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COMMITTEE REPORT
April 5, 2001
H. 3172
Introduced by Reps. Vaughn, Barrett, Davenport, Leach, Witherspoon, Walker, Campsen, Robinson, Rodgers, Stuart, Altman, Sharpe, Loftis, Rice, Hamilton, Easterday, Delleney, Phillips, Harrison, Chellis, Scarborough, Huggins, Tripp, Cato and Gilham
S. Printed 4/5/01--H.
Read the first time January 9, 2001.
To whom was referred a Bill (H. 3172) to amend the Code of Laws of South Carolina, 1976, by adding Section 12-6-3600 so as to authorize state income tax credits up to five hundred dollars, etc., respectfully
That they have duly and carefully considered the same and recommend that the same do pass with amendment:
Amend the bill, as and if amended, by striking Section 12-6-3600(I)(1), as contained in SECTION 1, page 3, and inserting:
/(1) The tax credits authorized by this section may not exceed one hundred dollars for calendar year 2002, two hundred dollars for calendar year 2003, three hundred dollars for calendar year 2004, four hundred dollars for calendar year 2005, and five hundred dollars for calendar year 2006 and thereafter. /
Amend further, in SECTION 2, page 4, line 29, by striking /2001/ and inserting / 2002 / so that when amended, SECTION 2 reads:
/ SECTION 2. This act takes effect upon approval by the Governor and applies to contributions authorized by Section 12-6-3600 made on or after January 1, 2002. /
Renumber sections to conform.
Amend totals and title to conform.
ROBERT W. HARRELL, JR. for Committee.
REVENUE IMPACT 1/
This bill would reduce state revenues by $3,815,438 in fiscal year 2001-02 and increase to $19,077,193 in fiscal year 2005-06, when it would be fully phased in.
Explanation
This bill would create State income-tax credits for contributions to "nonprofit scholarship funding organizations" that would give grants to students attending public or private schools, provided that such organizations: would not provide grants solely for one school; would use at least 80% of money received for grants (after first-year start-up costs); and, would allocate at least 75% of grants to children eligible for the federal free or reduced lunch program. The bill would phase in these tax credits at $100 the first year and increase them by $100 each year, until the credit reached $500 in the fifth year.
Arizona also provides tax credits for contributions to nonprofit scholarship funds. Unlike the proposed bill, Arizona's law provides for a $500 credit for private school donations and $200 credit for public school donations immediately, without a phase-in. During the first year, when, according to the Arizona Department of Revenue, a lawsuit discouraged donations, 15 organizations solicited funds and received $1,815,799. In the second year, 1999 - after the law was upheld - 28 organizations received $13.2 million for private schools and $14 million for public schools, according to the latest tax data available. This data shows that Arizona's taxpayers claiming the credit are likely to use about 84% of the $500 credit.
To estimate the first-year impact in South Carolina, the total credits taken in Arizona were divided to reflect South Carolina's proposed phase-in amount of $100, then multiplied by 78% (the ratio of SC to AZ population) and then multiplied by 84% (based on Arizona's experience - see previous sentence). Based on these calculations, South Carolinians would take $4.8 and $1.8 million respectively for public and private school credits. After allowing for Arizona's greater population, Arizona's estimated income tax revenue for fiscal year 2000-2001 is 15% lower than South Carolina's, therefore the estimate should be increased 15% to $5.4 and $2.0 million respectively for public and private school credits. The bill, however, requires that 75% of grants go to children eligible to receive free or reduced lunches. When the estimate is adjusted to reflect the free and reduced lunch provision, the figures are $3.3 million and $444,910, respectively, for an impact of $3,815,439 in fiscal year 2001-02, rising by an equal amount each year, reaching $19,077,193 in fiscal year 2005-06.
Approved By:
William C. Gillespie
Board of Economic Advisors
1/ This statement meets the requirement of Section 2-7-71 for a state revenue impact, Section 2-7-76 for a local revenue impact, and Section 6-1-85(B) for an estimate of the shift in local property tax incidence.
TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 1976, BY ADDING SECTION 12-6-3600 SO AS TO AUTHORIZE STATE INCOME TAX CREDITS UP TO FIVE HUNDRED DOLLARS A YEAR ON A PHASED-IN BASIS FOR CONTRIBUTIONS MADE TO NONPROFIT EDUCATION FOUNDATIONS THAT PROVIDE ACADEMIC ASSISTANCE GRANTS FOR CHILDREN WHO ATTEND PUBLIC OR NONGOVERNMENT SCHOOLS, A MAJORITY OF WHOM MUST QUALIFY FOR NEEDS-BASED ASSISTANCE, AND TO PROVIDE THE PROCEDURES FOR, AND CONDITIONS AND LIMITATIONS OF, THESE INCOME TAX CREDITS.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. The 1976 Code is amended by adding:
"Section 12-6-3600. (A) The purpose of this section is to:
(1) provide tax credits for certain contributions to a nonprofit education foundation;
(2) expand educational opportunities for children of families that have limited financial resources; and
(3) enable children in this State to achieve a greater level of excellence in their education.
