2000 Legislation
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HOUSE BILL NO. 627 – College savings program

HOUSE BILL NO. 627

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H0627...............................................by REVENUE AND TAXATION
COLLEGE SAVINGS PROGRAM - Amends and adds to existing law to establish the
College Savings Program; and to establish the College Savings Program
Board; and to provide the powers and duties of the board.
                                                                        
02/18    House intro - 1st rdg - to printing
02/21    Rpt prt - to Rev/Tax
03/02    Rpt out - rec d/p - to 2nd rdg
03/03    2nd rdg - to 3rd rdg
03/08    3rd rdg - PASSED - 65-4-1
      AYES -- Alltus, Barraclough(Barraclough), Barrett, Bell, Bieter,
      Black, Boe, Bruneel, Callister, Campbell, Chase, Cheirrett, Clark,
      Crow, Cuddy, Deal, Denney, Ellsworth, Field(13), Field(20), Gagner,
      Gould, Hadley, Hammond, Hansen(23), Hansen(29), Henbest, Hornbeck,
      Jaquet, Jones, Judd, Kellogg, Kempton, Kendell, Kunz, Lake, Linford,
      Loertscher, Mader, Marley, Meyer, Montgomery, Mortensen, Moss, Moyle,
      Pischner, Pomeroy, Reynolds, Ridinger, Ringo, Robison, Sali,
      Schaefer, Sellman, Shepherd, Smith, Smylie, Stevenson, Stoicheff,
      Stone, Tilman, Trail, Wood, Zimmermann, Mr Speaker
      NAYS -- Geddes, McKague, Pearce, Taylor
      Absent and excused -- Wheeler
    Floor Sponsors - Gagner, Boe
    Title apvd - to Senate
03/09    Senate intro - 1st rdg - to Loc Gov
03/21    Rpt out - rec d/p - to 2nd rdg
03/22    2nd rdg - to 3rd rdg
04/03    3rd rdg - PASSED - 35-0-0
      AYES -- Andreason, Boatright, Branch, Bunderson, Burtenshaw, Cameron,
      Crow, Danielson, Darrington, Davis, Deide, Dunklin, Frasure, Geddes,
      Hawkins, Ingram, Ipsen, Keough, King-Barrutia, Lee, McLaughlin, Noh,
      Parry, Richardson, Riggs, Risch, Sandy, Schroeder, Sorensen, Stegner,
      Stennett, Thorne, Wheeler, Whitworth, Williams
      NAYS -- None
      Absent and excused -- None
    Floor Sponsor - Ipsen
    Title apvd - to House
04/04    To enrol - rpt enrol - Sp signed
04/05    Pres signed - to Governor
04/12    Governor signed
         Session Law Chapter 213
         Effective: 01/01/00

Bill Text


 H0627
                                                                        
                                                                        
  ||||              LEGISLATURE OF THE STATE OF IDAHO             ||||
 Fifty-fifth Legislature                  Second Regular Session - 2000
                                                                        
                                                                        
                              IN THE HOUSE OF REPRESENTATIVES
                                                                        
                                     HOUSE BILL NO. 627
                                                                        
                             BY REVENUE AND TAXATION COMMITTEE
                                                                        
  1                                        AN ACT
  2    RELATING TO A COLLEGE SAVINGS PROGRAM; AMENDING TITLE 33, IDAHO CODE,  BY  THE
  3        ADDITION  OF  A  NEW CHAPTER 54, TITLE 33, IDAHO CODE, TO DEFINE TERMS, TO
  4        ESTABLISH AND PROVIDE POWERS AND DUTIES TO THE STATE COLLEGE SAVINGS  PRO-
  5        GRAM  BOARD REGARDING THE COLLEGE SAVINGS PROGRAM, TO PROVIDE THE USE OF A
  6        CONTRACTOR OR CONTRACTORS AS ACCOUNT DEPOSITORY AND  MANAGER,  TO  PROVIDE
  7        PROGRAM  REQUIREMENTS, TO PROVIDE FOR TAXATION, TO PROVIDE SCHOLARSHIP AND
  8        FINANCIAL AID PROVISIONS, TO PROVIDE LIMITATIONS AND TO PROVIDE AN  ANNUAL
  9        REPORT;  AMENDING SECTION 63-3022, IDAHO CODE, TO PROVIDE A DEDUCTION WITH
 10        A LIMITATION TO COLLEGE SAVINGS PROGRAMS; DECLARING AN EMERGENCY AND  PRO-
 11        VIDING RETROACTIVE APPLICATION.
                                                                        
