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AB-2480 Income taxes: credit: Scholarship Tax Credit Program Act.(2017-2018)

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Date Published: 03/20/2018 04:00 AM
AB2480:v98#DOCUMENT

Amended  IN  Assembly  March 19, 2018

CALIFORNIA LEGISLATURE— 2017–2018 REGULAR SESSION

Assembly Bill
No. 2480


Introduced by Assembly Member Voepel
(Coauthor: Assembly Member Mathis)

February 14, 2018


An act to add Sections 17053.99 and 23699 to the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


AB 2480, as amended, Voepel. Income taxes: credit: Scholarship Tax Credit Program Act.
The Personal Income Tax Law and the Corporation Tax Law allow various credits against the taxes imposed by those laws.
This bill, for each taxable year beginning on or after January 1, 2018, 2019, would allow a credit in an amount equal to the total contributions made to a scholarship granting organization that provides scholarships to eligible students to cover all or part of the tuition and fees at a qualified school, as defined, during the taxable year, not to exceed a specified amount. The bill would impose specified duties on the Franchise Tax Board, the State Department of Education, and the Employment Development Department in administering the credits.
This bill would take effect immediately as a tax levy.
Vote: MAJORITY   Appropriation: NO   Fiscal Committee: YES   Local Program: NO  

The people of the State of California do enact as follows:


SECTION 1.

 This act shall be known, and may be cited, as the Scholarship Tax Credit Program Act.

SEC. 2.

 Section 17053.99 is added to the Revenue and Taxation Code, to read:

