1998 Legislation
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HOUSE BILL NO. 447 – College savings acct, income tax

HOUSE BILL NO. 447

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H0447........................................................by MR. SPEAKER
                  Requested by: State Board of Education
POSTSECONDARY EDUCATIONAL SAVINGS ACCOUNT - Adds to existing law to
authorize a state income tax deduction for contributions to a postsecondary
educational savings account, to define those eligible to receive payments
from the account and to provide penalties for withdrawal from the account
for purposes other than postsecondary educational expenses.

01/12    House intro - 1st rdg - to printing
01/12    Rpt prt - to Educ

Bill Text


H0447

                                                                        
 ||||              LEGISLATURE OF THE STATE OF IDAHO             ||||
Fifty-fourth Legislature                 Second Regular Session - 1998
                                                                        

                             IN THE HOUSE OF REPRESENTATIVES

                                    HOUSE BILL NO. 447

                                      BY MR. SPEAKER
                          Requested by: State Board of Education



 1                                        AN ACT
 2    RELATING TO INCOME TAX DEDUCTION FOR CERTAIN EDUCATIONAL CONTRIBUTIONS; AMEND-
 3        ING CHAPTER 30, TITLE 63, IDAHO CODE, BY THE ADDITION  OF  A  NEW  SECTION
 4        63-3022M,  IDAHO  CODE, TO AUTHORIZE A STATE INCOME TAX DEDUCTION FOR CON-
 5        TRIBUTIONS TO A POSTSECONDARY EDUCATIONAL SAVINGS ACCOUNT, TO SPECIFY PUR-
 6        POSES OF THE ACCOUNT, TO DEFINE TERMS AND TO PROVIDE PENALTIES  FOR  WITH-
 7        DRAWAL OF FUNDS FOR OTHER PURPOSES.

 8    Be It Enacted by the Legislature of the State of Idaho:

 9        SECTION  1.  That  Chapter  30,  Title 63, Idaho Code, be, and the same is
10    hereby amended by the addition thereto of a  NEW SECTION  ,  to  be
11    known and designated as Section 63-3022M, Idaho Code, and to read as follows:

12        63-3022M.  POSTSECONDARY  EDUCATIONAL  SAVINGS ACCOUNT.    (1) For taxable
13    years commencing on and after January 1, 1999, annual contributions to a post-
14    secondary educational savings account  not  exceeding  five  thousand  dollars
15    ($5,000)  for the account holder and interest earned on a postsecondary educa-
16    tional savings account shall be deducted from taxable income  by  the  account
17    holder,  if such amount has not been previously deducted or excluded in arriv-
18    ing at taxable income. For married individuals the maximum deduction shall  be
19    computed separately for each individual.
20        (2)  For the purpose of this section, the following terms have the follow-
21    ing meanings unless the context clearly denotes otherwise:
22        (a)  "Account holder" means an individual, in the case of married individ-
23        uals  each spouse, including a self-employed person, who has established a
24        postsecondary educational savings account from which  qualifying  expendi-
25        tures are made.
26        (b)  "Dependent"  means  a  person for whom a deduction is permitted under
27        section 151(b) or (c) of the Internal Revenue Code if a deduction for  the
28        person is claimed for that person on the account holder's Idaho income tax
29        return.
30        (c)  "Depository" means a state or national bank, savings and loan associ-
31        ation,  credit  union or trust company authorized to act as a fiduciary or
32        an insurance administrator or insurance company authorized to do  business
33        in  this state, a broker or investment advisor regulated by the department
34        of finance, a broker or insurance agent regulated  by  the  department  of
35        insurance or a health maintenance organization, fraternal benefit society,
36        hospital  and  professional  service  corporation  as  defined  in section
37        41-3403, Idaho Code, or nonprofit mutual insurer regulated under title 41,
38        Idaho Code.
39        (d)  "Eligible postsecondary educational  expense"  means  tuition,  fees,
40        books,  required  equipment, room and board paid by the account holder for
41        postsecondary education at any institution of postsecondary education  for


