BILL ANALYSIS Ó
SB 1356
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Date of Hearing: July 2, 2012
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Henry T. Perea, Chair
SB 1356 (De Leon) - As Amended: June 21, 2012
Majority vote. Fiscal committee.
SENATE VOTE : 37-0
SUBJECT : Income taxes: credit: contributions to education
funds
SUMMARY : Allows a credit, for taxable years beginning on or
after January 1, 2013, and before January 1, 2016, based on the
taxpayer's contribution to a newly established Higher Education
Investment Tax Credit Program Special Fund (Special Fund), as
specified. Specifically, this bill :
1)Provides that the credit shall be equal to the following:
a) For taxable years beginning on and after January 1,
2013, and before January 1, 2014, 60% of the amount
contributed by the taxpayer during the 2013 taxable year to
the Special Fund, as allocated and certified by the
California Educational Facilities Authority (CEF
Authority);
b) For taxable years beginning on and after January 1,
2014, and before January 1, 2015, 55% of the amount
contributed by the taxpayer during the 2014 taxable year to
the Special Fund, as allocated and certified by the CEF
Authority; and,
c) For taxable years beginning on and after January 1,
2015, and before January 1, 2016, 50% of the amount
contributed by the taxpayer during the 2015 taxable year to
the Special Fund, as allocated and certified by the CEF
Authority.
2)Specifies that contributions shall be made only in cash.
3)Provides that the aggregate amount of credit that may be
allocated and certified shall not exceed $100 million for the
2013 calendar year and $100 million for each calendar year
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thereafter.
4)Requires the CEF Authority to do all of the following:
a) On or after January 1, 2013, and before January 1, 2016,
allocate and certify tax credits to taxpayers;
b) Establish a procedure for taxpayers to contribute to the
Special Fund and to obtain from the CEF Authority a
certification for the credit;
c) On or after January 1, 2013, and before January 1, 2015,
notify the taxpayer within seven days of receiving a
contribution, of the amount eligible for a credit. If the
allocation and certification would be limited or denied
because the $100 million annual cap has been reached, the
CEF Authority shall offer to either return the contribution
or provide a certification for the next taxable year;
d) On or after January 1, 2015, and before January 1, 2016,
notify the taxpayer within seven days of receiving a
contribution, of the amount eligible for a credit. If the
allocation and certification would be limited or denied
because the $100 million annual cap has been reached, the
CEF Authority shall offer to either return the entire
contribution or the portion that would be limited, as
applicable; and,
e) Provide to the Franchise Tax Board (FTB) a copy of each
credit certificate issued for the calendar year by March 1
of the calendar year immediately following the year in
which those certificates are issued.
5)Directs the CEF Authority to adopt any necessary implementing
regulations. Specifies that the Administrative Procedures Act
shall not apply to such regulations.
6)Provides that, in cases where the credit amount exceeds the
tax owed, the excess credit amount may be carried over to
reduce the tax liability in the following year, and the
succeeding five years if necessary, until the credit is
exhausted.
7)Prohibits a deduction for amounts taken into account in
calculating the credit.
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8)Establishes the Special Fund in the State Treasury.
9)Provides that all revenue in this Special Fund shall be
allocated as follows:
a) First, to the General Fund (GF) in an amount equal to
the amount of certified credits allowed for the taxable
year;
b) Second, revenues shall be allocated, upon appropriation
by the Legislature, to the:
i) FTB, the CEF Authority, the State Controller, and
the Student Aid Commission for reimbursement of all
administrative costs incurred in connection with their
duties under this bill, and Education Code Section
69432.75; and,
ii) To the Student Aid Commission for purposes of
awarding Cal Grants to students pursuant to Education
Code Section 69432.75.
10)Becomes operative only if SB 1466 (De Leon) of the 2011-12
legislative session is enacted and takes effect on or before
January 1, 2013.
11)Sunsets the credit provisions on December 1, 2016.
EXISTING LAW :
1)Allows various tax credits under both the Personal Income Tax
Law and the Corporation Tax Law. These credits are generally
designed to provide relief to taxpayers who incur specified
expenses or to encourage socially beneficial behavior,
including business practices.
2)Establishes the Cal Grant A and B Entitlement awards, the
California Community College Transfer Entitlement awards, the
Competitive Cal Grant A and B awards, the Cal Grant C awards,
and the Cal Grant T awards under the administration of the
Student Aid Commission, and establishes eligibility
requirements for awards under these programs for participating
students attending qualifying institutions.
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FISCAL EFFECT : The FTB estimates that this bill would reduce GF
revenues by $45 million in fiscal year (FY) 2012-13, by $90
million in FY 2013-14, and by $95 million in FY 2014-15.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
SB 1356 seeks to expand Cal Grants to middle-income
Californians through $100 Million in available tax credits
in the Higher Education Investment Tax Credit Fund, by
leveraging federal tax deductions for charitable
contributions. For decades we have been a donor state to
the Federal Government. We must be creative and work to
finally get back some money from Washington. We have a
Federal Ruling that says taxpayers can deduct these
donations on their Federal Returns.
This tax credit differs from most others in that the state
doesn't lose money to incentivize a behavior. Rather, the
taxpayer makes a contribution to the state and then a
credit is given.
Experts predict that this Tax Credit Fund will be fully
subscribed due to the high incentive to taxpayers. We need
to be innovative during this unprecedented budget crisis,
and use this money to help students so they can help boost
our economy. This bill is joined to SB 1466 which uses the
money in the fund to expand Cal Grants to middle-income
Californians. SB Ý1466] first prioritizes funding for the
students who were eligible to receive Cal Grants in the
2011-12 year and ensures the money in SB 1356 is first used
to maintain the 2011-12 eligibility criteria for new and
renewing students.
