Hb 517: Amendments Relating to Student Scholarship Organizations

• Jurisdiction: Georgia,United States
• Citation: Vol. 39 No. 1
• Publication year: 2022
• topic: Charity and Non-Profit Law,Contracts,Corporate / Commercial,Tax Law,Public Sector Law

HB 517: Amendments Relating to Student Scholarship Organizations

Olivia D. Pounds

opounds1@student.gsu.edu

Samantha A. Masters

smasters4@student.gsu.edu

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REVENUE AND TAXATION

Income Taxes: Amend Chapter 2A of Title 20 of the Official Code of Georgia Annotated, Relating to Student Scholarship Organizations, so as to Provide for the Inclusion of Earned Interest in the Calculation of Minimum Revenue Obligations for Scholarships and Tuition Grants; Require that Student Scholarship Organization Audits are Conducted in Accordance with Generally Accepted Auditing Standards; Provide for the Expansion of the Scope of Such Audits; Provide for a Deadline by which Such Audits Shall be Reported to the Department of Revenue; Require that Student Scholarship Organizations Immediately Notify the Department of Education if the Department of Revenue Ceases Preapproving Contributions to Student Scholarship Organizations; Require Student Scholarship Organizations to Annually Submit Copies of Form 990s to the Department of Revenue; Provide that Student Scholarship Organizations are Solely Responsible for Verifying Student Eligibility; Provide for Expansion of Public Reporting Requirements; Amend Article 2 of Chapter 7 of Title 48 of the Official Code of Georgia Annotated, Relating to Imposition, Rate, Computation, and Exemptions from State Income Taxes, so as to Provide for Qualified Education Tax Credits to be Used by Certain Insurance Companies Against Certain Tax Liability; Provide for Conditions and Limitations; Increase the Limit available to Individuals, Heads of Household, Married Couples Filing Joint Returns, and Individuals Who Are Members of Certain Limited Liability Companies, Shareholders of Subchapter "S" Corporations, or Partners in a Partnership; Revise the Aggregate Annual Limits of the Tax Credit and Provide for Increases Contingent on the Governor's Revenue Estimates; Provide for Annual Determinations by the Office of Planning and Budget; Provide for Related Matters; Provide for Effective Dates and Applicability; Repeal Conflicting Laws; and for Other Purposes

Code Sections: O.C.G.A. §§ 20-2A-2, -3 (amended); 48-7-29.16 (amended)

Bill Number: HB 517

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Act Number: 722

Georgia Laws: 2022 Ga. Laws 150

Effective Dates: O.C.G.A. §§ 20-2A-2, -3, July 1, 2022; § 48-7-29.16, January 1, 2023

Summary: The Act extends the annual revenue received by student scholarship organizations to include interest earned on deposits and investments of scholarship funds or tuition grants. The Act expands the scope of auditing that student scholarship organizations are subjected to and compels the organizations to submit Form 990 to the Department of revenue. Further, the Act allows certain insurance companies to partake in the tax program and increases the tax credit available to participating taxpayers. Lastly, the Act increases the aggregate amount of tax credits allowed per year to $120 million.

History

In 2008, "Georgia lawmakers passed one of the most free-market tuition tax credit laws" in the United States.¹ The Georgia House of Representatives introduced House Bill (HB) 1133, the Qualified Education Expense (QEE) Tax Credit bill, and Governor Sonny Perdue (R) signed it into law.² HB 1133 added a new chapter to Title 20 of the Georgia Code to allow for the creation, operation, and governance of student scholarship organizations (SSOs).³ The bill

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permitted "Georgia taxpayers to take a dollar-for-dollar credit against their Georgia income tax liability for donations to SSOs."⁴

The bill allowed taxpayers' contributions to become scholarships for public school students in kindergarten through twelfth grade and permitted the students to attend a private school of their parents' choosing.⁵ Any student enrolled in one of Georgia's public schools is eligible.⁶ A taxpayer interested in contributing to an SSO must be pre-approved by the Georgia Department of Revenue.⁷ The taxpayer submits their tax credit application to the SSO, which then submits the taxpayer's request to the department of revenue.⁸ All Georgia state tax payers can participate.⁹

