2013-2014 Bill 279: Income Tax Deduction for Tuition - South Carolina Legislature Online

1 South Carolina General Assembly 2 120th Session, 2013-2014 3 4 S. 279 5 6 STATUS INFORMATION 7 8 General Bill 9 Sponsors: Senators Grooms, Gregory, Ford, Bright, Bryant, Hembree, Campsen, Shealy, Davis, Corbin, 10 Peeler, Thurmond, Campbell, Fair, Verdin and Cleary 11 Document Path: l:\council\bills\nl\13075dg13.docx 12 13 Introduced in the Senate on January 23, 2013 14 Currently residing in the Senate Committee on Finance 15 16 Summary: Income tax deduction for tuition 17 18 19 HISTORY OF LEGISLATIVE ACTIONS 20 21 Date Body Action Description with journal page number 22 1/23/2013 Senate Introduced and read first time ( Senate Journalpage 9) 23 1/23/2013 Senate Referred to Committee on Finance ( Senate Journalpage 9) 24 25 26 VERSIONS OF THIS BILL 27 28 1/23/2013 29 1 2 3 4 5 6 7 8 9 A BILL 10 11 TO AMEND THE CODE OF LAWS OF SOUTH CAROLINA, 12 1976, BY ADDING SECTION 1261145 SO AS TO AUTHORIZE 13 A DEDUCTION FROM STATE OF SOUTH CAROLINA 14 TAXABLE INCOME UP TO SPECIFIED AMOUNTS FOR 15 TUITION PAID BY A PARENT OR LEGAL GUARDIAN FOR 16 THEIR CHILD OR WARD TO ATTEND AN INDEPENDENT 17 SCHOOL OR A PUBLIC SCHOOL OUTSIDE THE CHILD’S 18 OR WARD’S SCHOOL DISTRICT OF RESIDENCE, AND TO 19 ALSO AUTHORIZE A SIMILAR INCOME TAX DEDUCTION 20 UP TO A SPECIFIED AMOUNT TO A PARENT OR LEGAL 21 GUARDIAN FOR HOME SCHOOL EXPENDITURES; AND 22 BY ADDING SECTION 1261146 SO AS TO AUTHORIZE A 23 CREDIT AGAINST A TAXPAYER’S SOUTH CAROLINA 24 INCOME TAX LIABILITY OR CERTAIN OTHER TAX 25 LIABILITY FOR CONTRIBUTIONS MADE TO NONPROFIT 26 SCHOLARSHIP FUNDING ORGANIZATIONS THAT 27 PROVIDE GRANTS FOR CHILDREN WHO ARE ELIGIBLE 28 FOR THE FEDERAL FREE OR REDUCED SCHOOL LUNCH 29 PROGRAM, WHO ARE “EXCEPTIONAL NEEDS” 30 CHILDREN, OR WHOSE FAMILIES MEET THE 31 REQUIREMENTS FOR FEDERAL MEDICAID BENEFITS TO 32 ATTEND INDEPENDENT SCHOOLS OF THEIR CHOICE, 33 AND TO PROVIDE THE PROCEDURES FOR, AND 34 CONDITIONS AND LIMITATIONS OF THESE TAX 35 CREDITS. 36 37 Be it enacted by the General Assembly of the State of South 38 Carolina: 39 40 SECTION 1. Article 9, Chapter 6, Title 12 of the 1976 Code is 41 amended by adding: 42