 12    Be It Enacted by the Legislature of the State of Idaho:
                                                                        
 13        SECTION  1.  That Title 33, Idaho Code, be, and the same is hereby amended
 14    by the addition thereto of a NEW CHAPTER, to be known and designated as  Chap-
 15    ter 54, Title 33, Idaho Code, and to read as follows:
                                                                        
 16                                      CHAPTER 54
 17                               COLLEGE SAVINGS PROGRAM
                                                                        
 18        33-5401.  DEFINITIONS.  As  used in this chapter, the following terms have
 19    the following meanings unless the context clearly denotes otherwise:
 20        (1)  "Account" means an individual trust account or savings account estab-
 21    lished as prescribed in this chapter.
 22        (2)  "Account owner" means the person designated at the time an account is
 23    opened as having the right to withdraw moneys  from  the  account  before  the
 24    account is disbursed to or for the benefit of the designated beneficiary.
 25        (3)  "Board" means the state college savings program board created in sec-
 26    tion 33-5402, Idaho Code.
 27        (4)  "Designated  beneficiary,"  except  as  provided  in section 33-5404,
 28    Idaho Code, means, with respect to an account, the person  designated  at  the
 29    time  the  account is opened as the person whose higher education expenses are
 30    expected to be paid from the account or, if  this  designated  beneficiary  is
 31    replaced in accordance with section 33-5404, Idaho Code, the replacement bene-
 32    ficiary.
 33        (5)  "Financial institution" means any state bank,  national bank, savings
 34    bank, savings and loan association, credit union, insurance company, brokerage
 35    firm or other similar entity that is authorized to do business in this state.
 36        (6)  "Higher education institution" means any of the following:
 37        (a)   An  institution  described in the higher education act of 1965 (P.L.
 38        89-329; 79 Stat. 1219; 20 U.S.C. sections 1001 et seq.);
 39        (b)  An area vocational educational school as defined in 20 U.S.C. section
 40        2471(4);
 41        (c)  An institution regulated by the state board of education.
 42        (7)  "Member of the family" means any of the following:
                                                                        
                                           2
                                                                        
  1        (a)  A son or daughter of a person or a descendant of the son or  daughter
  2        of the person;
  3        (b)  A stepson or stepdaughter of a person;
  4        (c)  A  brother,  sister,  stepbrother or stepsister of a person. For pur-
  5        poses of this paragraph, "brother" and "sister" include a brother or  sis-
  6        ter by the half-blood;
  7        (d)  The  father  or  mother  of a person or the ancestor of the father or
  8        mother of a person;
  9        (e)  A stepfather or stepmother of a person;
 10        (f)  A son or daughter of a person's brother or sister.  For  purposes  of
 11        this  paragraph, "brother" and "sister" include a brother or sister by the
 12        half-blood;
 13        (g)  A brother or sister of the person's father or mother. For purposes of
 14        this paragraph, "brother" and "sister" include a brother or sister by  the
 15        half-blood;
 16        (h)  A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-
 17        in-law or sister-in-law of a person;
 18        (i)  The  spouse  of a person or the spouse of any individual described in
 19        this paragraph;
 20        (j)  Any individual who meets the criteria for family membership described
 21        in this subsection  as a result of legal adoption.
 22        (8)  "Nonqualified withdrawal" means a withdrawal from  an  account  other
 23    than one (1) of the following:
 24        (a)  A qualified withdrawal;
 25        (b)  A  withdrawal  made  as  the result of the death or disability of the
 26        designated beneficiary of an account;
 27        (c)  A withdrawal that is made on the account of  a  scholarship,  or  the
 28        allowance  or  payment  described  in  section  135(d)(1)(B) or (C) of the
 29        Internal Revenue Code, and that is received by the designated beneficiary,
 30        but only to the extent of the amount of  this  scholarship,  allowance  or
 31        payment;
 32        (d)  A rollover or change of the designated beneficiary.
 33        (9)  "Program"  means  the  college savings program established under this
 34    chapter.
 35        (10) "Qualified higher education expenses"  means  tuition,  fees,  books,
 36    supplies,  room and board, and equipment required for enrollment or attendance
 37    of a designated beneficiary at a higher education institution.
 38        (11) "Qualified withdrawal" means a withdrawal from an account to pay  the
 39    qualified  higher  education  expenses  of  the  designated beneficiary of the
 40    account, but only if the withdrawal is made in accordance with this chapter.
                                                                        