17053.99.
 (a) For each taxable year beginning on or after January 1, 2018, 2019, there shall be allowed to a qualified taxpayer as a credit against the “net tax,” as defined in Section 17039, an amount equal to the total contributions made to a scholarship granting organization during the taxable year, not to exceed 100 percent of the qualified taxpayer’s “net tax” for the taxable year.
(b) For purposes of this section:
(1) “Educational scholarship” means a grant made to an eligible student to cover all or part of the tuition and fees, including transportation to a qualified school outside of the eligible student’s resident school district, at either a public or nonpublic a qualified school.
(2) (A) “Eligible student” means either of the following:
(i) A student who is a member of a household whose total annual income during the calendar year before he or she receives an educational scholarship from a scholarship granting organization does not exceed an amount equal to two and one-half times the income standard used to qualify for a free or reduced lunch price reduced-price lunch under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.), who was eligible to attend a public school in the semester preceding receipt of the educational scholarship or is attending school in California for the first time, and who resides in California while receiving the educational scholarship.
(ii) A student who qualifies for a free or reduced price reduced-price lunch under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.).
(B) A student remains an “eligible student” under this section until he or she graduates high school or reaches 21 years of age, regardless of household income.
(3) “Parent” means a parent, a legal guardian, a conservator, a person acting as a parent of a child, or any other person with legal authority to act on behalf of the child.
(4) “Qualified school” means a public elementary or secondary school located in California that is outside of the eligible student’s resident school district or a nonpublic private elementary or secondary school in California that complies with the requirements of this section. A qualified school shall comply with all state laws that apply to nonpublic private schools regarding criminal background checks for employees and exclude from employment any person not permitted by state law to work in a school.
(5) “Qualified taxpayer” means a taxpayer who files an income tax return in this state and is not claimed as a dependent for income tax purposes by any other taxpayer.
(6) “Scholarship granting organization” means an organization that complies with the requirements of this section and provides educational scholarships to eligible students attending qualified schools of their parent’s choice.
(7) “Test” means either the Standardized Testing and Reporting Program or a nationally norm-referenced test chosen by the qualifying school.
(c) No credit shall be allowed pursuant to this section unless the scholarship granting organization does all of the following:
(1) Notifies the Franchise Tax Board of its intent to provide educational scholarships to eligible students attending qualified schools.
(2) Provides the Franchise Tax Board with a letter of determination from the Internal Revenue Service of tax-exempt status as an organization described in Section 501(c)(3) of the Internal Revenue Code.
(3) Provides the qualified taxpayer with a Franchise Tax Board-approved receipt substantiating the contribution made by the qualified taxpayer to the scholarship granting organization.
(4) Ensures that at least 90 percent of its revenue from donations is expended on educational scholarships.
(5) Spends a portion of expenditures each year on educational scholarships for students eligible under clause (ii) of subparagraph (A) of paragraph (2) of subdivision (b) equal to the percentage of low-income eligible students in the county where the scholarship granting organization expends the majority of its educational scholarships.
(6) Cooperates with the Franchise Tax Board, or its designee, in conducting criminal background checks of all of its employees and board members and excludes from employment or governance any individual who might reasonably pose a risk to the appropriate use of contributed funds.
(7) Ensures that educational scholarships are portable during the school year and may be used at any qualified school that accepts the eligible student according to a parent’s wishes. If an eligible student moves to a new qualified school during a school year, the educational scholarship may be prorated.
(8) (A) Demonstrates its financial accountability to the Franchise Tax Board by submitting a financial information report, conducted by a certified public accountant, that complies with uniform financial accounting standards and is certified by an auditor as free of material misstatements.
(B) If a scholarship granting organization provides five hundred thousand dollars ($500,000) or more in scholarships to eligible students through this program, it shall provide to the Franchise Tax Board a report on the results of an annual financial audit of the organization or its relevant accounts and records pertaining to credit eligibility donations conducted by an independent certified public accountant in accordance with auditing standards generally accepted in the United States, government auditing standards, and rules promulgated by the Franchise Tax Board. The audit report shall include a report on financial statements presented in accordance with generally accepted accounting principles. Audit reports shall be provided to the Franchise Tax Board within 180 days after completion of the scholarship granting organization’s fiscal year. The Franchise Tax Board shall review all audit report reports submitted pursuant to this paragraph. The Franchise Tax Board shall require any significant items that were omitted in violation of a rule adopted by the Franchise Tax Board. The items shall be provided within 45 days of the date of the request.
(9) Ensures that educational scholarships are not provided to eligible students to attend a qualified school with paid staff or board members, or relatives thereof, in common with the scholarship granting organization.
(10) Prioritize the awarding of scholarships to first-time recipients in the following order:
(A) Siblings of students who are currently receiving a scholarship.
(B) Low-income students.
(11) Grant only one year of scholarship in one approval process.