[279] 2 1 “Section 1261145.(A)As used in this section: 2 (1) ‘Independent school’ means a school, other than a public 3 school, at which the compulsory attendance requirements of 4 Section 596510 may be met and that does not discriminate based 5 on the grounds of race, color, or national origin. For purposes of 6 this definition, ‘independent school’ does not include a home 7 school as defined in item (2). 8 (2) ‘Home school’ means a home, residence, or location where 9 a parent or legal guardian teaches one or more children as 10 authorized pursuant to Section 596540, 596545, or 596547. 11 (3) ‘Parent’ means the natural or adoptive parent or legal 12 guardian of a child. 13 (4) ‘Qualifying student’ means a student who is a South 14 Carolina resident and who is eligible to be enrolled in a South 15 Carolina secondary or elementary public school at the kindergarten 16 or later year level for the current school year. 17 (5) ‘Resident public school district’ means the public school 18 district in which a student resides. 19 (6) ‘Tuition’ means the total amount of money charged for the 20 cost of a qualifying student to attend an independent school 21 including, but not limited to, fees for attending the school and 22 schoolrelated transportation. 23 (B)(1) Beginning with the 20132014 school year, a parent or 24 legal guardian who teaches one or more qualifying students at 25 home as authorized pursuant to Section 596540, 596545, or 26 596547 may take a deduction against their State of South Carolina 27 taxable income of up to two thousand dollars per home school 28 student for instructionrelated expenditures. This deduction is 29 limited to a total of two thousand dollars per child per year 30 regardless of the number of taxpayers incurring home school 31 instructionrelated expenses on behalf of that child. The deduction 32 allowed by this subsection is fully deductible for the calendar year 33 in which the home school term begins provided the qualifying 34 student completes the school term for that school year. 35 (2) Beginning with the 20132014 school year, a parent or 36 legal guardian is entitled to a deduction against their State of South 37 Carolina taxable income of up to four thousand dollars paid to an 38 independent school within this State for tuition on behalf of their 39 child or ward to attend the independent school for that school year. 40 The child or ward must be a qualifying student as this term is 41 defined in subsection (A)(4). This deduction is limited to a total of 42 four thousand dollars per child per year regardless of the number 43 of taxpayers making tuition payments on behalf of that child. The

[279] 3 1 deduction allowed by this subsection is fully deductible for the 2 calendar year in which the school term begins provided the 3 qualifying student completes the school term for that school year. 4 (3) Beginning with the 20132014 school year, a parent or 5 legal guardian is entitled to a deduction against their State of South 6 Carolina taxable income of up to one thousand dollars paid on 7 behalf of their child or ward to attend a school in a school district 8 which is not the school district of residence of the child or ward. 9 This deduction is limited to a total of one thousand dollars per 10 child per year regardless of the number of taxpayers making 11 payments to another school district on behalf of that child. The 12 deduction allowed by this subsection is fully deductible for the 13 calendar year in which the school term begins provided the 14 qualifying student completes the school term for that school year. 15 (4) Beginning with the 2014-2015 school year, the dollar 16 amount of the deductions provided for in items (1), (2), and (3) 17 above must be increased on an annual basis by an inflation factor 18 equal to the percentage increase in the previous year of the 19 Consumer Price Index, Southeast Region, as published by the 20 United States Department of Labor, Bureau of Labor Statistics plus 21 the percentage increase in the previous year in the population of 22 the State as determined by the Office of Research and Statistics of 23 the State Budget and Control Board. 24 The department shall publish the increases as determined in this 25 item each year on its website available to the general public.” 26 27 SECTION 2. Article 9, Chapter 6, Title 12, of the 1976 Code is 28 amended by adding: 29 30 “Section 1261146. (A) The purpose of this section is to: 31 (1) provide tax credits for certain contributions to a 32 nonprofit scholarship funding organization; 33 (2) expand educational opportunities for children of families 34 that have limited financial resources or exceptional needs; and 35 (3) enable children in this State to achieve a greater level of 36 excellence in their education. 37 (B) In enacting this section, the General Assembly recognizes 38 diversity among children and affirms that every child is unique. 39 The General Assembly also affirms that children learn differently 40 from one another and may benefit from expanded educational 41 opportunities. 42 (C) As used in this section:

