BILL ANALYSIS �
AB 2625
Page 1
Date of Hearing: April 23, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
AB 2625 (Solorio) - As Amended: April 9, 2012
VOTE ONLY
Majority vote. Fiscal committee.
SUBJECT : Golden State Scholarshare Trust: Franchise Tax Board:
returns
SUMMARY : Allows an individual to designate on his/her tax
return, that an amount in excess of their tax liability be
deposited by the Franchise Tax Board (FTB) into an individual's
Scholarshare Qualified Tuition Program (SQTP) or other Qualified
Tuition Program (QTP). Specifically, this bill :
1)Requires the Scholarshare Investment Board and the FTB to
include information regarding the direct deposit program on
their internet websites and in their marketing materials.
2)Requires the FTB to revise the individual tax forms to allow
taxpayers to request information regarding the SQTP under the
Golden State Scholarshare College Savings Trust (Trust)
Program and other QTPs.
3)Requires the request for information to be located on the tax
form near the voluntary contribution checkoffs and to include
the following written information:
a) "If you are interested in receiving information
regarding the Scholarshare qualified tuition program and
other qualified tuition programs and how to sign up for a
qualified tuition program, please check here."
4)Requires the FTB, with the Trust's assistance, to provide
taxpayers with the requested information regarding the SQTP
and other QTPs.
5)Allows an individual to designate on his/her personal income
tax (PIT) return that an amount, in excess of tax liability,
and of at least $1, shall be deposited into the individual's
SQTP or other QTP.
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6)Defines "qualified tuition program" by reference to Internal
Revenue Code (IRC) Section 529.
7)Specifies that if payments are not enough to cover both the
tax liability and the amount designated for the SQTP or a QTP,
the tax return shall be treated as though the designation had
not been made.
8)Provides that if a taxpayer makes a contribution to a
voluntary contribution fund, and designates an amount to the
SQTP or a QTP, and the amount in excess of tax liability is
less than the total amount designated, the amount in excess of
the tax liability shall be allocated among the designees on a
pro rata basis.
EXISTING LAW :
1)Requires the FTB to make a refund to a taxpayer of any
overpayment of taxes and allows taxpayers to contribute their
refunds for the support of specified funds or accounts.
2)Provides tax-exempt status to QTPs governed by IRC Section
529. QTPs are programs established and maintained by a state
(or by an eligible educational institution) under which a
person may 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 this bill will not impact the
state's General Fund revenues.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
A 529 college savings plan is an investment vehicle
designed to encourage taxpayers to save for the future
higher education expenses of a designated beneficiary. A
specialized tax-advantaged plan, where earnings on
investments grow tax-deferred and disbursements are federal
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and state tax-free, funds from a 529 plan can be used for
tuition, fees, books, supplies, and equipment required for
study at accredited higher education institutions.
Assembly Bill 2625 encourages taxpayers to save for the
future education expenses of their dependents.
Specifically, AB 2625 would allow taxpayers to designate on
their personal income tax return an amount in excess of tax
liability to be deposited directly into a 529 savings
account. Additionally, the Franchise Tax Board would be
required to create and respond to requests on tax returns
for further information about 529 plans. The taxpayer would
then be sent information about plan providers throughout
the state and the benefits of using a 529 savings plan.
2)Proponents of this bill have provided the following statement
in support:
As educational expenses continue to rise, it becomes
increasingly important that families engage in long-term
planning and saving for their children's education. To
help with this process, "529" savings plans have been
established in the Internal Revenue Code. This bill would
allow tax �refunds] to be deposited directly into qualified
529 plans and creates a "check off" on tax forms for
families to request further information about these plans.
This bill will not only encourage additional savings for
educational purposes but creates a simplified method for
families to get more information about these plans, which
can only lead to increased preparation for the high cost of
education.
3)The FTB notes the following implementation and technical
concerns in its staff analysis of this bill:
a) Although the FTB approves the versions of income tax
return forms used by tax preparation software companies,
the FTB lacks authority to dictate to software vendors that
their software contains options to require information
relating to SQTP or QTP accounts. Accordingly, the FTB is
unable to ensure that tax preparation software would
incorporate the changes to the tax returns that this bill
would require.
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b) Requiring the department to provide taxpayers with
information on the SQTP and other QTP�s] with the
assistance of the Golden State Scholarshare College Savings
Trust is an area that the department lacks experience. The
author may wish to amend the bill to allow for the
department to disclose the name(s) and mailing address for
individuals who are requesting the information on SQTP and
QTP to the Golden State Scholarshare College Savings Trust,
so they may provide the information directly and respond to
questions. Reimbursement for providing information is
normally provided to the FTB through an interagency
contract.
c) This bill lacks a sunset date. Sunset dates generally
are provided to allow periodic review of the effectiveness
of the bill by the Legislature.
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. This bill, however,
would require the FTB to revise the PIT returns to allow
taxpayers to explicitly designate contributions to a SQTP
or other QTP. This bill would also require the FTB to
revise the forms to allow taxpayers to request information
regarding the SQTP and other QTPs. Finally, this bill
would require the Scholarshare Investment Board to include
information regarding the direct deposit program on its
internet website and in its marketing materials.
Committee staff appreciates the goal of increasing college
savings opportunities. It is important to note, however,
that while this bill may increase awareness of the SQTP and
other QTPs, this bill will not enable an individual to
establish the SQTP or QTP. The explicit reference to these
college savings accounts on the tax returns could
conceivably incentivize filers to explore these plans as a
potential vehicle for college savings.
b) Should the FTB distribute SQTP and QTP information? :
This bill would require the FTB to distribute information
to individuals who request information. The author notes
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that, "the FTB would be required to create and respond to
requests on tax returns for further information about 529
plans." Committee staff questions whether it is sound to
establish precedent to require the FTB to distribute
information regarding a program administered by another
entity. Here, it appears it would be both administratively
and fiscally advantageous for the Trust to distribute
information regarding the SQTP and other QTPs.
c) Related legislation :
i) AB 2578 (Solorio), introduced in the 2011-12
legislative session, would require the FTB to include
information on its internet website, taxpayer form
instructions, and other publications, informing taxpayers
of their ability to directly deposit all or a portion of
their tax refund into an account under specified
tax-advantaged savings plans. This bill is pending in
this Committee.
ii) AB 1175 (Fletcher), introduced in the 2011-12
legislative session, would require the FTB to revise the
PIT instructions to include information about a
taxpayer's ability to directly deposit a portion of a
refund into the Trust. This bill is in the Senate
Governance and Finance Committee.
iii) SB 323 (Oropeza), introduced in 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.
iv) SB 918 (Oropeza), introduced in 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.
v) AB 2437 (Baca), introduced in the 2005-06
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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.
vi) AB 2439 (Klehs), Chapter 90, Statutes of 2006,
required 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.
REGISTERED SUPPORT / OPPOSITION :
Support
Financial Services Institute
Opposition
None on file
Analysis Prepared by : Rosailda Perez / M. David Ruff / REV. &
TAX. / (916) 319-2098