BILL ANALYSIS Ó
AB 1175
Page 1
ASSEMBLY THIRD READING
AB 1175 (Fletcher)
As Amended May 4, 2011
Majority vote
REVENUE & TAXATION 9-0 APPROPRIATIONS 17-0
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|Ayes:|Perea, Donnelly, Beall, |Ayes:|Fuentes, Harkey, |
| |Charles Calderon, | |Blumenfield, Bradford, |
| |Cedillo, | |Charles Calderon, Campos, |
| |Alejo, Gordon, Harkey, | |Davis, Donnelly, Gatto, |
| |Nestande | |Hall, Hill, Lara, |
| | | |Mitchell, Nielsen, Smyth, |
| | | |Solorio, Wagner |
|-----+--------------------------+-----+--------------------------|
| | | | |
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SUMMARY : Requires the Franchise Tax Board (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). Specifically, this bill :
1)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.
2)Requires the FTB to revise the taxpayer form instructions in
the most cost-effective manner.
3)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
AB 1175
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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 : The author has provided the following statement in
support of this bill:
Research has shown that holding a college savings
account (e.g., 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.
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
sending 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.
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Committee Staff Comments:
1)This bill's purpose . Existing law already allows individual
taxpayers to designate a QTP for the deposit of their personal
income tax (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 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
weighed against the cost of revising the 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 in the instructions.
2)Related legislation :
SB 323 (Oropeza) of 2009 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 Appropriations Committee.
SB 918 (Oropeza) of 2007 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 Appropriations
Committee.
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AB 2437 (Baca) of 2005 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
the Assembly Revenue and Taxation Committee.
AB 2439 (Klehs), Chapter 90, Statues of 2006, requires the FTB
to revise PIT returns to allow taxpayers to designate more
than one financial institution account for direct deposit of
the taxpayer's refund.
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098
FN: 0000797