns to allow taxpayers
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to designate more than one financial institution account
for direct deposit of the taxpayer's refund.
REGISTERED SUPPORT / OPPOSITION :
Support
New America Foundation (sponsor)
Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098