[279] 4 1 (1) ‘Eligible school’ means an independent school including 2 those religious in nature, other than a public or home school, at 3 which the compulsory attendance requirements of Section 596510 4 may be met, that: 5 (a) offers a general education to primary or secondary 6 school students; 7 (b) does not discriminate on the basis of race, color, or 8 national origin; 9 (c) is located in this State; 10 (d) has an educational curriculum that includes courses set 11 forth in the state’s diploma requirements and where the students 12 attending are administered national achievement or state 13 standardized tests, or both, at progressive grade levels to determine 14 student progress; 15 (e) has school facilities that are subject to applicable 16 federal, state, and local laws; and 17 (f) is a member in good standing of the Southern 18 Association of Colleges and Schools, the South Carolina 19 Association of Christian Schools or the South Carolina 20 Independent Schools Association. 21 (2) ‘Nonprofit scholarship funding organization’ means a 22 charitable organization that: 23 (a) is exempt from federal tax under Section 501(a) of the 24 Internal Revenue Code by being listed as an exempt organization 25 in Section 501(c)(3) of the Code; 26 (b) allocates, after its first year of operation, at least 27 ninetyfive percent of its annual contributions and revenue received 28 during a particular year to provide grants for tuition, 29 transportation, or textbook expenses (collectively hereinafter 30 referred to as tuition) or any combination thereof to children 31 enrolled in an eligible school meeting the criteria of this section, 32 and incurs administrative expenses annually, after its first year of 33 operation, of not more than five percent of its annual contributions 34 and revenue for a particular year; 35 (c) allocates all of its funds used for grants on an annual 36 basis to children who are ‘exceptional needs’ students as defined 37 herein, or who are eligible for the federal free or reduced lunch 38 program, or whose families meet the qualifications for federal 39 Medicaid benefits; 40 (d) does not provide grants solely for the benefit of one 41 school, and if the Department of Revenue determines that the 42 nonprofit scholarship funding organization is providing grants to

[279] 5 1 one particular school, the tax credit allowed by this section may be 2 disallowed; 3 (e) does not have as a member of its governing board any 4 parent, legal guardian, or member of their immediate family who 5 has a child or ward who is currently receiving or has received a 6 scholarship grant authorized by this section from the organization 7 within one year of the date the parent, legal guardian, or member 8 of their immediate family became a board member; and 9 (f) does not have as a member of its governing board any 10 person who has been convicted of a felony, or who has declared 11 bankruptcy within the last seven years. 12 (3) ‘Person’ means an individual, partnership, corporation, 13 or other similar entity. 14 (4) ‘Transportation’ means transportation to and from school 15 only. 16 (D) The tax credits allowed by this section may be used in 17 computing any tax imposed by this chapter or in computing 18 insurance premium taxes or bank license fees; provided, that the 19 tax credit may not offset more than sixty percent of the taxpayer’s 20 liability for a particular year. 21 (E) A person is entitled to a tax credit under this section for the 22 amount of money the person contributes to a nonprofit scholarship 23 funding organization up to the limits of this section if: 24 (1) the contribution is used to provide grants for tuition, 25 transportation, or textbook expenses (tuition) or any combination 26 thereof to children enrolled in eligible schools who qualify for 27 these grants under the provisions of this section; and 28 (2) the person does not designate a specific child or school 29 as the beneficiary of the contribution. 30 (F)(1) Grants may be awarded by the nonprofit scholarship 31 funding organization in an amount not exceeding five thousand 32 dollars per year or the total cost of tuition, whichever is less, for 33 children who are eligible for the federal free or reduced school 34 lunch program or whose families meet the requirements for federal 35 Medicaid benefits to attend an independent school. The dollar and 36 percentage amounts of grants permitted by this item must be 37 increased annually beginning with 2014, in the manner provided in 38 subsection (H). 39 (2) In addition to the provisions of item (1), grants may be 40 awarded by a scholarship funding organization in an amount not 41 exceeding ten thousand dollars or the total cost of tuition, 42 whichever is less, for students with ‘exceptional needs’ to attend 43 an independent school. An ‘exceptional needs’ child is defined as