 41        33-5402.  STATE COLLEGE SAVINGS PROGRAM BOARD -- COLLEGE  SAVINGS  PROGRAM
 42    --  POWERS  AND DUTIES. There is hereby created the state college savings pro-
 43    gram board. The board shall consist of the state treasurer or his designee who
 44    shall serve as chair, the governor or designee, the state controller or desig-
 45    nee, the attorney general or designee, the superintendent of  public  instruc-
 46    tion  or  designee, and the secretary of state or designee.  A quorum shall be
 47    necessary to transact business. Members of the board shall be  compensated  by
 48    their appointing entity. The state college savings program board shall:
 49        (1)  Develop  and  implement  the program in a manner consistent with this
 50    chapter through the adoption of rules, guidelines and procedures;
 51        (2)  Retain professional services, if  necessary,  including  accountants,
 52    auditors, consultants and other experts;
 53        (3)  Seek  rulings and other guidance from the United States department of
 54    the treasury, the internal revenue service and the state tax commission relat-
                                                                        
                                           3
                                                                        
  1    ing to the program;
  2        (4)  Make changes to the program required for the participants in the pro-
  3    gram to obtain the federal income tax benefits or treatment provided  by  sec-
  4    tion 529 of the Internal Revenue Code of 1986, as amended.
  5        (5)  Interpret,  in rules, policies, guidelines and procedures, the provi-
  6    sions of this chapter broadly in light of its purpose and objectives;
  7        (6)  Charge, impose and collect administrative fees and service charges in
  8    connection with any agreement, contract or transaction relating  to  the  pro-
  9    gram;
 10        (7)  Select the financial institution or institutions to act as the depos-
 11    itory and manager of the program in accordance with this chapter.
                                                                        
 12        33-5403.  USE  OF  CONTRACTOR  AS ACCOUNT DEPOSITORY AND MANAGER. (1)  The
 13    board shall implement the program through the use of one (1) or more financial
 14    institutions to act as the depositories and managers. Under the program,  per-
 15    sons may establish accounts through the program at the depository.
 16        (2)  The  board shall solicit proposals from financial institutions to act
 17    as the depositories and managers of the program. Financial  institutions  that
 18    submit  proposals must describe the financial instruments that will be held in
 19    accounts.
 20        (3)  The board shall select  as  program  depositories  and  managers  the
 21    financial  institution  or  institutions from among bidding financial institu-
 22    tions that demonstrate the most advantageous combination,  both  to  potential
 23    program participants and this state, of the following factors:
 24        (a)  Financial stability and integrity;
 25        (b)  The  safety  of the investment instruments being offered, taking into
 26        account any insurance provided with respect to these instruments;
 27        (c)  The ability of the investment instruments to track estimated costs of
 28        higher education as calculated by the board and provided by the  financial
 29        institution to the account holder;
 30        (d)  The ability of the financial institutions, directly or through a sub-
 31        contract, to satisfy recordkeeping and reporting requirements;
 32        (e)  The  financial  institution's  plan for promoting the program and the
 33        investment it is willing to make to promote the program;
 34        (f)  The fees, if any, proposed to be charged to persons  for  maintaining
 35        accounts;
 36        (g)  The minimum initial deposit and minimum contributions that the finan-
 37        cial  institution will require and the willingness of the financial insti-
 38        tution to accept contributions through payroll deduction plans  and  other
 39        deposit plans;
 40        (h)  Any  other  benefits  to  this state or its residents included in the
 41        proposal, including an account opening fee payable to  the  board  by  the
 42        account  owner  and  an  additional fee from the financial institution for
 43        statewide program marketing by the board.
 44        (4)  The board shall enter into a contract with  a  financial  institution
 45    or,  except  as  provided  in  subsection  (5) of this section, contracts with
 46    financial institutions, to serve as program managers and depositories.
 47        (5)  The board may select more than  one  (1)  financial  institution  and
 48    investment for the program if both of the following conditions exist:
 49        (a)  The United States internal revenue service has provided guidance that
 50        giving  a  contributor  a choice of two (2) investment instruments under a
 51        state plan will not cause the plan to fail to qualify  for  favorable  tax
 52        treatment under section 529 of the Internal Revenue Code;
 53        (b)  The  board concludes that the choice of instrument vehicles is in the
 54        best interest of college savers and will not interfere with the  promotion
                                                                        
