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COMMITTEE REPORT
April 6, 2000
H. 4753
Introduced by Reps. Altman, Robinson, Barfield, Cato, Gilham, Leach, Limehouse, Littlejohn, McGee, Meacham-Richardson, Rhoad, Riser, Stille, Young-Brickell and Loftis
S. Printed 4/6/00--H.
Read the first time March 8, 2000.
To whom was referred a Bill (H. 4753), to amend the Code of Laws of South Carolina, 1976, by adding Section 12-6-3525 so as to authorize state income tax credits up to five hundred dollars a year, 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, in Section 12-6-3525, as contained in SECTION 1, page 3, by striking subsection (G) and inserting:
/(G) The total credit allowed a taxpayer pursuant to this section in a taxable year is as follows:
Taxable Year Total Credit
Beginning After Allowed
1999 $ 50
2000 100
2001 150
2002 200
2003 250
2004 300
2005 350
2006 400 /
Renumber sections to conform.
Amend totals and title to conform.
ROBERT W. HARRELL, JR., for Committee.
REVENUE IMPACT1
This bill would reduce state revenues by $2,759,850 the first year it was in effect (tax year 2000) and increase to $26,422,272 the eighth year it was in effect (tax year 2007), when it would be fully phased in.
Explanation
This bill would create tax credits on state income tax for contributions to "nonprofit scholarship funding organizations" that shall provide grants for tuition, transportation, or textbook expenses to students attending public or private schools, provided that such organizations: shall not provide grants solely for one school; shall use at least 90% of money received for such grants (after first-year start-up costs); and, shall allocate funds so that 50% of their scholarships are given to children who have been enrolled in a public school during a previous year or during a prior period immediately before receiving such a scholarship. The bill would phase in these tax credits at $50 the first year and then increase by $50 each year, until the credit reached $400 in the eighth year and every year thereafter. The contributions leading to this credit could not also be used for a charitable deduction. In the event the taxpayer had no taxes due, the credit exceeded the taxes due, or the contribution exceeded the allowable tax credits, the taxpayer would be allowed to carry forward the excess for not more than five years.
Arizona also provides tax credits for contributions to nonprofit scholarship funds. Unlike the proposed bill, Arizona's law provided for a $500 credit for private school donations and $200 credit for public school donations immediately, without a phase-in. A law suit brought against the law in 1998 created uncertainty regarding its validity and discouraged the formation of private-school scholarship funding organizations, according to officials at the Arizona Department of Revenue. In tax year 1999, however, the formation of organizations and donations increased considerably. Thus in the first year, 15 organizations solicited funds and received a total of $1,815,799. In the second year, 1999 - after the law was upheld - 28 organizations received $13.2 million, 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. Arizona's population is about 4.6 million whereas South Carolina' s is about 3.8 million.
The largest year-over-year gain in private school enrollment in South Carolina this decade is 2,900 students. Since this bill would require that 50% of the private-school students receiving grants be former public school students, it is expected that the credit would taken on 5,800 students in tax year 2000, the first year of the bill's effect. The average increase in private school enrollment, based on the latest available five-year period, is 1,668, so the 2,900 increase is not typical. After the first year, it is estimated that an additional 3,336 (1,668 plus an equal matching number of private school students) would be eligible to receive grants, making a total of 9,136 (5,800 + 3,336). The total eligible to receive grants is cumulative because the bill states that at least 50% of the scholarships shall be given "to children who have been enrolled in public school during a previous year or during a prior period immediately before receiving such a scholarship." "A previous year" indicates the student may have attended public school any previous year. The number eligible would increase to about 12,500 in the third year, 15,800 in the fourth year until reaching about 29,000 in the eighth. Dividing these figures by an average 1.8 students per taxpayer and multiplying them by 84% (based on Arizona's experience - see paragraph above) of $50 ($42) yields the estimated impacts for each year of this bill's phase-in for donations to private schools. This year Arizona's Department of Revenue estimates donations to public schools to be $14 million for all $200 tax credits. The first year of this bill's effect, it is estimated the impact would be a quarter of this amount (due to the $50 first-year cap) multiplied by 75%, the ratio of the South Carolina's to Arizona's population, yielding $2,625,000 million. Each year the impact of public school donations would rise by $2,625,000.
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 12-6-3525 SO AS TO AUTHORIZE STATE INCOME TAX CREDITS UP TO FIVE HUNDRED DOLLARS A YEAR ON A PHASED-IN BASIS FOR CONTRIBUTIONS MADE TO PUBLIC SCHOOLS FOR SCHOOL SUPPORT AND TO NONPROFIT SCHOLARSHIP FUNDING ORGANIZATIONS THAT PROVIDE SCHOLARSHIPS FOR CHILDREN TO ATTEND A SCHOOL OF THEIR CHOICE.
Be it enacted by the General Assembly of the State of South Carolina:
SECTION 1. The 1976 Code is amended by adding:
"Section 12-6-3525. (A) The purpose of this section is to:
(1) provide a tax credit for certain contributions to a nonprofit scholarship funding organization or a public school;
(2) enable persons in this State to provide greater financial resources for public schools;
(3) expand educational opportunities for children of families that have limited financial resources; and
(4) 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 nonpublic school. With respect to a nonpublic 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 nonpublic school;
(2) ability of the nonpublic 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 nonpublic school; or
(4) religious environment of the nonpublic school, such as symbols, art, icons, and scripture.
(D) As used in this section:
(1) 'Eligible school' means a public or nonpublic primary or secondary school that:
(a) offers a general education to primary or secondary students;
(b) does not discriminate on the basis of race, color, or national origin; and
(c) is located in this State.
(2) 'Nonprofit scholarship funding organization' 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; and
(b) allocates at least ninety percent of its annual revenue after first-year start-up expenses to providing scholarships for tuition, transportation, and textbook expenses to children enrolled in an eligible school, giving priority to children who demonstrate a need for the scholarships.
(3) 'Person' means an individual, partnership, corporation, or other similar entity.
(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 credit under this section for the amount of money the person contributes to a public school; or to a nonprofit scholarship funding organization if:
(1) the contribution is used to provide scholarships for tuition, transportation, or textbook expenses to children enrolled in eligible schools;
(2) the person does not designate a specific child or school as the beneficiary of the contribution; and
(3) the contribution is used to provide scholarships of which at least fifty percent are given to children who have been enrolled in a public school during a previous year or during a prior period immediately before receiving such a scholarship.
(G) The total credits claimed under this section may not exceed one hundred dollars for the year 2000, two hundred dollars for 2001, three hundred dollars for 2002, four hundred dollars for 2003, and five hundred dollars for 2004 and thereafter.
(H)(1) 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.
(2) The Department of Revenue shall prescribe the form and manner of proof required to obtain the credit authorized by this section.
(3) 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.
(4) A contribution in excess of the limitation under this section may be carried forward for a period not exceeding five years.
(5) The contribution if claimed as a credit by a taxpayer as permitted by this section may not also be claimed as a charitable deduction by the taxpayer.
(I) 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, 2000.
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