(d) No credit shall be allowed pursuant to this section unless a qualified school that accepts educational scholarships from a scholarship granting organization does all of the following:
(1) Complies with all health and safety laws or codes that apply to schools.
(2) Obtains a valid occupancy permit for its grounds if required by its municipality.
(3) Certifies that it will not discriminate in accordance with Section 1981 of Title 42 of the United States Code.
(4) Provides academic accountability to the parent of eligible students who receive educational scholarships by regularly reporting to the parent on the student’s progress.
(5) Exclude from employment any person not permitted by law to work in a school.
(6) Annually administer either the Standardized Testing and Reporting Program or national norm-referenced tests that measure learning gains in math and language arts, and may provide for value-added assessment, to all participating students in grades that require testing under accountability testing laws for schools.
(7) Pay for the tests of scholarship students with the scholarship moneys distributed by the scholarship granting organizations.
(8) Provide the parents parent of each student who was tested with a copy of the results of the tests on an annual basis, beginning with the first year of testing after January 1, 2018.
(9) Provide the test results to the State Department of Education on an annual basis.
(10) Report student information that would allow the state to aggregate data by grade level, gender, family income level, and race.
(11) Provide rates of high school graduation for participating students to the State Department of Education in a manner consistent with nationally recognized standards.
(12) Provide the results from an annual parental satisfaction survey, including information about the number of years that the parent’s child has participated in the scholarship program to the State Department of Education. The annual satisfaction survey shall ask parents of eligible students receiving educational scholarships to express:
(A) Their satisfaction with their child’s academic achievement, including academic achievement at the school their child attended through the scholarship program versus academic achievement at the school previously attended, if applicable.
(B) Their satisfaction with school safety at the school their child attends including school safety at the school their child attended through the scholarship program versus safety at the school previously attended, if applicable.
(C) Whether their child would have been able to attend their school of choice without the scholarship.
(D) Their opinions on other topics, items, or issues that the State Department of Education determines would elicit information about the effectiveness of the scholarship program.
(13) If a private school receives donations of fifty thousand dollars ($50,000) or more during the school year, the private school shall demonstrate its financial accountability by either of the following:
(A) Filing a surety bond with the Franchise Tax Board, payable to the State of California, in an amount equal to the aggregate amount of contributions expected to be received during the school year.
(B) Filing financial information prior to the school year with the Franchise Tax Board that demonstrates the financial viability of the scholarship granting organization.
(e) On or before June 1 of each calendar year, a scholarship granting organization shall report to the Franchise Tax Board the following information prepared by a certified public accountant regarding the previous calendar year’s educational scholarships:
(1) The name and address of the scholarship granting organization.
(2) The total number and dollar amount of contributions received during the previous calendar year.
(3) The total number and dollar amount of educational scholarships awarded during the previous calendar year, the total number and total dollar amount of educational scholarships awarded during the previous year to eligible students qualifying for the federal free and reduced price reduced-price lunch program, and the percentage of first-time recipients of educational scholarships who were continuously enrolled in a public school during the previous year.
(f) For purposes of this section, the Franchise Tax Board shall do all of the following:
(1) Provide a standardized format for a receipt to be issued by a scholarship granting organization to a qualified taxpayer to indicate the value of a received contribution. The Franchise Tax Board shall require a qualified taxpayer to provide a copy of this receipt when claiming a credit under this section.
(2) Provide a standardized format for scholarship granting organizations to report the information required by paragraph (8) of subdivision (d).
(3) Conduct either a financial review or audit of a scholarship granting organization if in possession of evidence of fraud.
(4) (A) Bar a scholarship granting organization from being a scholarship granting organization if the Franchise Tax Board establishes that the scholarship granting organization has intentionally failed to comply with the requirements of this section.
(B) If the Franchise Tax Board bars a scholarship granting organization, it shall notify any affected eligible students and his or her parent of this decision as soon as possible.
(5) Ensure compliance with privacy laws.
(g) The State Department of Education shall do the following:
(1) Collect all test results.
(2) Provide the test results and associated learning gains to the public on its Internet Web site after the third year of test and test-related data collection. The findings shall be aggregated by the grade level, gender, family income level, number of years of participation in the scholarship program, and race of the student.
(h) In the case where the credit allowed by this section exceeds the “net tax,” the excess may be carried over to reduce the “net tax” in the following year, and the succeeding year if necessary, until the credit is exhausted.
(i) Any deduction otherwise allowed under this part for any amount paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit allowed under this section.
(j) The Employment Development Department shall allow a qualified taxpayer to divert a prorated share of state income tax withholdings to a scholarship granting organization of the qualified taxpayer’s choice, up to the maximum credit allowed by law, including carryover credits.
(k) It is the intent of the Legislature to comply with Section 41.

