BILL ANALYSIS �
AB 2625
Page 1
Date of Hearing: May 16, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 2625 (Solorio) - As Amended: May 1, 2012
Policy Committee: Revenue and
Taxation Vote: 5-2
Urgency: No State Mandated Local Program:
No Reimbursable:
SUMMARY
This bill allows an individual taxpayer to designate on their
tax return, 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 programs (QTP) under Internal Revenue Code (IRC) Section
529. Specifically, this bill:
1)Requires the Scholarshare Investment Board to include
information regarding the direct deposit program on its
internet website and in its marketing materials.
2)Requires the FTB to revise the individual tax forms with
specified information for taxpayers on QTPs.
FISCAL EFFECT
This bill will require significant processing changes for FTB.
The estimated administrative costs are approximately $250,000.
COMMENTS
1)Purpose. The author states a 529 college savings plan is an
investment vehicle for future higher education expenses. The
author notes specialized tax-advantaged plans have significant
advantages, earnings on investments grow tax-deferred,
disbursements are exempt from federal and state income taxes
and the money from a these plans can be used for tuition,
fees, books, supplies and equipment required for study at
accredited higher education institutions. According to the
author, AB 2625 would allow taxpayers to designate on their
AB 2625
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personal income tax return an amount in excess of tax
liability to be deposited directly into a 529 savings account.
Additionally, the FTB would be required to create and respond
to requests on tax returns for further information about 529
plans. The author states the taxpayer would then be sent
information about plan providers throughout the state and the
benefits of using a 529 savings plan.
2)Background. Existing law 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.
3)FTB concerns . The FTB notes they lack authority to dictate to
software vendors that their software contain 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.
4)Relevant legislation .
a) AB 2578 (Solorio) requires the FTB to include
information on its 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.
b) AB 1175 (Fletcher) of 2011 requires FTB to include
information in the personal income tax instructions about a
taxpayer's ability to directly deposit a portion of a
refund into the SQTP. This bill is in the Senate
Governance and Finance Committee.
5)Previous legislation .
a) SB 323 (Oropeza), 2009, allowed taxpayers to deposit
part of their refund in a QTP. SB 323 was held on this
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committee's Suspense File.
b) SB 918 (Oropeza), 2007, allowed taxpayers to deposit
part of their refund in a QTP. SB 918 was held on this
committee's Suspense File.
c) AB 2437 (Baca), 2006, allowed taxpayers to deposit part
of their refund in a QTP. AB 2437 failed in passage in
Assembly Revenue and Taxation Committee.
6)There is no registered opposition to this bill .
Analysis Prepared by : Roger Dunstan / APPR. / (916) 319-2081