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SB-477 Personal income taxes: credit: deduction: qualified education loan. (2019-2020)

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Date Published: 06/17/2019 09:00 PM
SB477:v95#DOCUMENT

Amended  IN  Assembly  June 17, 2019
Amended  IN  Senate  May 17, 2019
Amended  IN  Senate  May 07, 2019
Amended  IN  Senate  April 24, 2019

CALIFORNIA LEGISLATURE— 2019–2020 REGULAR SESSION

Senate Bill
No. 477


Introduced by Senator Wieckowski
(Coauthor: Senator Allen)

February 21, 2019


An act to add Section 17205 to, and to add and repeal Section 17061.6 of, the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.


LEGISLATIVE COUNSEL'S DIGEST


SB 477, as amended, Wieckowski. Personal income taxes: credit: deduction: qualified education loan.
The Personal Income Tax Law allows various credits against the taxes imposed by that law and various deductions in computing the income that is subject to the taxes imposed by that law, including a deduction for interest paid on qualified education loans not to exceed $2,500.
This bill, for taxable years beginning on or after January 1, 2019, 2020, and before January 1, 2024, 2025, would eliminate that deduction for certain taxpayers and allow a credit to certain those taxpayers against those taxes in an amount equal to the interest paid by the taxpayer during the taxable year on a qualified education loan, as defined, not to exceed $2,000 in the case of spouses filing a joint return or $1,000 for other individuals. The bill would also provide that the credit amount is $0 for taxable years beginning on or after January 1, 2019, 2020, and before January 1, 2024, 2025, unless otherwise specified in a bill providing for appropriations related to the Budget Act, in which case the bill would instead allow the deduction. The bill, for taxable years beginning on or after January 1, 2024, 2025, would make that credit inoperative and would reinstate the eliminated deduction.
Existing law requires a bill that would authorize a new credit against the tax imposed by the Personal Income Tax Law or the Corporation Tax Law to contain specific goals, purposes, and objectives that the new credit will achieve, and detailed performance indicators and data collection requirements for determining whether the new credit achieves these goals, purposes, and objectives.
This bill would make findings specifying the goals, purposes, and objectives of the above-described tax credits and would require the Franchise Tax Board to provide a report regarding the credit.
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.

 Section 17061.6 is added to the Revenue and Taxation Code, to read:

17061.6.
 (a) For each taxable year beginning on or after January 1, 2019, 2020, and before January 1, 2024, 2025, there shall be allowed as a credit against the “net tax,” as defined in Section 17039, an amount equal to the interest paid by the taxpayer during the taxable year on a qualified education loan. The credit allowed by this section shall not exceed two thousand dollars ($2,000) in the case of spouses filing a joint return or one thousand dollars ($1,000) for other individuals.
(b) For purposes of this section:
(1) “Dependent” has the same meaning as the term defined by Section 152 of the Internal Revenue Code, relating to dependent defined, determined without regard to Sections 152(b)(1), Section 152(b)(2), and Section 152(d)(1)(B) of the Internal Revenue Code.
(2) (A) “Qualified education loan” means an indebtedness incurred by the taxpayer solely to pay for higher education expenses that are incurred on behalf of the taxpayer or the taxpayer’s spouse or dependent, who is the taxpayer’s spouse or dependent at the time the indebtedness is incurred.
(B) “Qualified education loan” includes indebtedness used to refinance indebtedness that qualified as a qualified education loan.
(C) “Qualified education loan” does not include the following:
(i) Indebtedness owed to a person who is related, within the meaning of Section 267(b) or 707(b) of the Internal Revenue Code, relating to relationships and certain sales or exchanges of property with respect to controlled partnerships, respectively.
(ii) Indebtedness owed to a person by reason of a loan under a qualified employer plan, as defined in Section 72(p)(4) of the Internal Revenue Code, relating to qualified employer plan, etc., or under a contract referred to in Section 72(p)(5) of the Internal Revenue Code, relating to special rules for loans, etc., from certain contracts.
(c) To be eligible for the credit allowed by this section, adjusted gross income shall not exceed the following:
(1) For spouses filing a joint return, two hundred thousand dollars ($200,000).
(2) For other individuals, one hundred thousand dollars ($100,000).
(d) Unless otherwise specified in any bill providing for appropriations related to the Budget Act, for taxable years beginning on or after January 1, 2019, 2020, and before January 1, 2024, 2025, the amount of the credit allowed pursuant to this section shall be zero dollars ($0), in which case a deduction shall be allowed pursuant to subdivision (b) of Section 17205.
(e) This section shall remain in effect only until December 1, 2024, 2025, and as of that date is repealed.

SEC. 2.

 Section 17205 is added to the Revenue and Taxation Code, to read:

17205.
 (a) Except as provided in subdivision (b), for taxable years beginning on or after January 1, 2019, 2020, and before January 1, 2024, 2025, Section 221 of the Internal Revenue Code, relating to interest on education loans, shall not apply under subdivision (b) of Section 17201.
(b) For any taxable year beginning on or after January 1, 2019, 2020, and before January 1, 2024, 2025, for which the amount of credit allowed under Section 17061.6 is zero dollars ($0), Section 221 of the Internal Revenue Code, relating to interest on education loans, shall apply under subdivision (b) of Section 17201.
(c) For taxable years beginning on or after January 1, 2024, 2025, Section 221 of the Internal Revenue Code, relating to interest on education loans, shall apply again under subdivision (b) of Section 17201.
(d) The provisions of this section shall only apply to taxpayers who are, or were, eligible for the credit allowed pursuant to Section 17061.6 and shall not affect the allowance of a deduction for interest on education loans pursuant to subdivision (b) of Section 17201 for all other taxpayers.

SEC. 3.

 (a) It is the intent of the Legislature to comply with Section 41.
(b) For the purposes of complying with Section 41, with respect to Sections 17061.6 and 17205 as added by this bill, the Legislature finds and declares as follows:
(1) The specific goals, purposes, and objectives of this bill are as follows:
(A) Compensate taxpayers for the significant increases in tuition at higher educational institutions.
(B) Stimulate consumer spending and economic growth by providing more disposable income to reinvest in the economy.
(C) Aid in reducing the likelihood of student loan defaults, which have a major adverse impact on graduates’ credit scores and therefore even broader implications for consumers.
(D) Incentivize college graduates to stay in California and to continue to be an integral part of the state’s workforce, in turn increasing tax revenues and payments to California’s public assistance programs, insurance system, and economy.
(2) To measure whether the credit achieves its intended purpose, for those taxable years for which the credit allowed pursuant to 17061.6 of the Revenue and Taxation Code is not zero dollars ($0), the Franchise Tax Board shall prepare a written report on the following:
(A) The number of taxpayers claiming the credit.
(B) The average credit amount on tax returns claiming the credit.
(3) The Franchise Tax Board shall provide the written report to the Senate Committee on Budget and Fiscal Review, the Assembly Committee on Budget, the Senate and Assembly Committees on Appropriations, the Senate Committee on Governance and Finance, and the Assembly Committee on Revenue and Taxation. A report submitted pursuant to this paragraph shall be submitted in compliance with Section 9795 of the Government Code.

SEC. 3.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.