SEC. 3.

 Section 23699 is added to the Revenue and Taxation Code, to read:

23699.
 (a) For each taxable year beginning on or after January 1, 2018, 2019, there shall be allowed to a qualified taxpayer as a credit against the “tax,” as defined in Section 23036, an amount equal to the total contributions made to a scholarship granting organization during the taxable year, not to exceed 100 percent of the qualified taxpayer’s “tax” for the taxable year.
(b) For purposes of this section:
(1) “Educational scholarship” means a grant made to an eligible student to cover all or part of the tuition and fees, including transportation to a qualified school outside of the eligible student’s resident school district, at either a public or nonpublic a qualified school.
(2) (A) “Eligible student” means either of the following:
(i) A student who is a member of a household whose total annual income during the calendar year before he or she receives an educational scholarship from a scholarship granting organization does not exceed an amount equal to two and one-half times the income standard used to qualify for a free or reduced lunch price reduced-price lunch under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.), who was eligible to attend a public school in the semester preceding receipt of the educational scholarship or is attending school in California for the first time, and who resides in California while receiving the educational scholarship.
(ii) A student who qualifies for a free or reduced price reduced-price lunch under the National School Lunch Act (42 U.S.C. Sec. 1751 et seq.).
(B) A student remains an “eligible student” under this section until he or she graduates high school or reaches 21 years of age, regardless of household income.
(3) “Parent” means a parent, a legal guardian, a conservator, a person acting as a parent of a child, or any other person with legal authority to act on behalf of the child.
(4) “Qualified school” means a public elementary or secondary school located in California that is outside of the eligible student’s resident school district or a nonpublic private elementary or secondary school in California that complies with the requirements of this section. A qualified school shall comply with all state laws that apply to nonpublic private schools regarding criminal background checks for employees and exclude from employment any person not permitted by state law to work in a school.
(5) “Qualified taxpayer” means a taxpayer who files a franchise tax return in this state.
(6) “Scholarship granting organization” means an organization that complies with the requirements of this section and provides educational scholarships to eligible students attending qualified schools of their parent’s choice.
(7) “Test” means either the Standardized Testing and Reporting Program or a nationally norm-referenced test chosen by the qualifying school.
(c) No credit shall be allowed pursuant to this section unless the scholarship granting organization does all of the following:
(1) Notifies the Franchise Tax Board of its intent to provide educational scholarships to eligible students attending qualified schools.
(2) Provides the Franchise Tax Board with a letter of determination from the Internal Revenue Service of tax-exempt status as an organization described in Section 501(c)(3) of the Internal Revenue Code.
(3) Provides the qualified taxpayer with a Franchise Tax Board-approved receipt substantiating the contribution made by the qualified taxpayer to the scholarship granting organization.
(4) Ensures that at least 90 percent of its revenue from donations is expended on educational scholarships.
(5) Spends a portion of expenditures each year on educational scholarships for students eligible under clause (ii) of subparagraph (A) of paragraph (2) of subdivision (b) equal to the percentage of low-income eligible students in the county where the scholarship granting organization expends the majority of its educational scholarships.
(6) Cooperates with the Franchise Tax Board, or its designee, in conducting criminal background checks of all of its employees and board members and excludes from employment or governance any individual who might reasonably pose a risk to the appropriate use of contributed funds.
(7) Ensures that educational scholarships are portable during the school year and may be used at any qualified school that accepts the eligible student according to a parent’s wishes. If an eligible student moves to a new qualified school during a school year, the educational scholarship may be prorated.
(8) (A) Demonstrates its financial accountability to the Franchise Tax Board by submitting a financial information report, conducted by a certified public accountant, that complies with uniform financial accounting standards and is certified by an auditor as free of material misstatements.
(B) If a scholarship granting organization provides five hundred thousand dollars ($500,000) or more in scholarships to eligible students through this program, it shall provide to the Franchise Tax Board a report on the results of an annual financial audit of the organization or its relevant accounts and records pertaining to credit eligibility donations conducted by an independent certified public accountant in accordance with auditing standards generally accepted in the United States, government auditing standards, and rules promulgated by the Franchise Tax Board. The audit report shall include a report on financial statements presented in accordance with generally accepted accounting principles. Audit reports shall be provided to the Franchise Tax Board within 180 days after completion of the scholarship granting organization’s fiscal year. The Franchise Tax Board shall review all audit report reports submitted pursuant to this paragraph. The Franchise Tax Board shall require any significant items that were omitted in violation of a rule adopted by the Franchise Tax Board. The items shall be provided within 45 days of the date of the request.
(9) Ensures that educational scholarships are not provided to eligible students to attend a qualified school with paid staff or board members, or relatives thereof, in common with the scholarship granting organization.
(10) Prioritize the awarding of scholarships to first-time recipients in the following order:
(A) Siblings of students who are currently receiving a scholarship.
(B) Low-income students.
(11) Grant only one year of scholarship in one approval process.
