BILL ANALYSIS �
SENATE GOVERNANCE & FINANCE COMMITTEE
Senator Lois Wolk, Chair
BILL NO: AB 2625 HEARING: 6/20/12
AUTHOR: Solorio FISCAL: Yes
VERSION: 5/1/12 TAX LEVY: No
CONSULTANT: Phan
GOLDEN STATE SCHOLARSHARE TRUST
Requires the FTB to revise its tax forms to include
information about ScholarShare.
Background and Existing Law
Federal and state governments provide tax incentives and
subsidies for certain types of savings plans. Under
federal law, Section 529 of the Internal Revenue Code
provides tax-exempt status to "qualified tuition programs"
(QTPs), commonly referred to as "529 Savings Plans". QTPs
are programs established and maintained by a state, an
agency, or an eligible educational institution to purchase
tuition credits or make cash contributions on behalf of
designated beneficiaries. Although contributions made to
QTPs are not tax deductible, any contributions and earnings
used to pay for qualified higher education expenses are
federal income tax-free. Different states and
organizations offer different 529 Savings Plan options.
California's 529 Savings Plan is the Golden State
ScholarShare Savings Trust (ScholarShare). Anyone may open
an account. Funds in the account may be used at eligible
schools nationwide for a variety of qualified expenses,
including tuition, books, supplies, equipment, room and
board, and expenses for special needs students.
ScholarShare offers account holders 19 investment portfolio
options. Consistent with the federal program, all
interests earned from these investments and distributions
spent on qualified expenses are state income tax-free.
When a taxpayer's tax return is more than the tax owed, the
excess amount is refunded to the taxpayer. The Franchise
Tax Board (FTB) allows taxpayers two direct deposit
options:
Split the refund with direct deposits into two
AB 2625 -- 5/1/12 -- Page 2
checking and/or savings account, including a 529
Savings Plan account, or
Direct deposit the refund into one checking or
savings account, including a 529 Savings Plan account.
The direct deposit box is generic and does not encourage
deposit into any specific type of account. Taxpayers fill
in the correct routing and account number of the account
they wish to deposit the refund. Besides direct deposits,
the FTB administers the Individual Voluntary Contributions
program. This program allows taxpayers to directly donate
their tax refunds to certain causes, such as the California
Cancer Research Fund and the Emergency Food for Families
Fund.
Proposed Law
Assembly Bill 2625 has three components:
I. AB 2625 requires the FTB to create space in its tax
forms for taxpayers to directly deposit their tax refund
into a QTP account. The form must provide space for
taxpayers to provide certain necessary information,
including, but not limited to, the amount of deposit and
the QTP account's routing and account number. The
designation must be in full dollar amounts and more than
$1. If the payments on a tax return are not enough to
cover both the tax liability and the amount designated for
the QTP, the tax return is treated as though the
designation was not made. These provisions will sunset on
January 1, 2020.
If a taxpayer designates a contribution to a voluntary
contribution fund and a deposit to a QTP, and the refund is
less than the total amount designated, the refund is
divided among the designees on a pro rata basis.
II. AB 2625 requires the FTB to include on its taxpayer
return form near the voluntary contribution section an
informational sentence and a checkbox that allows a
taxpayer to request information specifically about
California's ScholarShare program.
When taxpayers request information about ScholarShare on
their tax form, the FTB may provide their names and
AB 2625 -- 5/1/12 -- Page 3
addresses to ScholarShare so that they may receive
information about the program. ScholarShare is prohibited
from disclosing or using taxpayers' information for any
other purpose. The FTB may occasionally review how
ScholarShare uses the information that the FTB provides,
and the FTB must report all findings to ScholarShare .
III. The bill requires ScholarShare and the FTB to provide
information about a taxpayer's option to directly deposit
refunds into any 529 Savings Plan on their websites and
marketing materials.
State Revenue Impact
No estimate.
Comments
1. Purpose of the bill . College tuition continues to
climb each year, becoming an ever bigger financial burden
on students and their families. A 529 Savings Plan
encourages students and their families to save for future
higher education expenses by giving a tax exemption on
interests earned and distributions spent on qualified
expenses from the account. Taxpayers may not know or think
about the option of depositing their refunds into a QTP.