                                           4
                                                                        
  1        of the program.
  2        (6)  A program manager shall:
  3        (a)  Take  all  action required to keep the program in compliance with the
  4        requirements of this chapter  and all action not contrary to this  chapter
  5        or its contract to manage the program so that it is treated as a qualified
  6        state tuition plan under section 529 of the Internal Revenue Code;
  7        (b)  Keep  adequate  records of each account, keep each account segregated
  8        from each other account and provide the board with the information  neces-
  9        sary  to  prepare  statements  required by section 33-5404, Idaho Code, or
 10        file these statements on behalf of the board;
 11        (c)  Compile and total information contained in statements required to  be
 12        prepared  under  section  33-5404, Idaho Code,  and provide these compila-
 13        tions to the board;
 14        (d)  If there is more than one (1) program manager, provide the board with
 15        this information to assist the board to determine compliance with  section
 16        33-5404, Idaho Code;
 17        (e)  Provide  representatives of the board, including other contractors or
 18        other state agencies, access to the books and records of the program  man-
 19        ager to the extent needed to determine compliance with the contract;
 20        (f)  Hold  all  accounts  in  trust  for the benefit of this state and the
 21        account owner.
 22        (7)  Any contract executed between the board  and a financial  institution
 23    pursuant to this section shall be for a term not to exceed five (5) years.
 24        (8)  If a contract executed between the board  and a financial institution
 25    pursuant to this section is not renewed, all of the following conditions apply
 26    at the end of the term of the nonrenewed contract:
 27        (a)  Accounts previously established and held in investment instruments at
 28        the financial institution shall not be terminated;
 29        (b)  Additional contributions may be made to the accounts;
 30        (c)  No new accounts may be placed with that financial institution.
 31        (9)  The  board   may terminate a contract with a financial institution at
 32    any time for good cause on the recommendation of the board. If a  contract  is
 33    terminated  pursuant  to  this  subsection,  the  board  shall take custody of
 34    accounts held at that financial institution  and shall seek to promptly trans-
 35    fer the accounts to another financial institution that is selected as  a  pro-
 36    gram  manager  and  into  investment  instruments  as  similar to the original
 37    investments as is possible.
                                                                        
 38        33-5404.  PROGRAM REQUIREMENTS. (1)  The program shall be operated through
 39    the use of accounts. An account may be opened by any  person  who  desires  to
 40    save  to pay the qualified higher education expenses of a person by satisfying
 41    each of the following requirements:
 42        (a)  Completing an application in the form prescribed by  the  board.  The
 43        application shall include the following information:
 44             (i)   The  name, address and social security number or employer iden-
 45             tification number of the contributor;
 46             (ii)  The name, address and social security  number  of  the  account
 47             owner if the account owner is not the contributor;
 48             (iii) The  name, address and social security number of the designated
 49             beneficiary;
 50             (iv)  The certification relating to no excess contributions  required
 51             by subsection (17) of this section;
 52             (v)   Any other information that the board  may require;
 53        (b)  Paying the one-time application fee established by the board;
 54        (c)  Making  the  minimum contribution required by the board or by opening
                                                                        
                                           5
                                                                        
  1        an account;
  2        (d)  Designating the type of account to be opened if  more  than  one  (1)
  3        type of account is offered.
  4        (2)  Any  person may make contributions to an account after the account is
  5    opened.
  6        (3)  Contributions to accounts may be made only in cash.
  7        (4)  Account owners may withdraw all  or  part  of  the  balance  from  an
  8    account  on  sixty (60) days' notice, or a shorter period as may be authorized
  9    by the board, under rules prescribed by the board. These rules  shall  include
 10    provisions  that  will generally enable the board or program manager to deter-
 11    mine if a withdrawal is a nonqualified withdrawal or a  qualified  withdrawal.
 12    The rules may, but need not, require one (1) or more of the following:
 13        (a)  Account  owners seeking to make a qualified withdrawal or other with-
 14        drawal that is not a nonqualified withdrawal shall provide certifications,
 15        copies of bills for qualified higher education expenses or other  support-
 16        ing material;
 17        (b)  Qualified  withdrawals  from an account shall be made only by a check
 18        payable as designated by the account owner;
 19        (c)  Withdrawals not meeting certain  requirements  shall  be  treated  as
 20        nonqualified  withdrawals by the program manager, and if these withdrawals
 21        are not nonqualified withdrawals, the account owner must seek  refunds  of
 22        penalties directly from the board.
 23        (5)  An  account owner may change the designated beneficiary of an account
 24    to an individual who is a member of the family of the former designated  bene-
 25    ficiary in accordance with procedures established by the board.
 26        (6)  On  the direction of an account owner, all or a portion of an account
 27    may be transferred to another account of which the designated beneficiary is a
 28    member of the family of the designated beneficiary of the transferee account.
 29        (7)  Changes in designated beneficiaries and rollovers under this  section
 30    are not permitted if the changes or rollovers would violate either of the fol-
 31    lowing  provisions  of  this  section  relating  to excess contributions or to
 32    investment choice.
 33        (8)  In the case of any nonqualified withdrawal from an account, an amount
 34    equal to ten percent (10%) of the portion  of  the  proposed  withdrawal  that
 35    would  constitute  income  as determined in accordance with section 529 of the
 36    Internal Revenue Code shall be withheld as a penalty and paid to the board for
 37    use in operating and marketing the program and  for  state  student  financial
 38    aid.
 39        (9)  The board, by rule, shall increase the percentage of the penalty pre-
 40    scribed  in subsection (8) of this section or change the basis of this penalty
 41    if the board determines that the amount of the penalty must  be  increased  to
 42    constitute  a  penalty  that is more than a de minimis penalty for purposes of
 43    qualifying the program as a qualified state tuition program under section  529
 44    of the Internal Revenue Code.
 45        (10) The  board  may  decrease the percentage of the penalty prescribed in
 46    subsection (8) of this section if it determines that  both  of  the  following
 47    conditions exist:
 48        (a)  The  penalty is greater than is required to constitute a penalty that
 49        is more than a de minimis penalty for purposes of qualifying  the  program
 50        as  a  qualified  state  tuition program under section 529 of the Internal
 51        Revenue Code;
 52        (b)  The penalty, when combined with other revenue  generated  under  this
 53        chapter,  is producing more revenue than is required to cover the costs of
 54        operating and marketing the program and to recover any  costs  not  previ-
 55        ously recovered.
                                                                        