[279] 6 1 a child who has significant cognitive, mental, physical, or 2 emotional disabilities and whose parents or legal guardian believe 3 that the services provided by the school district of legal residence 4 do not sufficiently meet the needs of their child. The dollar and 5 percentage amounts of the grants permitted by this item must be 6 increased annually beginning in 2014, in the manner provided in 7 subsection (H). 8 (G)(1) The tax credits authorized by this section may not exceed 9 cumulatively a total of fifteen million dollars annually for 10 contributions made on behalf of students who are eligible for the 11 federal free or reduced lunch program and whose families meet the 12 qualifications for federal Medicaid benefits, and the tax credits 13 authorized by this section may not exceed cumulatively a total of 14 ten million dollars annually for contributions made on behalf of 15 ‘exceptional needs’ students. If the Department of Revenue 16 determines for a particular year that the total of such credits 17 claimed by all taxpayers for one or both categories exceed these 18 amounts, it shall allow credits only up to those amounts on a first 19 come, first serve basis. The dollar amount of each of the tax credit 20 caps imposed by this item, beginning with 2014, must be increased 21 annually in the manner provided in subsection (H). 22 (2) Taxpayers making contributions to a nonprofit 23 scholarship funding organization who desire that a portion or all of 24 their contributions be used for grants for exceptional needs 25 children shall state with their contribution the amount to be used 26 for this purpose. These amounts so stated must be used for 27 purposes of computing the maximum tax credit amounts under 28 item (1) of this subsection authorized for contributions on behalf of 29 exceptional needs students. If no such designation for exceptional 30 needs children is made, the contribution shall come within the 31 maximum tax credit limitation for contributions pertaining to 32 students who are eligible for the federal free or reduced lunch 33 program and whose families meet the qualifications for federal 34 Medicaid benefits provided in item (1). 35 (3) If a husband and wife file separate returns for any year, 36 they each may only claim onehalf of the tax credit that would have 37 been allowed for a joint return for the year. 38 (4) The person shall apply for a credit under this section on 39 or with the tax return for the period for which the credit is claimed. 40 (5) The Department of Revenue shall prescribe the form and 41 manner of proof required to obtain the credit authorized by this 42 section. Also, the department shall develop a method of informing

[279] 7 1 taxpayers if either of the credit limits set forth in item (1) are met 2 at any time during the tax year. 3 (6) A person may claim a credit under this section for a 4 contribution during a particular period only against the tax owed 5 for the corresponding period. 6 (7) Any unused tax credit, including the portion of a 7 contribution which is reduced pro rata under item (1) of this 8 subsection, may be carried forward for a period not exceeding five 9 consecutive years. However, the tax credit is not refundable. 10 (H)(1) Beginning with the year 2014, the dollar amount and 11 percentage amount of a scholarship which may be granted under 12 this section and the dollar amount of each of the tax credit caps 13 provided in subsection (G)(1) must be increased on an annual basis 14 by an inflation factor equal to the percentage increase in the 15 previous year of the Consumer Price Index, Southeast Region, as 16 published by the United States Department of Labor, Bureau of 17 Labor Statistics plus the percentage increase in the previous year in 18 the population of the State as determined by the Office of Research 19 and Statistics of the State Budget and Control Board. 20 (2) The department shall publish the increases determined 21 under item (1) each year on its website available to the general 22 public. 23 (I) A corporation or entity entitled to a credit under this section 24 may not convey, assign, or transfer the deduction or credit 25 authorized by this section to another entity unless all of the assets 26 of the entity are conveyed, assigned, or transferred in the same 27 transaction. 28 (J) Except as otherwise provided by this section, neither the 29 Department of Education, the Department of Revenue, nor any 30 other state agency may regulate the educational program of an 31 independent school that accepts students receiving scholarship 32 grants pursuant to this section. 33 (K)(1) The Education Oversight Committee, as established in 34 Chapter 6, Title 59, is responsible for determining if an eligible 35 school meets the criteria established by subsection (C)(1) of this 36 section, and shall annually publish an approved list of such schools 37 meeting this criteria as provided in item (2) below. For this 38 purpose, it also shall promulgate regulations further enumerating 39 the specifics of this criteria. In performing this function, the 40 Education Oversight Committee shall establish an advisory 41 committee made up of not more than nine members including 42 parents, and representatives of independent schools and 43 independent school associations. The advisory committee shall

