ARIZONA STATE SENATE RESEARCH STAFF
MEMO

Stacey Morley

Legislative Intern

Senate Education Committee

542-0117

TO: MEMBERS OF THE SENATE EDUCATION COMMITTEE

DATE: March 19, 1997

Re: Strike-everything Amendment to H.B. 2074

Purpose

Establishes an individual income tax credit of up to $500 for contributions to a charitable organization that distributes choice scholarships or tuition grants. Allows an individual income tax credit of up to $200 for any fees paid by a taxpayer to a public school for the support of extra curricular activities.

Background

For individuals who itemize deductions for Arizona income tax purposes, the state allows a deduction for charitable cash contributions. In lieu of this deduction, H.B. 2206 establishes a $500 income tax credit for taxpayers who give a voluntary cash contribution to a school tuition organization.

The bill defines a school tuition organization as a charitable organization in this state that is exempt from federal taxation and that allocates at least 90 per cent of its annual revenue for educational scholarships or tuition grants to children to allow them to attend a nongovernmental primary or secondary school of their parents' choice that does not discriminate on the basis of race, color, sex, handicap, familial status or national origin. In addition, a school tuition organization must provide the scholarships or grants to more than one qualifying school.

The legislation additionally allows a $200 income tax credit for any fees paid by a taxpayer to a public school for the support of extra curricular activities. "Extra curricular activities" is defined as school sponsored activities that require enrolled students to pay STRIKE-EVERYTHING MEMORANDUM H.B. 2074 Page

a fee in order to participate. Examples include band uniforms, equipment or uniforms for varsity athletic activities and scientific laboratory fees.

According to the staff of the Joint Legislative Budget Committee, the net fiscal impact for the credit for donations to school tuition organizations is estimated at $4.5 million per year beginning in FY 1998-1999. The fiscal impact associated with the credit for fees for extra curricular activities is estimated at $3.9 million per year beginning FY 1998-1999.

Provisions

DONATIONS TO SCHOOL TUITION ORGANIZATIONS

1. Beginning tax year 1998, establishes a nonrefundable income tax credit, in lieu of a deduction, from Arizona adjusted gross income, for cash contributions of up to $500 made to a school tuition organization. The credit is disallowed if the taxpayer designates the donation for the direct benefit of any dependent of the taxpayer.

2. Allows excess credit amounts to be carried forward for up to five consecutive years.

3. Requires the director of the Department of Revenue to submit a report by July 1, 1999 to the Governor, the President of the Senate and the Speaker of the House of Representatives regarding the fiscal impact of the tax credit.

4. Defines "qualified school @ and "school tuition organization. @

FEES FOR EXTRA CURRICULAR ACTIVITIES

5. Allows a nonrefundable individual income tax credit, up to $200, for any fees paid by a taxpayer to a public school for the support of extra curricular activities.

6. Allows excess credit amounts to be carried forward for up to five consecutive years.

7. Defines "extra curricular activities."

MISCELLANEOUS

8. Contains a general effective date.

SM/cmh

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