Date Requested:January 13, 2011
Time Requested:03:50 PM
Agency: State Tax Department
CBD Number: Version: Bill Number: Resolution Number:
2011R1392 Introduced HB2323
CBD Subject: FAMILY EDUCATION TAX CREDIT ACT
FUND(S)
General Revenue Fund
Sources of Revenue
General Fund
Legislation creates:
Neither Program nor Fund

Fiscal Note Summary

Effect this measure will have on costs and revenues of state government.

    The stated purpose of this bill is to create a tax credit program for individuals paying qualified educational expenses and for those individuals or corporations making donations to organizations granting scholarships for qualified educational expenses. The bill defines terms and sets forth requirements.
    
    As written, this bill would provide a tax credit of up to 100 percent to individuals who pay all or part of the tuition, fees, and other educational expenses of an eligible student. Parents would also be able to claim a tax credit of up to 100 percent for certain home schooling expenses. The bill also provides that an individual may assign their tax credit to their student’s qualifying school. An additional provision would provide a tax credit of up to 100 percent to individuals and corporations making contributions to scholarship granting organizations. The tax credit would be refundable for parents of a student when the parent’s income does not exceed an amount equal to the income standard used to qualify for a reduced price lunch. For other parents and corporations, the credit would be limited to 50% of tax liability.
    
    In addition to the credit related to the direct expenses of a student, the proposed bill would effectively create a mechanism for the State to fund donations for educational purposes and may result in an increase in scholarship donations. Other charitable organizations, such as religion, the arts, environment, etc., may see a drop in donations because scholarship donations would become more tax-preferred. In addition, many taxpayers would be able to qualify for the tax credit by making contributions to programs outside the State. Although we are unable to accurately estimate the revenue impact of this proposal, we believe the revenue reduction attributable to passage of this bill would be significant.
    
    Due to the specified credit mechanism and notification responsibilities in the proposed bill, additional administrative costs to the State Tax Department or Department or Revenue would be substantial.
    

Fiscal Note Detail
Over-all effect
Effect of Proposal Fiscal Year
2011
Increase/Decrease
(use"-")
2012
Increase/Decrease
(use"-")
Fiscal Year
(Upon Full
Implementation)
1. Estmated Total Cost 0 0 0
Personal Services 0 0 0
Current Expenses 0 0 0
Repairs and Alterations 0 0 0
Assets 0 0 0
Other 0 0 0
2. Estimated Total Revenues 0 0 0
3. Explanation of above estimates (including long-range effect):
    As written, this bill would provide a tax credit of up to 100 percent to individuals who pay all or part of the tuition, fees, and other educational expenses of an eligible student. Parents would also be able to claim a tax credit of up to 100 percent for certain home schooling expenses. The bill also provides that an individual may assign their tax credit to their student’s qualifying school. An additional provision would provide a tax credit of up to 100 percent to individuals and corporations making contributions to scholarship granting organizations. The tax credit would be refundable for parents of a student when the parent’s income does not exceed an amount equal to the income standard used to qualify for a reduced price lunch. For other parents and corporations, the credit would be limited to 50% of tax liability.
    
    In addition to the credit related to the direct expenses of a student, the proposed bill would effectively create a mechanism for the State to fund donations for educational purposes and may result in an increase in scholarship donations. Other charitable organizations, such as religion, the arts, environment, etc., may see a drop in donations because scholarship donations would become more tax-preferred. In addition, many taxpayers would be able to qualify for the tax credit by making contributions to programs outside the State.
    
    As written, the bill indicates that a student’s parents would be eligible if their taxable income for the preceding tax year does not exceed 2.5 times the income standard used to qualify for a reduced price lunch under the national Free or Reduced Price Lunch Program. The tables below provides information on eligibility income levels.
    
    Persons in Family 2011 Poverty Guidelines
    
     1 $10,890
     2 $14,710
     3 $18,530
     4 $22,350
     5 $26,170
     6 $29,990
     7 $33,810
     8 $37,630
    
    
    Persons in Family National School Lunch Program
     for Free Lunch (Income* at or
     below 130% of Poverty Guidelines)
    
     1 $14,157
     2 $19,123
     3 $24,089
     4 $29,055
     5 $34,021
     6 $38,987
     7 $43,953
     8 $48,919
    
    *Gross Earned Income
    
    Persons in Family National School Lunch Program for Reduced
     Lunch (Income* above 130% of Poverty
     Guidelines, but at or below 185%)
    
     1 $20,147
     2 $27,214
     3 $34,281
     4 $41,348
     5 $48,415
     6 $55,482
     7 $62,549
     8 $69,616
    
    *Gross Earned Income
    
    Persons in Family Family Education Tax Credit Income**
     Eligibility (at or below 2.5 times Reduced
     Lunch Income)
     1 $50,368
     2 $68,035
     3 $85,703
     4 $103,370
     5 $121,038
     6 $138,705
     7 $156,373
     8 $174,040
    
    **Taxable Income
    
    Most programs with an income means test use gross income to determine eligibility, however, the Family Education Tax Credit bases eligibility upon taxable income. The Family Education Tax Credit eligibility income levels in the table above are at least 462.5 percent of the respective Poverty Guideline (1.85 times 2.5). A family of four whose only reduction from adjusted gross income to taxable income was the allowable $2,000 exemption per person could have adjusted gross income of almost 500 percent of the Poverty Guideline ([$103,370 + $8,000] / $22,350 = 4.983, or 498.3%) and be eligible for the tax credit.
    
    Although we are unable to accurately estimate the revenue impact of this proposal, we believe the revenue reduction attributable to passage of this bill would be significant since it appears that a large number of families would be eligible for the tax credit.
    
    Due to the specified credit mechanism and notification responsibilities in the proposed bill, additional administrative costs to the State Tax Department or Department or Revenue would be substantial.


Memorandum
Person submitting Fiscal Note:
Mark Muchow
Email Address:
kerri.r.petry@wv.gov
    The stated purpose of this bill is to create a tax credit program for individuals paying qualified educational expenses and for those individuals or corporations making donations to organizations granting scholarships for qualified educational expenses. The bill defines terms and sets forth requirements.
    
    As written this bill contains a provision that would provide a tax credit to individuals and corporations making contributions to scholarship granting organizations. Since the definition of scholarship granting organizations may be broadly interpreted, the potential utilization of the credit may be much greater than intended. Additionally, the bill provides that the tax credit would be refundable for parents of a student when the parent’s income does not exceed an amount equal to the income standard used to qualify for a reduced price lunch. However, the bill does not specify what part of the credit is to be refunded (e.g., the entire credit or the credit in excess of tax liability).
    
    The bill uses the term “Department” throughout and defines the term as meaning the “State Department of Revenue.” Many of the “Department” functions listed in the bill would generally be under the purview of the State Tax Department rather than the Department of Revenue (although the State Tax Department is housed in the Department of Revenue).
    
    The bill provides for a means test for eligibility, but the means test is based upon “taxable Income” while most other means test programs base eligibility upon gross income.