                                           6
                                                                        
  1        (11) If  an  account  owner makes a nonqualified withdrawal and no penalty
  2    amount is withheld pursuant to subsection (8) of this section  or  the  amount
  3    withheld is less than the amount required to be withheld under that subsection
  4    for  nonqualified  withdrawals, the account owner shall pay the unpaid portion
  5    of the penalty to the state tax commission on or before April 15 of  the  fol-
  6    lowing tax year.
  7        (12) Each  account  shall be maintained separately from each other account
  8    under the program.
  9        (13) Separate records and accounting shall be maintained for each  account
 10    for each designated beneficiary.
 11        (14) No  contributor to, account owner of or designated beneficiary of any
 12    account may direct the investment of any contributions to an  account  or  the
 13    earnings from the account.
 14        (15) If  the  board terminates the authority of a financial institution to
 15    hold accounts and accounts must be moved from that  financial  institution  to
 16    another  financial  institution, the board shall select the financial institu-
 17    tion and type of investment to which the  balance  of  the  account  is  moved
 18    unless  the  internal  revenue service provides guidance stating that allowing
 19    the account owner to select among several financial institutions that are cur-
 20    rent contractors would not cause a plan to  cease  to  be  a  qualified  state
 21    tuition plan.
 22        (16) Neither  an  account  owner  nor  a designated beneficiary may use an
 23    interest in an account as security for a loan. Any pledge of an interest in an
 24    account is of no force and effect.
 25        (17) The board shall adopt rules to prevent contributions on behalf  of  a
 26    designated  beneficiary  in  excess  of  those  necessary to pay the qualified
 27    higher education expenses of the designated  beneficiaries.  The  rules  shall
 28    address the following:
 29        (a)  Procedures  for  aggregating  the total balances of multiple accounts
 30        established for a designated beneficiary;
 31        (b)  The establishment of a maximum total balance  that  may  be  held  in
 32        accounts for a designated beneficiary;
 33        (c)  The  board  shall review the quarterly reports received from partici-
 34        pating financial institutions and certify that the balance in  all  quali-
 35        fied  state  tuition  programs,  as defined in section 529 of the Internal
 36        Revenue Code, of which that person is the designated beneficiary does  not
 37        exceed the lesser of:
 38             (i)  A  maximum  college savings amount established by the board from
 39             time to time;
 40             (ii) The cost  in  current  dollars  of  qualified  higher  education
 41             expenses  that  the contributor reasonably anticipates the designated
 42             beneficiary will incur;
 43        (d)  Requirements that any excess balances with respect  to  a  designated
 44        beneficiary  be  promptly withdrawn in a nonqualified withdrawal or rolled
 45        over to another account in accordance with this section.
 46        (18) If there is any distribution from an account to any person or for the
 47    benefit of any person during  a  calendar  year,  the  distribution  shall  be
 48    reported  to  the internal revenue service and the account owner or the desig-
 49    nated beneficiary to the extent required by federal law.
 50        (19) The financial institution shall provide statements  to  each  account
 51    owner  at  least  once  each year within thirty-one (31) days after the twelve
 52    (12) month period to which they relate. The statement shall identify the  con-
 53    tributions made during a preceding twelve (12) month period, the total contri-
 54    butions made through the end of the period, the value of the account as of the
 55    end  of  this period, distributions made during this period and any other mat-
                                                                        
