BILL ANALYSIS �
AB 2427
Page 1
Date of Hearing: May 13, 2014
ASSEMBLY COMMITTEE ON REVENUE AND TAXATION
Raul Bocanegra, Chair
AB 2427 (Jones-Sawyer) - As Introduced: February 21, 2014
SUSPENSE
Majority vote. Tax levy. Fiscal committee.
SUBJECT : Personal Income Tax Law: credit: qualified teachers
SUMMARY : Allows a personal income tax (PIT) credit for amounts
paid by a "qualified teacher" for "instructional materials and
classroom supplies". Specifically, this bill :
1)Contains the following legislative findings:
a) While ensuring that a quality education for all of
California's school children is a shared responsibility of
the general public, it is foremost the duty of individual
parents and teachers; and,
b) State tax relief for education expenses, leveraged with
current federal deductions, can further support and
strengthen new teachers for successful careers in their
noble profession.
2)Allows, for taxable years beginning on or after January 1,
2014, and before January 1, 2019, a credit equal to the amount
paid or incurred by a "qualified teacher" during the taxable
year for "instructional materials and classroom supplies", not
to exceed $250.
3)Provides that, in cases where two "qualified teachers" are
married to each other and file a joint return, the credit
shall not exceed $500.
4)Defines a "qualified teacher" as a teacher who meets all of
the following requirements:
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a) The individual has worked at least 900 hours in the
school year as a teacher, in a school offering instruction
in kindergarten or any of grades 1 to 12, inclusive, in
California at a public, charter, or private school that has
a current private school affidavit on file with the State
Department of Education in a school year;
b) The teacher is primarily engaged in the duty of
imparting knowledge to pupils by teaching, instructing, or
lecturing;
c) The teacher customarily and regularly exercises
discretion and independent judgment in performing the
duties of a teacher; and,
d) The teacher is not employed as a tutor, teaching
assistant, instructional aide, student teacher, day care
provider, vocational instructor, or in a similar position.
5)Defines "instructional materials and classroom supplies" as
books, supplies, computer equipment, including related
software and services and other equipment, and supplementary
materials used in the classroom, including supplies for
courses in health and physical education, the amount paid or
incurred for which is otherwise deductible under Internal
Revenue Code Section 162 and not reimbursed.
6)Provides that, for taxable years beginning on or after January
1, 2014, and before January 1, 2015, the credit shall only be
allowed to a qualified teacher with no more than one year of
employment as a qualified teacher.
7)Provides that, for taxable years beginning on or after January
1, 2015, and before January 1, 2016, the credit shall only be
allowed to a qualified teacher with no more than two
consecutive years of employment as a qualified teacher.
8)Provides that, for taxable years beginning on or after January
1, 2016, and before January 1, 2019, the credit shall only be
allowed to a qualified teacher with no more than three
consecutive years of employment as a qualified teacher.
9)Provides that, in cases where the credit amount exceeds the
taxpayer's net tax, the excess may be carried over to reduce
the taxpayer's tax liability in the following year, and
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succeeding four years if necessary, until the credit is
exhausted.
10)Authorizes the Franchise Tax Board (FTB) to prescribe rules,
guidelines, or procedures necessary or appropriate to carry
out the purposes of this bill.
11)Provides that the Administrative Procedure Act (Government
Code Section 11340 et seq.) shall not apply to any standard,
criterion, procedure, determination, rule, notice, or
guideline established or issued by the FTB under this bill.
12)Takes immediate effect as a tax levy.
13)Sunsets on December 1, 2019.
EXISTING STATE LAW allows various tax credits under the PIT Law.
These credits are generally designed to encourage socially
beneficial behavior or to provide relief to taxpayers who incur
specified expenses.
FISCAL EFFECT : The FTB estimates General Fund revenue losses of
$2.5 million in fiscal year (FY) 2014-15, $4.9 million in FY
2015-16, and $7.1 million in FY 2016-17.