[279] 8 1 provide recommendations to the Education Oversight Committee 2 on the content of these regulations and any other matters requested 3 by the Education Oversight Committee. 4 (2)(a) By the first day of August of each year, beginning on 5 August 1, 2013, the Education Oversight Committee, on its 6 website available to the general public, shall provide a list with 7 addresses and telephone numbers of nonprofit scholarship funding 8 organizations in good standing which provide grants under this 9 section, and a list of approved independent schools which accept 10 grants for eligible students under this section and which in its 11 determination are in compliance with the requirements of 12 subsection (C)(1) of this section. 13 (b) Student test scores each year, by category, on national 14 achievement or state standardized tests, or both, for all grades 15 tested and administered by an eligible school receiving or entitled 16 to receive scholarship grants under this section must be transmitted 17 to the Education Oversight Committee which in turn shall publish 18 this information on its website with the most recent scores by 19 category included. 20 (3) Any independent school not determined to be an eligible 21 school under the provisions of this section may seek review by 22 filing a request for a contested case hearing with the 23 Administrative Law Court in accordance with the court’s rules of 24 procedure. 25 (4) The Education Oversight Committee, after consultation 26 with its ninemember advisory committee, may exempt an 27 independent school having students with exceptional needs who 28 receive scholarship grants pursuant to this section from the 29 curriculum requirements of subsection (C)(1)(d). 30 (L)(1) Every nonprofit scholarship funding organization 31 providing grants under this section shall cause an outside auditing 32 firm each year to conduct a comprehensive financial audit of its 33 operations in conformity with generally accepted accounting 34 principles and shall furnish same within thirty days of its 35 completion and acceptance to the Secretary of State and 36 Department of Revenue which must be made available by them on 37 their website for public review. 38 (2) Every independent school accepting grants for eligible 39 students under this section shall cause to be conducted a 40 compliance audit by an outside entity or auditing firm examining 41 its compliance with the provisions of this section and shall furnish 42 the same within thirty days of its completion and acceptance to the

[279] 9 1 Secretary of State and Department of Revenue which must be 2 made available by them on their website for public review. 3 (M) On January 1, 2016, and on January first every three years 4 thereafter, the Education Oversight Committee shall report to the 5 Governor and the General Assembly on the effectiveness and 6 success of this section and whether or not the purposes of this 7 section as provided in subsections (A) and (B) hereunder have 8 been accomplished.” 9 10 SECTION 3. If a section, subsection, paragraph, subparagraph, 11 sentence, clause, phrase, or word of this act is for any reason held 12 to be unconstitutional or invalid, this holding does not affect the 13 constitutionality or the validity of the remaining portions of this 14 act, the General Assembly hereby declaring that it would have 15 passed this act, and each section, subsection, paragraph, 16 subparagraph, sentence, clause, phrase, and word thereof, 17 irrespective of the fact that any one or more other sections, 18 subsections, paragraphs, subparagraphs, sentences, clauses, 19 phrases, or words thereof may be declared to be unconstitutional, 20 invalid, or otherwise ineffective. 21 22 SECTION 4. Members of the General Assembly serving at the 23 time of this act’s effective date are not eligible to take the tax 24 deduction provided for in Section 12-6-1145 of the 1976 Code, as 25 added by SECTION 1 of this act, for four years after this act’s 26 effective date. 27 28 SECTION 5. This act takes effect upon approval by the Governor 29 and shall be reviewed by the General Assembly and the Education 30 Oversight Committee by December 31, 2020. The tax deductions 31 authorized by SECTION 1 and tax credits authorized by SECTION 32 2 of this act may be taken to the extent authorized beginning with 33 calendar year 2013. 34 XX 35

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