Senate Bill No. 1437

Introduced by Senator Moorlach

(Coauthor: Senator Huff)

(Coauthors: Assembly Members Baker and Lackey)

February 19, 2016

An act to amend Section 17072 of, and to add and repeal Sections 17208 and 17208.2 of, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.

LEGISLATIVE COUNSEL’S DIGEST

SB 1437, as introduced, Moorlach. Personal income taxes: deductions: education expenses: education savings accounts.

The Personal Income Tax Law, in modified conformity with federal income tax laws, allows various deductions from gross income in computing adjusted gross income under that law, including deductions for payments to individual retirement accounts, alimony payments, and interest on educational loans.

This bill, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, would allow a deduction in computing adjusted gross income for those amounts contributed to a Coverdell education savings account, up to $750 per taxable year, as provided. The bill, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, would also allow a deduction in computing adjusted gross income, not to exceed $2,500, for the cost of education-related expenses of the taxpayer’s dependent child or children attending public or private school, as specified.

This bill would take effect immediately as a tax levy.

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: no.

The people of the State of California do enact as follows:

SECTION 1.  

The Legislature finds and declares all of the
following:

(a) While ensuring that quality education for all of California’s
schoolchildren is a shared responsibility of the general public, it
is foremost the duty of individual parents.

(b) Providing tax relief for citizens who shoulder an extra weight
in pursuit of the common good has long been considered sound
public policy.

(c) Every school year, kindergarten and grades 1 to 12, inclusive,
parents across California pay at their own expense to obtain vital
educational resources and services that are essential to those
children entrusted to their parents’ care.

(d) Financial pressures weighing upon California families have
also made it difficult to ensure for their children a quality
elementary and secondary education while at the same time
generating funds for college.

(e) State education tax relief can help empower and engage low-
and middle-income families in personally caring for their own
schoolchildren’s kindergarten through high school learning needs
and generate funds for college.

SEC. 2.  

Section 17072 of the Revenue and Taxation Code is
amended to read:

17072.  

(a) Section 62 of the Internal Revenue Code, relating
to adjusted gross income defined, shall apply, except as otherwise
provided.

(b) Section 62(a)(2)(D) of the Internal Revenue Code, relating
to certain expenses of elementary and secondary school teachers,
shall not apply.

(c) Section 62(a)(21) of the Internal Revenue Code, relating to
attorneys fees relating to awards to whistleblowers, shall not apply.

begin insert

(d) Section 62(a) of the Internal Revenue Code is modified to
provide that the deduction under Section 17208 shall be allowed
in determining adjusted gross income.

end insert begin insert

(e) Section 62(a) of the Internal Revenue Code is modified to
provide that the deduction under Section 17208.2 shall be allowed
in determining adjusted gross income.

end insert

SEC. 3.  

Section 17208 is added to the Revenue and Taxation
Code, to read:

17208.  

(a) Notwithstanding any other provision of this part
or Part 11 (commencing with Section 23001) to the contrary, for
each taxable year beginning on or after January 1, 2016, and before
January 1, 2021, a deduction shall be allowed for an amount
contributed by a taxpayer during the taxable year to a Coverdell
education savings account, not to exceed seven hundred fifty
dollars ($750) per taxable year, except as otherwise provided in
this section.

(b) For purposes of this section, “Coverdell education savings
account” shall have the same meaning as that term is defined by
Section 530 of the Internal Revenue Code, as modified by Section
23712.

(c) For purposes of applying Section 530 of the Internal Revenue
Code, relating to Coverdell education savings accounts, the basis
of the Coverdell education savings account shall be reduced by
any amount deducted pursuant to this section.

(d) This section shall be repealed on December 1, 2021.

SEC. 4.  

Section 17208.2 is added to the Revenue and Taxation
Code, to read:

17208.2.  

(a) For each taxable year beginning on or after
January 1, 2016, and before January 1, 2021, there shall be allowed
as a deduction an amount equal to the qualified amount that was
paid or incurred for qualified education-related expenses for one
or more dependent children by a qualified taxpayer during the
taxable year.

(b) For the purposes of this section, the following definitions
shall apply:

(1) “Dependent children” means one or more children, as defined
in Section 152(f)(1) of the Internal Revenue Code, relating to child
defined, who meet all of the following requirements:

(A) Attend kindergarten or any of grades 1 to 12, inclusive, in
California at a public, charter, or private school that has a current
private school affidavit on file with the State Department of
Education in the taxable year.

(B) Are deemed a full-time pupil in accordance with the
compulsory education requirements of Sections 48200 or 48222
of the Education Code.

(C) Are under 21 years of age at the end of the school year.

(D) Meet the requirements of Section 152(c)(1)(D) and (E) of
the Internal Revenue Code.

(E) Are claimed as the dependent children on the original, timely
filed return of the qualified taxpayer.

(2) “Qualified amount” means the amount paid or incurred for
qualified education-related expenses, not to exceed the amount
specified in subdivision (c).

(3) (A) “Qualified education-related expenses” means the
kindergarten or any of grades 1 to 12, inclusive, costs of any of
the following: the rental or purchase of educational equipment
required for classes during the regular school day; computers,
computer hardware, and educational computer software used to
learn academic subjects; fees for college courses at public
institutions or independent nonprofit colleges, or for summer school
courses that satisfy high school graduation requirements;
psychoeducational diagnostic evaluations to assess the cognitive
and academic abilities of dependent children; special education
and related services for dependent children who have an
individualized education program or its equivalent; out-of-school
enrichment programs, tutoring, and summer programs that are
academic in nature; and public transportation or third-party
transportation expenses for traveling directly to and from school.

(B) “Qualified education-related expenses” shall not include
any expenses for the items described in subparagraph (A) that also
are used in a trade or business.

(4) “Qualified taxpayer” means a parent or legal guardian of
one or more dependent children who meet all of the following
requirements:

(A) Both the dependent children and the parent or guardian
reside in California when the qualified education-related expenses
are paid or incurred.

(B) (i) The household income does not exceed 250 percent of
the federal Income Eligibility Guidelines published by the Food
and Nutrition Service of the United States Department of
Agriculture for use in determining eligibility for reduced price
meals.

(ii) “Household income” means adjusted gross income as defined
in Section 62 of the Internal Revenue Code.

(c) The total deduction allowed under this section to a qualified
taxpayer shall not exceed two thousand five hundred dollars
($2,500) in a taxable year. If more than one qualified taxpayer may
be allowed this deduction for dependent children, including a
qualified taxpayer filing a joint return, the sum of all deductions
allowed under this section for those dependent children shall not
exceed two thousand five hundred dollars ($2,500) in a taxable
year.

(d) (1) The Franchise Tax Board may prescribe rules, standards,
criteria, guidelines, procedures, determinations, or notices
necessary or appropriate to carry out the purposes of this section.

(2) The Administrative Procedure Act (Chapter 3.5
(commencing with Section 11340) of Part 1 of Division 3 of Title
2 of the Government Code) shall not apply to any rule, standard,
criterion, guideline, procedure, determination, or notice established
or issued by the Franchise Tax Board pursuant to this section.

(e) This section shall be repealed on December 1, 2021.

SEC. 5.  

This act provides for a tax levy within the meaning of
Article IV of the Constitution and shall go into immediate effect.