BILL ANALYSIS Ó
Senate Appropriations Committee Fiscal Summary
Senator Kevin de León, Chair
SB 284 (de León) - Income Taxes: Credits: Contribution to
Education Funds
Amended: April 30, 2013 Policy Vote: G&F 7-0
Urgency: No Mandate: No
Hearing Date: May 23, 2013 Consultant: Robert Ingenito
SUSPENSE FILE.
Bill Summary: SB 284 would establish a tax credit under Personal
Income Tax Law and Corporation Tax Law for contributions made to
a special fund for the purposes of providing Cal Grants.
Fiscal Impact:
Estimated revenue losses of $190 million in 2013-14,
$360 million in 2014-15, and $330 million in 2015-16
(General Fund).
Estimated revenue gains of $750 million in 2014, $700
million in 2015, and $600 million in 2016 (deposited in the
College Access Tax Credit Fund, CATCF, created by this
bill).
Costs to the California Educational Facilities Authority
(CEFA) in the range of $900,000 to $1.6 million over three
to administer the certification of tax credits for
contributions.
Unknown administrative costs to FTB related to changes
in tax forms and instructions. Specifically, the bill would
impact the department's printing, processing and storage
costs for tax returns. The amount of the increase would
likely exceed $50,000 (General Fund).
The net gain from the above four factors, in the
hundreds of millions of dollars, would be applied to
CalGrants.
Background: Existing state and federal laws provide various tax
credits designed to provide tax relief for taxpayers who incur
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certain expenses (child adoption, for example) or to influence
behavior, including business practices and decisions (research
credits or economic development area hiring credits, for
example). These credits are designed to provide incentives for
taxpayers to perform various actions or activities that they may
not otherwise undertake. Currently, neither federal nor state
law provides a credit for contributions to a special education
fund.
Existing federal and state laws allow individuals to deduct
certain expenses, such as medical expenses, charitable
contributions, interest, and taxes, as itemized deductions. For
example, if a taxpayer making $100,000 annually makes a $100
contribution to UCLA, he or she would receive a state deduction
for the amount that reduces income subject to the tax at the 9.3
percent rate for the state and a federal deduction of about 35
percent representing the state and federal tax rates.
Therefore, the taxpayer would receive about $10 from the state
and about $30 from the federal government so the total out of
pocket expense is about $60, thus creating a charitable giving
incentive for taxpayers. Current federal and state law allows a
corporation and S-corporation to deduct charitable contributions
up to 10 percent of its net income. Contributions in excess of
10 percent may be carried over to five succeeding taxable years.
A recent Internal Revenue Service (IRS) Chief Counsel Memo
unequivocally states that any contribution to a state agency is
deductible for federal purposes on federal tax returns.
CEFA, within the State Treasurer's Office (STO) has a mission to
provide students with better access and broader opportunities in
higher education by providing qualified non-profit higher
education institutions with the assistance needed to reduce
their capital costs of financing academic related facilities
through a tax-exempt revenue bond program.
The Cal Grant B High School Entitlement Program provides funds
to eligible low-income high school graduates who have at least a
2.0 GPA on a four-point scale and apply within one year of
graduation. The award provides up to $1,551 for books and
living expenses for the first year and each year following for
up to four years (or equivalent of four full-time years). After
the first year, the award also provides tuition fee funding at
qualifying postsecondary institutions.
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Proposed Law: SB 284 would, for taxable years 2014 through 2016,
allow taxpayers, upon receipt of CEFA certification, to receive
a tax credit for a specified percentage of cash contributions
made to CATCF. The tax credit would be equal to the following
amounts:
60 percent of the amount contributed to that fund during
the 2014 taxable year, as allocated and certified by the
STO.
55 percent of the amount contributed to that fund during
the 2015 taxable year, as allocated and certified by the
STO.
50 percent of the amount contributed to that fund during
the 2016 taxable year, as allocated and certified by the
STO.
The aggregate amount of credit allowable in each taxable year
would be a maximum of $500 million. Any credits allocated to a
taxpayer, but not used in the taxable year may be carried
forward for six years.
CEFA would be required to all of the following:
Allocate and certify the income tax credit to personal and
corporate taxpayers from January 1, 2014 to December 31,
2016.
Establish a procedure for taxpayers to contribute to the
fund and obtain certification for the credit.
Provide to the Franchise Tax Board (FTB) a copy of each
credit certificate issued by March 1st of the calendar year
immediately following the year of issue.
The bill would preclude any deductions for amounts taken
into account in the calculation of the credit.
This bill would require CEFA establish procedures for taxpayers
to contribute to CATCF and obtain a certification for the
credit, which would be provided to FTB. CEFA would notify the
taxpayer of the amount that is eligible for a credit within
seven days of receiving a contribution. If the credit is
limited or denied because the bill's annual cap has been
reached, CEFA would offer the taxpayer the option of either
receiving a certification for the next taxable year, if
available, or returning the contribution. Credits would only be
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allocated and certified through the 2016 taxable year, and the
bill's provisions would be repealed on December 1, 2017.
All revenue contributed to CATCF would be allocated to the
Student Aid Commission, upon appropriation by the Legislature,
for purposes of awarding Cal Grants pursuant to the provisions
enacted by SB 285 (De León), a companion measure to this bill.
SB 285 will also be heard in this Committee on May 13, 2013.
Related Legislation: SB 1356 (de León), similar to this bill,
would have created an income tax credit for cash contributions
made to an education special fund with an aggregate cap of $100
million per calendar year. SB 1356 was held in the Assembly
Appropriations Committee.
Staff Comments: SB 284 encourages taxpayers to contribute to the
state's Cal Grant program through a generous tax credit against
contributions. Depending on the credit amount available in each
of the years in which it is available, and depending on how a
taxpayer files taxes and the tax bracket that applies, a
taxpayer could receive close to 90 percent of his or her
donation back in state tax credits and federal tax deductions
combined. For example, if a taxpayer subject to the Federal
Alternative Minimum Tax (AMT) donates $1,000 to the CATCF in
2014, he or she would receive a $600 state tax credit. The
taxpayer would also receive a federal tax deduction for the
$1,000 contribution, reducing federal tax liability by $280
(assuming a 28% marginal rate). AMT filers are not eligible for
state tax deductions related to charitable contributions. On
balance, the taxpayer would receive $880 in reduced tax
liability for a $1,000 contribution, and only be out of pocket a
net $120. The tax benefit related to this bill could result in
reduced contributions directly to education institutions, such
as the University of California and others, and could result in
decreased charitable giving to other causes. As such, this
credit could result in a redirection of charitable giving,
rather than providing "new" money for Cal Grants.