BILL ANALYSIS Ó
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|SENATE RULES COMMITTEE | SB 1356|
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THIRD READING
Bill No: SB 1356
Author: De León (D)
Amended: 5/29/12
Vote: 21
SENATE GOVERNANCE & FINANCE COMMITTEE : 8-1, 4/25/12
AYES: Wolk, DeSaulnier, Fuller, Hancock, Hernandez, Kehoe,
La Malfa, Liu
NOES: Dutton
SENATE APPROPRIATIONS COMMITTEE : 7-0, 5/24/12
AYES: Kehoe, Walters, Alquist, Dutton, Lieu, Price,
Steinberg
SUBJECT : Income taxes: credits: contributions to
education funds
SOURCE : Author
DIGEST : This bill enacts the Higher Education Investment
Tax Credit (HEITC) Program, allowing a tax credit for a
percentage of contributions to the state to fund Cal Grant
Awards to students.
ANALYSIS : Existing state and federal laws provide
various tax credits designed to provide tax relief for
taxpayers who incur certain expenses (child adoption, for
example) or to influence behavior, including business
practices and decisions (research credits or economic
development area hiring credits, for example). These
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credits are designed to provide incentives for taxpayers to
perform various actions or activities that they may not
otherwise undertake. Currently, neither federal nor state
law provides a credit for contributions to a special
education fund.
Existing federal and state laws allow individuals to deduct
certain expenses, such as medical expenses, charitable
contributions, interest, and taxes, as itemized deductions.
For example, if a taxpayer making $100,000 annually makes
a $100 contribution to UCLA, he or she would receive a
state deduction for the amount that reduces income subject
to the tax at the 9.3 percent rate for the state and a
federal deduction of about 35 percent representing the
state and federal tax rates. Therefore, the taxpayer would
receive about $10 from the state and about $30 from the
federal government so the total out of pocket expense is
about $60, thus creating a charitable giving incentive for
taxpayers. Current federal and state law allows a
corporation and S-corporation to deduct charitable
contributions up to 10 percent of its net income.
Contributions in excess of 10 percent may be carried over
to five succeeding taxable years.
This bill establishes the HEITC Program Special Fund and
provides a tax credit equal to the following amounts:
60 percent of the amount contributed to that fund during
the 2013 taxable year, as allocated and certified by the
State Treasurer's Office (STO).
55 percent of the amount contributed to that fund during
the 2014 taxable year, as allocated and certified by the
STO.
50 percent of the amount contributed to that fund during
the 2015 taxable year, as allocated and certified by the
STO.
The aggregate amount of credit allowable in each taxable
year would be a maximum of $100 million. Any credits
allocated to a taxpayer, but not used in the taxable year
may be carried forward for six years.
This bill requires the STO to establish procedures for
taxpayers to contribute to the HEITC Program Special Fund
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and obtain a certification for the credit, which would be
provided to the Franchise Tax Board (FTB). The STO would
notify the taxpayer of the amount that is eligible for a
credit within seven days of receiving a contribution. If
the credit is limited or denied because the $500 million
annual cap has been reached, the STO would offer the
taxpayer the option of either receiving a certification for
the next taxable year, if available, or returning the
contribution. Credits would only be allocated and
certified through the 2015 taxable year, and the bill's
provisions would be repealed on December 31, 2016.
All revenue contributed to the HEITC Program Special Fund
shall be allocated first to the general fund then allocated
to the FTB, STO, the Controller and the Student Aid
Commission to recover administrative costs incurred in
connection to this bill and then to the Student Aid
commission for purposes of awarding Cal Grants pursuant to
the provisions enacted by SB 1466 (De Leon), a companion
measure to this bill.
Related Legislation
The provisions of this bill are contingent upon the
enactment of SB 1466 (De Leon) which would expand
eligibility for a Cal Grant beginning in the 2014-15
academic year and provide that HEITC funding would be used,
until exhausted, to fund grants for qualifying students
whose household income does not exceed $150,000, subject to
specified funding prioritization.
Comments
This bill encourages taxpayers to contribute to the state's
Cal Grant program through a generous tax credit against
contributions. Depending on the credit amount available in
each of the years in which it is available, and depending
on how a taxpayer files taxes and the tax bracket that
applies, a taxpayer could receive close to 90 percent of
his or her donation back in state tax credits and federal
tax deductions combined. For example, if a taxpayer
subject to the Federal Alternative Minimum Tax donates
$1,000 to the HEITC Fund in 2013, he or she would receive a
$600 state tax credit. The taxpayer would also receive a
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federal tax deduction for the $1,000 contribution, reducing
federal tax liability by $280 (assuming a 28 percent
marginal rate). The Federal Alternative Minimum Tax filers
are not eligible for state tax deductions related to
charitable contributions. On balance, the taxpayer would
receive $880 in reduced tax liability for a $1,000
contribution, and only be out of pocket a net $120.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee, on the
prior version of the bill, estimated tax revenue losses of
$190 million in 2012-13, $380 million in 2013-14, and $350
million in 2014-15 (General Fund).
According to the author's office, "Rough numbers are that
the bill would generate $167 million and $100 million would
be given back in credits. Then the $67 Million would have a
year to earn interest before the money is given to the
Student Aid Commission."
SUPPORT : (Verified 5/29/12)
California Catholic Conference
California College Democrats
Community College League of California
University of California Students Association
AGB:nl 5/29/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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