AB 2625 encourages more people to save in a QTP by
requiring the FTB to provide space on their tax forms for
taxpayers to designate tax refunds into a specific QTP
account. The designated space reminds taxpayers of the
option and increases the convenience of making a deposit
into a QTP account. AB 2625 also allows taxpayers to
request information about ScholarShare, California's 529
Savings Plan, on their tax form. Taxpayers who wish to
learn more about the program can easily check a box to
receive more information, which will increase enrollment
and raise awareness about the savings program. The FTB's
tax forms can reach a broad base of people to inform them
about this savings program, apply for an account, and save.
The FTB and ScholarShare are also required to provide
information about QTP direct deposits on their websites,
further increasing people's awareness about their ability
to save for educational expenses with a QTP. Currently, 25
AB 2625 -- 5/1/12 -- Page 4
other states have some form of direct contributions into a
529 Savings Plan on their respective state income tax
returns.
2. Educate me . AB 2625 addresses a lack of awareness
about the Scholarshare program. Requiring the FTB to
provide information of interested taxpayers to Scholarshare
raises the following concerns:
There is little nexus between the FTB and
ScholarShare's purposes. Is the FTB, a tax collection
agency, the best medium to publicize about savings
options for higher education? Would this set
precedence for the FTB to provide information about
other programs as well?
The bill does not stipulate what ScholarShare must
do once it receives taxpayers' information from the
FTB. Under the current bill, Scholarshare doesn't
have to do anything with the information. If
ScholarShare uses the information to send marketing
materials, what kinds of marketing materials should
ScholarShare send, and what disclosure rules would
ScholarShare be subject to?
Many kinds of savings accounts exist, such as a
commercial bank's savings account, 401(k) account,
Individual Retirement Account (IRA), and other 529
Savings Plans. This policy gives the ScholarShare
program an advantage over other types of saving plans
that may be less known but are better options for the
taxpayer.
Under AB 2625, the FTB may periodically review how
ScholarShare uses the information that the FTB
provides it, and must report its findings to
ScholarShare. If the FTB reports misconducts of an
organization to the same organization, there is no
outside authority to ensure that the misconduct is
corrected.
AB 2625 currently does not have a sunset for this
provision.
The author may encourage more people to open a Scholarshare
account and save through other educational methods, instead
of using the FTB tax forms, and this provision of the bill
raises many implementation concerns. The Committee may
wish to consider deleting the second component of the bill
that requires the FTB to add a checkbox about Scholarshare
and provide Scholarshare with the contact information of
interested taxpayers.
AB 2625 -- 5/1/12 -- Page 5
3. Cost of awareness . Taxpayers can already directly
deposit their refunds into a QTP on the tax form. AB 2625
requires the FTB to create a new space solely for direct
deposits into a QTP account. AB 2625 also requires the FTB
to create a checkbox and include a sentence for people to
indicate they want to receive more information about
ScholarShare. The FTB must redesign and reprint new tax
forms, forms that many people think already are too long,
and will cost the FTB about $150,000 to issue. The
Committee may wish to consider whether requiring the FTB to
change its forms is worth the cost.
4. Related legislation . AB 2578 (Solorio, 2012) requires
the FTB to provide information about a variety of saving
plans on its web site and distributive materials. It is
currently held on suspense in the Assembly Appropriations
Committee.
AB 1175 (Fletcher, 2012) requires the FTB to revise the
personal income tax instructions to inform a taxpayer that
they can request a direct deposit of a refund into an
existing ScholarShare account. This bill is in the Senate
Governance and Finance Committee.
SB 323 (Oropeza, 2009) requires the FTB to revise the tax
return form to include a separate space for a taxpayer to
designate a direct deposit to a 529 Savings Plan. This
bill was held on suspense in the Assembly Appropriations
Committee.
SB 918 (Oropeza, 2008) allows taxpayers to direct their tax
refund to a QTP account. This bill was held on suspense in
the Assembly Appropriations Committee.
AB 2437 (Baca, 2006) allows taxpayers to designate a
minimum amount of $250 to be deposited into a taxpayer's
QTP account. This bill failed to pass out of the Assembly
Revenue & Taxation Committee.
Assembly Actions
Assembly Revenue and Taxation 5-2
Assembly Appropriations 12-5
Assembly Floor 49-27
AB 2625 -- 5/1/12 -- Page 6
Support and Opposition (6/14/12)
Support : Bill Lockyer, California State Treasurer.
Opposition : Unknown.