I took the Senate Governance and Finance Committee's
amendments to include a certification process for the tax
credits and also to reduce the time frame for the tax
credit program from 5 years to 3 years to allow for an
evaluation to ensure that the program is working as the
models have predicted. I also took their amendments to
tier the credit. The first year the credit would be for
60% , the second year the credit would be for 55% and the
final year the credit would be for 50% . Models indicate
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that it will take at least a year to get the fund fully
subscribed and so we need to offer greater Ýincentives] to
ensure success.
2)Proponents state:
By 2018, 63% of all jobs in the United States will require
some form of postsecondary education or training; the U.S.
is only on track to deliver a fraction of this education.
Currently, only 38% of America's young adults have a
college degree, compared to 58% in South Korea. During
this unprecedented budget crises, we need to be creative.
ÝThe] Higher Education Investment Tax Credit Fund would be
fully subscribed due to the high incentive to taxpayers.
For every dollar donated to the Fund, the first year, the
individual taxpayer or the corporate donor would receive
60-cents back from the state and 13-cents back from the
Federal Government. In the end, the taxpayer is only out
of pocket about 27 cents and California earns interest on
the consumer's 30-cent expenditure. California is a
so-called "donor state" only getting 78-cents back for
every dollar state taxpayers send to Washington. It's time
to leverage Federal dollars to help offset skyrocketing
college tuition.
3)The FTB has raised the following implementation concerns in
its staff analysis of this bill:
a) "It is unclear what percentage would apply to a credit
certified by the ÝCEF Agency] for the taxable year
subsequent to the year of the donation: the percentage in
effect for the year the donation is made or the year the
certification applies to?"
b) "It is unclear how or whether the language disallowing a
contribution deduction for amounts included in the
determination of the credit would apply if a credit is
certified for the taxable year subsequent to the year the
donation is made."
c) "It is unclear whether and to what extent a contribution
deduction would be allowed to a taxpayer that, upon
learning that their contribution exceeded the final year's
allocation limit in whole or in part, rejected the CEFA's
offer to return the excess amount. If it is the author's
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intent that a contribution deduction be allowed for any
amounts that are ineligible for credit, this bill should be
amended."
4)The FTB has also raised the following policy concerns in its
staff analysis:
a) "This bill would create differences between federal and
California tax law, thereby increasing the complexity of
California tax return preparation."
b) "This bill would create a credit for certain charitable
contributions that are currently deductible. As a result,
because the credit's dollar-for-dollar reduction of tax is
a more generous tax benefit than a deduction, there could
be a redirection of existing, planned charitable giving to
obtain the tax credit allowed under this bill."
5)Committee Staff Comments:
a) What is a "tax expenditure"? : Existing law provides
various credits, deductions, exclusions, and exemptions for
particular taxpayer groups. In the late 1960s, U.S.
Treasury officials began arguing that these features of the
tax law should be referred to as "expenditures," since they
are generally enacted to accomplish some governmental
purpose and there is a determinable cost associated with
each (in the form of foregone revenues).
b) How is a tax expenditure different from a direct
expenditure? : As the Department of Finance notes in its
annual Tax Expenditure Report, there are several key
differences between tax expenditures and direct
expenditures. First, tax expenditures are reviewed less
frequently than direct expenditures once they are put in
place. This can offer taxpayers greater certainty, but it
can also result in tax expenditures remaining a part of the
tax code without demonstrating any public benefit. Second,
there is generally no control over the amount of revenue
losses associated with any given tax expenditure. Finally,
it should be noted that, once enacted, it generally takes a
two-thirds vote to rescind an existing tax expenditure
absent a sunset date. This effectively results in a
"one-way ratchet" whereby tax expenditures can be conferred
by majority vote, but cannot be rescinded, irrespective of
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their efficacy, without a supermajority vote.
c) What would this bill do? : For taxable years beginning
on or after January 1, 2013, and before January 1, 2016,
this bill would allow taxpayers, upon certification by the
CEF Authority, to receive a credit for contributions made
to the Special Fund. This bill caps the aggregate amount
of credit that may be allocated and certified at $100
million for each calendar year. The specified percentage
used to calculate the credit would be 60% of the amount
contributed during the 2013 taxable year, 55% of the amount
contributed during the 2014 taxable year, and 50% of the
amount contributed during the 2015 taxable year.
Amounts contributed to the Special Fund would be allocated
first to the GF in an amount equal to the certified credits
this bill would allow, and then, upon legislative
appropriation, to the:
i) FTB, the CEF Authority, the State Controller, and
the Student Aid Commission for reimbursement of
administrative costs; and,
ii) To the Student Aid Commission for the awarding of
Cal Grants to eligible students.
d) Contingencies : As noted above, this bill will become
operative only if SB 1466 (De Leon) is also enacted. SB
1466 would, beginning with the 2014-15 academic year,
require a student to be eligible for the receipt of a Cal
Grant award funded from the Special Fund pursuant to
specified priorities if he/she meets the requirements
established for a Cal Grant award for the 2011-12 academic
year, except that a student granted the lowest priority may
have a maximum household income that is no greater than
$100,000.
REGISTERED SUPPORT / OPPOSITION :
Support
California Catholic Conference, Inc.
California Young Democrats
Community College League of California
University of California Student Association
SB 1356
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Opposition
None on file
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098