(d) No credit shall be allowed pursuant to this section unless a qualified school that accepts educational scholarships from a scholarship granting organization does all of the following:
(1) Complies with all health and safety laws or codes that apply to schools.
(2) Obtains a valid occupancy permit for its grounds if required by its municipality.
(3) Certifies that it will not discriminate in accordance with Section 1981 of Title 42 of the United States Code.
(4) Provides academic accountability to the parent of eligible students who receive educational scholarships by regularly reporting to the parent on the student’s progress.
(5) Exclude from employment any person not permitted by law to work in a school.
(6) Annually administer either the Standardized Testing and Reporting Program or national norm-referenced tests that measure learning gains in math and language arts, and may provide for value-added assessment, to all participating students in grades that require testing under accountability testing laws for schools.
(7) Pay for the tests of scholarship students with the scholarship moneys distributed by the scholarship granting organizations.
(8) Provide the parents parent of each student who was tested with a copy of the results of the tests on an annual basis, beginning with the first year of testing after January 1, 2018.
(9) Provide the test results to the State Department of Education on an annual basis.
(10) Report student information that would allow the state to aggregate data by grade level, gender, family income level, and race.
(11) Provide rates of high school graduation for participating students to the State Department of Education in a manner consistent with nationally recognized standards.
(12) Provide the results from an annual parental satisfaction survey, including information about the number of years that the parent’s child has participated in the scholarship program to the State Department of Education. The annual satisfaction survey shall ask parents of eligible students receiving educational scholarships to express:
(A) Their satisfaction with their child’s academic achievement, including academic achievement at the school their child attended through the scholarship program versus academic achievement at the school previously attended, if applicable.
(B) Their satisfaction with school safety at the school their child attends including school safety at the school their child attended through the scholarship program versus safety at the school previously attended, if applicable.
(C) Whether their child would have been able to attend their school of choice without the scholarship.
(D) Their opinions on other topics, items, or issues that the State Department of Education determines would elicit information about the effectiveness of the scholarship program.
(13) If a private school receives donations of fifty thousand dollars ($50,000) or more during the school year, the private school shall demonstrate its financial accountability by either of the following:
(A) Filing a surety bond with the Franchise Tax Board, payable to the State of California, in an amount equal to the aggregate amount of contributions expected to be received during the school year.
(B) Filing financial information prior to the school year with the Franchise Tax Board that demonstrates the financial viability of the scholarship granting organization.
(e) On or before June 1 of each calendar year, a scholarship granting organization shall report to the Franchise Tax Board the following information prepared by a certified public accountant regarding the previous calendar year’s educational scholarships:
(1) The name and address of the scholarship granting organization.
(2) The total number and dollar amount of contributions received during the previous calendar year.
(3) The total number and dollar amount of educational scholarships awarded during the previous calendar year, the total number and total dollar amount of educational scholarships awarded during the previous year to eligible students qualifying for the federal free and reduced price reduced-price lunch program, and the percentage of first-time recipients of educational scholarships who were continuously enrolled in a public school during the previous year.
(f) For purposes of this section, the Franchise Tax Board shall do all of the following:
(1) Provide a standardized format for a receipt to be issued by a scholarship granting organization to a qualified taxpayer to indicate the value of a received contribution. The Franchise Tax Board shall require a qualified taxpayer to provide a copy of this receipt when claiming a credit under this section.
(2) Provide a standardized format for scholarship granting organizations to report the information required by paragraph (8) of subdivision (d).
(3) Conduct either a financial review or audit of a scholarship granting organization if in possession of evidence of fraud.
(4) (A) Bar a scholarship granting organization from being a scholarship granting organization if the Franchise Tax Board establishes that the scholarship granting organization has intentionally failed to comply with the requirements of this section.
(B) If the Franchise Tax Board bars a scholarship granting organization, it shall notify any affected eligible students and his or her parent of this decision as soon as possible.
(5) Ensure compliance with privacy laws.
(g) The State Department of Education shall do the following:
(1) Collect all test results.
(2) Provide the test results and associated learning gains to the public on its Internet Web site after the third year of test and test-related data collection. The findings shall be aggregated by the grade level, gender, family income level, number of years of participation in the scholarship program, and race of the student.
(h) In the case where the credit allowed by this section exceeds the “tax,” the excess may be carried over to reduce the “tax” in the following year, and the succeeding year if necessary, until the credit is exhausted.
(i) Any deduction otherwise allowed under this part for any amount paid or incurred by the taxpayer upon which the credit is based shall be reduced by the amount of the credit allowed under this section.
(j) The Employment Development Department shall allow a qualified taxpayer to divert a prorated share of state income tax withholdings to a scholarship granting organization of the qualified taxpayer’s choice, up to the maximum credit allowed by law, including carryover credits.
(k) It is the intent of the Legislature to comply with Section 41.

SEC. 4.

 This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.