                                          2
 1        a relative of the account holder.
 2        (e)  "Postsecondary  educational  savings account" means an account estab-
 3        lished with a depository to pay  the  eligible  postsecondary  educational
 4        expenses  of  the  account holder or eligible family member of the account
 5        holder. Postsecondary educational savings accounts shall carry the name of
 6        the account holder, a  designated  beneficiary  or  beneficiaries  of  the
 7        account   holder   and   shall  be  designated  by  the  depository  as  a
 8        "postsecondary educational savings account."
 9        (f)  "Relative" means  a  spouse,  child,  grandchild  or  sibling  of  an
10        account holder.
11        (3)  Funds  held  in  a  postsecondary  educational savings account may be
12    withdrawn by the account holder at any time. Withdrawals for  the  purpose  of
13    paying eligible postsecondary educational expenses shall not be subject to the
14    tax  imposed  in  this chapter. The burden of proving that a withdrawal from a
15    postsecondary educational savings account  was  made  for  an  eligible  post-
16    secondary  educational  expense  is  upon  the account holder and not upon the
17    depository. Other withdrawals shall be subject to the  following  restrictions
18    and penalties:
19        (a)  There  shall be a distribution penalty for withdrawal of funds by the
20        account holder for purposes other  than  the  payment  of  eligible  post-
21        secondary  educational expenses. The penalty shall be ten percent (10%) of
22        the amount of withdrawal from the account and,  in  addition,  the  amount
23        withdrawn  shall be subject to the tax imposed in this chapter. The direct
24        transfer of funds from a postsecondary educational savings  account  to  a
25        postsecondary  educational savings account at a different depository shall
26        not be considered a withdrawal  for  purposes  of  this  section.  Charges
27        relating  to  the  administration  and  maintenance  of the account by the
28        depository are not withdrawals for purposes of this section.
29        (b)  Upon the death of an account holder, the account principal,  as  well
30        as  any interest accumulated thereon, shall be distributed without penalty
31        to the designated beneficiary or beneficiaries.
32        (c)  Funds withdrawn which are later reimbursed shall  be  taxable  unless
33        redeposited  into the account within sixty (60) days of the reimbursement.
34        Deposits of reimbursed eligible postsecondary educational  expenses  shall
35        not be included in calculating the amount deductible.
36        (d)  Funds  deposited in a postsecondary educational savings account which
37        are deposited in error or unintentionally and which are  withdrawn  within
38        thirty (30) days of being deposited shall be treated as if the amounts had
39        not been deposited in the postsecondary educational savings account.
40        (e)  Funds  withdrawn which are, not later than the sixtieth day after the
41        day of the withdrawal, deposited into  another  postsecondary  educational
42        savings account for the benefit of the same account holder are not a with-
43        drawal for purposes of this section and shall not be included in calculat-
44        ing the amount deductible.
45        (4)  Reporting  --  Depositories shall provide to the state tax commission
46    the  following  information  regarding   postsecondary   educational   savings
47    accounts:  the  name of the account holder, the address of the account holder,
48    the taxpayer identification number of the account holder, deposits made during
49    the tax year by the account holder, withdrawals made during the  tax  year  by
50    the  account holder, interest earned on the proceeds of a postsecondary educa-
51    tional savings account or other information deemed necessary  by  the  commis-
52    sion.  Reports  shall  be filed annually on or before the last day of February
53    following the year to which the information in the report relates.

Statement of Purpose / Fiscal Impact


    





                           STATEMENT OF PURPOSE
    
                                  RS07385
    
    College costs are rising faster than the general rate of inflation. The debt incurred by 
    college students is also increasing and the average college student in Idaho now 
    graduates with more than $15,000 of debt. This legislative proposal is based on the 
    concept that it is better to encourage our citizens to prepare in advance for the cost of 
    college for themselves or a member of their family than it is to incur debt to cover those 
    costs.
    
                               FISCAL IMPACT
    
    The financial impact of this legislation is limited to tax revenue that would be lost from those 
    citizens who use college savings accounts. The legislation proposed is based on the same 
    model as the medical savings account legislation already in statute. The proposal allows 
    up to a $5,000 adjustment to gross income each year for deposits to and interest earned in 
    the account. Assuming the average annual deposit to a college savings account was 
    $2,000 and the account holder was in a marginal state income tax bracket of 8%, the 
    annual tax revenue lost per account holder would be approximately $160. Nearly 18% of 
    Idaho high school seniors graduate from college or about 3,750 students per year. If 25% 
    of these students were supported with college savings accounts, total loss of tax revenue to 
    the state each year would be approximately $160 x 938 = $150,080. Tax revenue lost from 
    interest earned annually in the account is also a factor but difficult to project.
    
    CONTACT
    Name: Mike Killworth
    Agency: Idaho State Board of Education
    Phone: 334-2270
    Statement of Purpose/Fiscal Impact
    
    H 447