BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: SB 693 HEARING: 5/8/13
AUTHOR: Correa FISCAL: Yes
VERSION: 4/11/13 TAX LEVY: Yes
CONSULTANT: Grinnell
INCOME TAXES: CREDITS: SCHOOL EXPENSES
Enacts tax credits for education expenses: one for teachers
and another for low-income parents and guardians.
Background and Existing Law
California provides various tax credits designed to provide
incentives for tax-payers that incur certain expenses, such
as child adoption, or to influence behavior, including
business practices and decisions, such as research and
development credits and Geographically Targeted Economic
Development Area credits. The Legislature typically enacts
such tax incentives to encourage taxpayers to do something,
but for the tax credit, they would not otherwise do.
California once allowed a teacher retention tax credit
teachers based upon the taxpayer's years of service as a
credentialed teacher (AB 2879, Jackson, 2009). However,
the Legislature only allowed the credit for 2000, 2001, and
2003 taxable years, suspended it in 2002, and 2004 through
2006, before eventually repealing it in 2007 (SB 87,
Committee on Budget). Teachers claimed $165 million in tax
credits in 2003.
Teachers may claim a deduction from income on their federal
income taxes of up to $250 for any unreimbursed expenses
paid or incurred for books, supplies, or computer equipment
used in the classroom.
Proposed Law
Senate Bill 693 enacts two credits for qualified education
expenses against the Personal Income Tax, one for teachers
and the other for low-income parents and guardians:
SB 693 - 4/11/13 -- Page 2
The low-income parent and guardian credit is equal
to 100% of expenses up to $250, $250 plus 25% of the
amount incurred between $250 and $1,250, or $500 for
expenses above $1,250. Expenses must be incurred for
textbooks and school supplies, as defined, which
cannot be used in a trade or business. Only
households where the pupil and parent or guardian both
reside in California can claim the credit, and must
have income under 300% of the federal income
eligibility for Supplemental Nutrition Assistance
Program, currently about $90,000 pre-tax for a family
of four. Private school tuition qualifies for the
credit. If the pupil resides with more than one
parent or guardian over the course of the year, then
the parent or guardian with the highest income gets
the credit.
The teacher tax credit is equal to the amount
incurred for instructional materials, up to $250 per
year. The bill defines educational expenses in a way
almost identical to the federal deduction. Only
teachers that work at least 900 hours in the school
year as a teacher, instructor, counselor, principal,
or aide in a school for kindergarten or any grades one
through 12, and only for the first three years of
employment.
Taxpayers may carry over both credits for four years.
Franchise Tax Board may make rules, guidelines, or
procedures necessary to implement the bill, but the bill
provides that the Administrative Procedures Act doesn't
apply to any rules FTB issues. The measure sunsets both
credits in 2019.
State Revenue Impact
According to Franchise Tax Board (FTB), SB 693 results in
revenue losses of $850 million in 2014-15 and 2015-16.
Comments
1. Purpose of the bill . According to the author, "Tax
relief for citizens who shoulder an extra weight in pursuit
of a public good has long been considered sound public
policy. SB 693 would allow low to middle-income parents an
SB 693 - 4/11/13 -- Page 3
individual tax credit for the K-12 educationally-related
expenses of their dependent children attending public or
private schools including: textbooks and school supplies,
uniforms, computer hardware and educational software,
tuition, diagnostic evaluations, tutoring, special
education services, academic after-school programs, and
transportation. In addition, SB 693 would also allow K-12
teachers in their first three years of consecutive service
at public and private schools to claim individual tax
credits for the out-of-pocket expenses of instructional
materials and classroom supplies. SB 693 would benefit all
children respectful of the public and private school they
attend, while giving greater support to those most in need.
This legislation would provide education tax relief that
engage parents as well as teachers to personally care for
their own school children's K-12 learning needs."
2. Tradeoffs . While providing tax credits for teachers
and families to assist with expenses associated with
educating the state's children, SB 693 will result in
revenue losses, which have to paid for with higher taxes on
others or reductions in services. The Committee may wish
to consider whether the foregone revenue resulting from SB
641's kind gesture to teachers and families is worth the
tradeoff of cuts in spending or taxes on other activities
that it necessitates.
3. Not so fast ? SB 693 isn't an explicit credit for all
parents of children in private school, but it does allow a
credit for private school tuition paid by income-eligible
persons. According to the National Conference on State
Legislatures, tuition tax credit programs are a growing
school choice option some states are exploring. As of
September 2012, 14 tuition tax credit programs exist in 11
states. These credits are not without controversy: private
schools are not governed by publicly-elected boards, and
subsidizing attendance at private religious schools raises
concerns regarding the separation between church and state.
Lastly, the National Education Association points out that
subsidizing students to move from public to private schools
harms school districts because they cannot reduce their
fixed facilities and transportation costs in proportion to
the number of students who leave. The Committee may wish
to consider deleting the bill's provisions allowing
taxpayers to claim credits for private school tuition.
SB 693 - 4/11/13 -- Page 4
4. Technicals . Committee staff and FTB recommend the
following technical amendments:
Require supplies be used in the classroom in order
to generate the credit,
Define "household," and "household income"
Remove the rule in the bill regarding which parent
or guardian should receive the credit if the pupil
resides with more than one as it conflicts with the
Internal Revenue Code and each parent or guardian may
not know the other's income.
Support and Opposition (05/02/13)
Support : California Catholic Conference, California
Association of Private School Organizations, California
State Firefighters Association, Orange Chamber of Commerce.
Opposition : California Teachers Association