                                           7
                                                                        
  1    ters that the board requires be reported to the account owner.
  2        (20) Statements and information returns relating to accounts shall be pre-
  3    pared and filed to the extent required by federal or state tax law.
  4        (21) A state or local government  or  organization  described  in  section
  5    501(c)(3)  of  the Internal Revenue Code may open and become the account owner
  6    of an account to fund scholarships for persons whose identity will  be  deter-
  7    mined after an account is opened.
  8        (22) In  the case of any account described in subsection (21) of this sec-
  9    tion, the requirement that a designated  beneficiary  be  designated  when  an
 10    account  is  opened does not apply and each person who receives an interest in
 11    the account as a scholarship shall be treated as a designated beneficiary with
 12    respect to the interest.
 13        (23) Any social security numbers, addresses or telephone numbers of  indi-
 14    vidual account holders and designated beneficiaries that come into the posses-
 15    sion  of  the  board are confidential, are not public records and shall not be
 16    released by the board.
                                                                        
 17        33-5405.  TAXATION TO BENEFICIARY. The designated beneficiary, as  defined
 18    in  section  529(e)(1)  of the Internal Revenue Code, from an individual trust
 19    account or savings account established under this chapter is liable for  taxes
 20    that may accrue under chapter 30, title 63, Idaho Code, when a qualified with-
 21    drawal is made by the designated beneficiary.
                                                                        
 22        33-5406.  SCHOLARSHIPS AND FINANCIAL AID PROVISIONS. (1)  Any student loan
 23    program,  student  grant  program or other financial assistance program estab-
 24    lished or administered by this state shall treat the balance in an account  of
 25    which  the  student  is a designated beneficiary as if it were an asset of the
 26    parent of the designated beneficiary and not as a scholarship or grant  or  as
 27    an asset of the student for determining a student's or parent's income, assets
 28    or financial need.
 29        (2)  Subsection  (1)  of  this section applies to any financial assistance
 30    program administered by a state-supported college or university.
 31        (3)  Subsections (1) and (2) of this section do not apply if  any  of  the
 32    following conditions exist:
 33        (a)  Federal  law requires all or a portion of the amount in an account to
 34        be taken into account in a different manner;
 35        (b)  Federal benefits could be lost if all or a portion of the  amount  in
 36        an account is not taken into account in a different manner;
 37        (c)  A specific grant establishing a financial assistance program requires
 38        that all or a portion of the amount in an account be taken into account.
                                                                        
 39        33-5407.  LIMITATIONS  OF  CHAPTER.  (1)  Nothing in this chapter shall be
 40    construed to:
 41        (a)  Give any designated beneficiary any rights  or  legal  interest  with
 42        respect  to  an  account  unless the designated beneficiary is the account
 43        owner;
 44        (b)  Guarantee that a designated beneficiary will be admitted to a  higher
 45        education  institution or be allowed to continue enrollment at or graduate
 46        from a higher education institution located in this state after admission;
 47        (c)  Establish state residency for a person merely because the person is a
 48        designated beneficiary;
 49        (d)  Guarantee that amounts saved pursuant to the program will  be  suffi-
 50        cient  to  cover  the  qualified higher education expenses of a designated
 51        beneficiary.
 52        (2)  Nothing in this chapter  establishes any obligation of this state  or
                                                                        
                                           8
                                                                        
  1    any  agency  or  instrumentality of this state to guarantee for the benefit of
  2    any account owner, contributor to an account or designated beneficiary any  of
  3    the following:
  4        (a)  The return of any amounts contributed to an account;
  5        (b)  The rate of interest or other return on any account;
  6        (c)  The payment of interest or other return on any account;
  7        (d)  Tuition rates or the cost of related higher education expenditures.
  8        (3)  Under  rules  adopted  by  the  board,  every  contract, application,
  9    deposit slip or other similar document that may be used in connection  with  a
 10    contribution  to  an  account  shall  clearly indicate that the account is not
 11    insured by this state and neither the principal deposited nor  the  investment
 12    return is guaranteed by this state.
                                                                        