(B) In enacting this section, the General Assembly recognizes diversity among children and affirms that every child is unique. The General Assembly also affirms that children learn differently from one another and may benefit from expanded educational opportunities.
(C) It is the intent of the General Assembly that freedom of religion of all citizens is inviolate and that nothing in this section be construed to cause excessive governmental entanglement with the religious instruction of a nongovernment school. With respect to a nongovernment school, nothing in this section gives a governmental agency authority to regulate, control, supervise, or in any way be involved in the:
(1) form, manner, or content of religious instruction, ministry, teaching, or curriculum offered by the nongovernment school;
(2) ability of the nongovernment school to select and supervise qualified personnel and otherwise control the terms of employment, including the right to employ individuals who share the religious views of the school;
(3) internal self-governance and autonomy of the nongovernment school; or
(4) religious environment of the nongovernment school, such as symbols, art, icons, and scripture.
(D) As used in this section:
(1) 'Eligible school' means a K-12 public school in this State. It also means a nongovernment funded, managed, and operated primary or secondary school that:
(a) offers a general education to primary or secondary school students;
(b) does not discriminate on the basis of race, color, or national origin; and
(c) is located in this State.
(2) 'Nonprofit education foundation' means a charitable organization that:
(a) is exempt from federal tax under Section 501(a) of the Internal Revenue Code by being listed as an exempt organization in Section 501(c)(3) of the code;
(b) allocates, after its first year of operation, a majority of its annual contributions and revenue received to provide academic assistance grants for tuition, transportation, or other academically related expenses including, but not limited to, academic fees, tutoring services, tuition required to attend schools in other districts, special transportation needs, and other types of academic support to children enrolled in an eligible school; provided that if its annual contributions and revenues received in any year exceed three hundred thousand dollars, at least eighty percent of these contributions and revenues must be used to provide such grants;
(c) allocates at least seventy-five percent of its funds used for grants on an annual basis to children who are eligible for the federal free or reduced lunch program;
(d) does not provide grants solely for the benefit of one school and does not accept donations that designate a specific child or school as the beneficiary; and
(e) if the Department of Revenue determines that the nonprofit education foundation is providing grants to students attending one school to the exclusion of other schools, the tax credit allowed by this section may be disallowed.
(3) 'Person' means an individual, partnership, corporation, or other similar entity.
(4) 'Transportation' means transportation to and from school only.
(E) The tax credits allowed by this section may be applied against any tax imposed by this chapter or against insurance premium taxes or bank license fees.
(F) A person is entitled to a tax credit under this section for the amount of money up to the limits of this section if the person contributes to a nonprofit education foundation if the contribution is used to provide school or student support of an academic nature not provided by public or other funding sources provided:
(1) the support does not relate to improvements to or for the purchase of real property;
(2) students who are eligible for the federal free or reduced lunch program receive directly or indirectly at least seventy-five percent of such support on an annual basis;
(3) the grant is used to provide tuition, transportation, academic fees, tutoring services, textbook expenses, other academic support, or any combination thereof.
(G) Grants awarded by the nonprofit education foundation to recipients in eligible schools on a needs basis shall be determined by using applicable federal forms and procedures to determine the ability of the child and the child's family to contribute to the cost of the child's tuition and expenses. Grants given by the organization must provide at least sixty percent of the remaining eligible expenses after deducting the estimated contribution of the child and the child's family and after considering any other tuition assistance available to the family.
(H) Nonprofit education foundations cannot discriminate based on whether a child shall attend a public or nongovernment school.
(I)(1) The tax credits authorized by this section may not exceed one hundred dollars for calendar year 2001, two hundred dollars for calendar year 2002, three hundred dollars for calendar year 2003, four hundred dollars for calendar year 2004, and five hundred dollars for calendar year 2005 and thereafter.
(2) Taxpayers who elect to file a joint return for any year are together limited to the amounts specified by item (1) above, and if a husband and wife file separate returns for any year, they each may claim only one-half of the tax credit that would have been allowed for a joint return for the year.
(3) The tax credits allowed by this section are in lieu of any State of South Carolina charitable contribution deductions that could have been taken on the applicable return in regard to the contribution.
(4) The person must apply for a credit under this section on or with the tax return for the period for which the credit is claimed.
(5) The Department of Revenue shall prescribe the form and manner of proof required to obtain the credit authorized by this section.
(6) A person may claim a credit under this section for a contribution during a particular period only against the tax owed for the corresponding period.
(7) If the allowable tax credit of a taxpayer exceeds the taxes otherwise due or if there are no taxes due, or if a contribution exceeds the allowable tax credit for any year, the excess may be carried forward for a period not exceeding five consecutive years.
(J) A corporation or entity entitled to a credit under this section may not convey, assign, or transfer the credit authorized by this section to another entity unless all of the assets of the entity are conveyed, assigned, or transferred in the same transaction."
SECTION 2. This act takes effect upon approval by the Governor and applies to contributions authorized by Section 12-6-3600 made on or after January 1, 2001.
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