COMMENTS :
1)The author has provided the following statement in support of
this bill:
AB 2427 enables new teachers, in their first three years of
service, to claim individual tax credits up to $250 for
expenses relating to instructional materials and classroom
supplies. This bill leverages a parallel federal deduction
with a state tax credit to further support and strengthen
new teachers for successful careers in their noble
profession.
2)Proponents of this bill note the following:
We believe that all California's school children -
attending our public, independent, and faith-based schools
- have an inalienable right to a quality education.
Furthermore, we believe that in attaining such an
education, adequate resources must be ensured at the level
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closest to actual teaching and learning situations. To
advance these principles we advocate for essential support
to ensure highly effective teachers who educate our state's
school children regardless, and respectful, of the schools
they attend.
Unfortunately, fiscal realities challenging our California
public, as well as, private school communities are
compelling K-12 teachers to reach deep into their own
pockets to fund vital education resources that are
unaffordable for many, yet essential to those children
entrusted to their care. Such expenses are a particular
hardship for new teachers who are serving at the lowest end
of salary scales and are still paying off their college
loans. California's new educators are also often first
teaching in the most challenging districts/schools with
high concentrations of students coming from families who
live in poverty.
3)Opponents of this bill note the following:
The California Teachers Association has been on record
opposing tax credits for its own members (Teachers Tax
Credits). We believe that schools should be adequately
funded so that teachers do not have to use their personal
dollars to purchase instructional materials, classroom
supplies, etc. At the same time CTA opposes any reduction
in revenue to the State's General Fund which would reduce
Proposition 98 funding.
Tax credits for special interest groups have, over the last
decade, depleted our General Fund by billions of dollars.
California can no longer afford to keep giving tax credits,
especially at a time when the economy is still trying to
recover.
4)The FTB notes the following implementation concern in its
staff analysis of this bill:
This bill would allow a credit for qualified teachers based
upon the years of employment as a qualified teacher.
However, this bill fails to specify as to when or how
recently that employment as a qualified teacher must have
occurred. For example, would the years of employment begin
one year after the effective date of the statute or one
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year for the teacher's entire life as a qualified teacher?
To avoid conflicts between taxpayers and the department,
the bill should be amended.
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 economic
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 also be noted that, once
enacted, it 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 their efficacy, without a supermajority
vote.
c) An incentive or a reward ? Generally, tax credits are
provided as a matter of legislative grace to encourage
socially beneficial behavior that likely would not occur
absent a financial incentive. Because this bill applies to
taxable years beginning on or after January 1, 2014, this
bill would be providing a credit for behavior that had
already taken place before this bill's enactment. The
Committee may wish to consider the policy implications of
providing such an incentive.
d) Implementation concerns : It is currently unclear how
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the FTB would verify whether a teacher meets the
eligibility requirements specified in this bill. As such,
the FTB has suggested potential amendments requiring the
appropriate local agency to certify teacher eligibility.
Teachers could then retain such certifications and, upon
request, provide them to the FTB for verification. Such a
requirement would certainly ease the FTB's administration
of this credit. At the same time, requiring local agencies
to verify eligibility and produce certifications may be
somewhat costly, especially in light of the relatively
modest per teacher credit involved.
e) Related legislation :
i) SB 413 (Knight) would have allowed a credit for an
eligible science, technology, engineering, or mathematics
(STEM) teacher, as specified. SB 413 failed passage in
the Senate Committee on Governance and Finance.
ii) SB 693 (Correa) contained provisions substantially
similar to this bill. SB 693 was held by the Senate
Committee on Appropriations.
REGISTERED SUPPORT / OPPOSITION :
Support
Board of Equalization Member Michelle Steel
California Association of Private School Organizations
California Catholic Conference
Los Angeles County Office of Education
Opposition
California Tax Reform Association
California Teachers Association
Analysis Prepared by : M. David Ruff / REV. & TAX. / (916)
319-2098