 13        33-5408.  ANNUAL  REPORT.  The  board shall submit an annual report to the
 14    speaker of the house of representatives and the president pro tempore  of  the
 15    senate  by February 1 that summarizes the board's findings and recommendations
 16    concerning the program established by this chapter.
                                                                        
 17        SECTION 2.  That Section 63-3022, Idaho Code, be, and the same  is  hereby
 18    amended to read as follows:
                                                                        
 19        63-3022.  ADJUSTMENTS  TO  TAXABLE  INCOME. The additions and subtractions
 20    set forth in this section, and in sections 63-3022A  through  63-3022M,  Idaho
 21    Code,  are  to  be  applied  to  the extent allowed in computing Idaho taxable
 22    income:
 23        (a)  Add any state taxes, measured by net income, paid or  accrued  during
 24    the  taxable  year  adjusted for state tax refunds used in arriving at taxable
 25    income.
 26        (b)  Add the net operating loss deduction  used  in  arriving  at  taxable
 27    income.
 28        (c)  (1) A net operating loss for any taxable year commencing on and after
 29        January  1,  1999, shall be a net operating loss carryback not to exceed a
 30        total of one hundred thousand dollars ($100,000) to the  two  (2)  immedi-
 31        ately  preceding  taxable years. Any portion of the net operating loss not
 32        subtracted in the two (2) preceding years may be subtracted  in  the  next
 33        twenty  (20) years succeeding the taxable year in which the loss arises in
 34        order until exhausted. The sum of the deductions may not exceed the amount
 35        of the net operating loss deduction incurred. At the election of the  tax-
 36        payer,  the two (2) year carryback may be foregone and the loss subtracted
 37        from income received in taxable years arising  in  the  next  twenty  (20)
 38        years  succeeding the taxable year in which the loss arises in order until
 39        exhausted. The election shall be made as under section  172(b)(3)  of  the
 40        Internal  Revenue  Code.  An election under this subsection must be in the
 41        manner prescribed in the rules of the state tax commission and  once  made
 42        is irrevocable for the year in which it is made. The term "income" as used
 43        in this subsection (c) means Idaho taxable income as defined in this chap-
 44        ter as modified by section 63-3021(b)(2), (3) and (4), Idaho Code.
 45        (2)  Net operating losses incurred by a corporation during a year in which
 46        such corporation did not transact business in Idaho or was not included in
 47        a  group of corporations combined under subsection (t) of section 63-3027,
 48        Idaho Code,  may not be subtracted. However, if at least one (1)  corpora-
 49        tion  within a group of corporations combined under subsection (t) of sec-
 50        tion 63-3027, Idaho Code, was transacting business  in  Idaho  during  the
 51        taxable  year  in which the loss was incurred, then the net operating loss
 52        may be subtracted. Net operating losses incurred by a person, other than a
                                                                        
                                           9
                                                                        
  1        corporation, in business activities not taxable by Idaho may not  be  sub-
  2        tracted.
  3        (d)  In  the case of a corporation, add the amount deducted under the pro-
  4    visions of sections 243(a) and (c), 244, 245 and 246A of the Internal  Revenue
  5    Code  (relating  to  dividends received by corporations) as limited by section
  6    246(b)(1) of said code.
  7        (e)  In the case of a corporation, subtract  an  amount  determined  under
  8    section 78 of the Internal Revenue Code to be taxable as dividends.
  9        (f)  Subtract the amount of any income received or accrued during the tax-
 10    able year which is exempt from taxation by this state, under the provisions of
 11    any  other  law of this state or a law of the United States, if not previously
 12    subtracted in arriving at taxable income.
 13        (g)  In the case of  corporations  and  partnerships,  add  Idaho  taxable
 14    income  of  nonresident officers, directors, shareholders, partners or members
 15    to the extent such income is attributed to the corporation or  partnership  in
 16    section 63-3022L, Idaho Code.
 17        (h)  For  the purpose of determining the Idaho taxable income of the bene-
 18    ficiary of a trust or of an estate, distributable net income  as  defined  for
 19    federal  tax purposes shall be corrected for the other adjustments required by
 20    this section. In the event that a nonresident beneficiary of a trust or estate
 21    fails to file an Idaho income tax return reporting all or any part of distrib-
 22    utable net income taxable in Idaho or fails to pay any tax  due  thereon,  the
 23    trust  or  estate making the payment or distribution shall be taxable upon the
 24    amount  of such distribution or payment at the rates  established  by  section
 25    63-3024, Idaho Code.
 26        (i)  In  the  case  of  an individual who is on active duty as a full-time
 27    officer, enlistee or draftee, with the armed  forces  of  the  United  States,
 28    which  full-time  duty is or will be continuous and uninterrupted for one hun-
 29    dred twenty (120) consecutive days or more, deduct compensation  paid  by  the
 30    armed  forces  of the United States for services performed outside this state.
 31    The deduction is allowed only to the extent such income is included in taxable
 32    income, and provided that appropriate adjustments shall be made in determining
 33    the deductions and exemptions allowed pursuant to section  63-3026A(4),  Idaho
 34    Code.
 35        (j)  In the case of a corporation, including any corporation included in a
 36    group  of corporations combined under subsection (t) of section 63-3027, Idaho
 37    Code, add any capital loss deducted which loss was incurred during any year in
 38    which such corporation did not transact business in Idaho. However, do not add
 39    any capital loss deducted if a corporation, including  any  corporation  in  a
 40    group  of corporations combined under subsection (t) of section 63-3027, Idaho
 41    Code, was transacting business in Idaho during the taxable year in  which  the
 42    loss  was  incurred.  In the case of persons, other than corporations, add any
 43    capital loss deducted which was incurred in business activities not taxable by
 44    Idaho at the time such loss was incurred. In computing the income  taxable  to
 45    an  S  corporation  or  partnership under this section, deduction shall not be
 46    allowed for a carryover or carryback of a net operating loss provided  for  in
 47    subsection  (c) of this section or a capital loss provided for in section 1212
 48    of the Internal Revenue Code.
 49        (k)  In the case of an individual, there shall be allowed as  a  deduction
 50    from gross income either (1) or (2) at the option of the taxpayer:
 51        (1)  The  standard  deduction  as  defined in section 63, Internal Revenue
 52        Code.
 53        (2)  Itemized deductions as defined in section 63 of the Internal Revenue
 54        Code except state income taxes as specified in section 164 of the Internal
 55        Revenue Code.
                                                                        
                                           10
                                                                        
  1        (l)  Add the taxable amount of any lump  sum  distribution  deducted  from
  2    gross  income  pursuant to section 402(d)(3) of the Internal Revenue Code. The
  3    taxable amount will include the ordinary income portion and the amount  eligi-
  4    ble for the capital gain election.
  5        (m)  Deduct  any  amounts included in gross income under the provisions of
  6    section 86 of the Internal Revenue Code relating to  certain  social  security
  7    and railroad benefits.
  8        (n)  In  the case of a self-employed individual, deduct the actual cost of
  9    premiums paid to secure worker's compensation insurance for coverage in Idaho,
 10    if such cost has not been deducted in arriving at taxable income.
 11        (o)  In the case of an individual, deduct the amount contributed to a col-
 12    lege savings program pursuant to chapter 54, title 33,  Idaho  Code,  but  not
 13    more than four thousand dollars ($4,000) per tax year.
                                                                        
 14        SECTION  3.  An  emergency  existing  therefor,  which emergency is hereby
 15    declared to exist, this act shall be in full force and effect on and after its
 16    passage and approval, and retroactively to January 1, 2000.

Statement of Purpose / Fiscal Impact


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                STATEMENT OF PURPOSE 
                     RS 09893C1 
                           
          This legislation is designed to encourage savings in an educational fund.
     Under IRS Tax Code 529, the fund will grow tax deferred from state and federal
     income tax, until withdrawn by the beneficiary for the purpose of post-secondary
     education at an accredited college, university or professional-technical school.
     The proceeds, when withdrawn, would be taxed at the beneficiary's tax rate. An
     annual contribution to the fund of ($4,000 maximum) would be deductible from
     the contributor's state taxable income. 
          Under the State Treasurer's review, state approved financial institutions
     would receive and invest the funds. Safeguards are provided to assure that all
     funds are used only for the purpose of higher education as IRS tax code allows. 
     
     
                           
                    FISCAL IMPACT
     
     A state income deduction of $4,000.00 would result in a state income tax
     reduction of up to $328.00. If a student withdrew $10,000 taxable annually, it
     would be subject to state income tax when withdrawn. Because of the multiple
     variables for payment, the state income taxes paid would range from a $20.00
     credit to $674.00 depending on the marital status of the student. it is anticipated
     that a limited negative fiscal impact would result. 
     
     Contact
                                             Name: Senator Grant Ipsen               Phone:(208) 332-1326
          Representative Lee Gagner     Phone:(208) 332-1000
          Representative Donna Boe      Phone:(208) 332-1000
     
      
                                                  STATEMENT OF PURPOSE/FISCAL NOTE                        Bill No. 627