The bill's purpose was to provide a choice of schools to Georgia parents and students that could not afford private school and wanted to leave "underperforming public schools."¹⁰ HB 1133's proponents cited a study by Friedman Foundation for Educational Choice of Indianapolis that suggested the program would "improve public schools without costing taxpayers more money."¹¹ Proponents argued that HB 1133 "would save Georgia's state and local governments a combined total of nearly $100 million annually based on the transfer of almost 15,000 students" to private schools.¹² Representative David Casas (R-107th) stated that "thousands of students would take these privately funded scholarships and transfer to private schools, leaving a host of tax money available for public schools to improve their performance."¹³

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Under HB 1133, the maximum amount of credits available was set at $50 million per year, and the SSOs were required to allocate at least 90% of contributions to scholarships.¹⁴ In 2011, Georgia House Bill 325 amended the QEE Tax Credit Law.¹⁵ The amendment provided for (1) the inclusion of a Consumer Price Index (CPI) escalator on the annual cap, with a sunset in 2018,¹⁶ (2) the clarification of student eligibility,¹⁷ (3) requirements for greater transparency and accountability for SSOs,¹⁸ and (4) the imposition of the first-ever maximum annual award limit for individual students.¹⁹

In 2013, Georgia House Bill (HB) 283 provided an additional amendment to the QEE Tax Credit law.²⁰ The amendment raised the annual cap to $58 million, removed the sunset on the credit cap, and reduced the administration fees that the SSO may charge.²¹ It also changed the eligibility requirements by insisting upon six weeks of public-school attendance for second grade and above.²² Further, the bill required SSOs to award the scholarships to eligible students within one year and to consider the financial needs of students based on all available sources of income.²³ HB 283 added two prohibitions: first, scholarships cannot be awarded to any individual designated by the donor, and second, scholarships cannot be promised in exchange for contributions.²⁴ Lastly, HB 283 allowed for a tax credit up to $10,000 for individuals with ownership in a pass-through entity, such as

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partnerships and S corporations, that elect to pay state income tax at the entity level, which effectively raised the cap for entity owners.²⁵

In 2018, the Georgia General Assembly introduced House Bill (HB) 217, another amendment to the QEE Tax Credit law.²⁶ The amendment raised the annual cap to $100 million for the next decade and reduced the amount of fees that SSOs can retain.²⁷ HB 217 also clarified and improved the SSO reporting process to the department of revenue and required state auditors to evaluate the program in 2023 to determine the overall financial and economic impact on the state.²⁸

Finally, the latest amendment, House Bill (HB) 517, was introduced by Representative John Carson (R-46th) following a comprehensive review of the program by the Georgia Department of Audits and Accounts.²⁹ The audit found that the program needs to take steps to improve transparency, accountability, and oversight.³⁰ The bill raised the annual cap to $120 million beginning in 2023.³¹ It increased taxpayer contribution limits to $2,500 for single filers, $5,000 for joint filers, and $25,000 for owners of pass-through businesses.³² The bill caps the aggregate annual tax credits for insurance companies that pay state insurance premium taxes at $6 million.³³ HB 517 also enhanced

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the SSO reporting requirements based on recommendations from the Georgia Department of Audits and Accounts.³⁴

There is widespread debate about the purpose and true benefit of the scholarship program. HB 517 contains some of the key action steps outlined in the 2021 program audit, but some claim it fails to take other steps that should be undertaken by the department of revenue, the General Assembly, or the SSOs.³⁵ For example, HB 517 requires that audits be conducted "in accordance with generally acceptable auditing standards" and creates a deadline for audits to be reported to the department of revenue.³⁶ But HB 517 does not require SSOs to report data that would help verify the accuracy of reports, nor does it permit state agencies to access SSO data.³⁷ Further, public school advocates have long argued that such legislation is harmful because the SSOs redirect funds to private schools that could be used to benefit public education.³⁸ However, HB 517's opponents recognize that the bill takes several much-needed steps toward transparency for Georgia's program by increasing auditing requirements, requiring SSOs to verify student eligibility, and expanding public reporting requirements.³⁹

Bill Tracking of HB 517

Consideration and Passage by the House 2021

Representative John Carson (R-46th) sponsored HB 517 in the House with Representative David Knight (R-130th), Representative Shaw Blackmon (R-146th), Representative Mark Newton (R-123rd), Representative Dave Belton (R-112th), and Representative Ed Setzler (R-35th) cosponsoring.⁴⁰ The bill was first placed in the hopper on

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February 17, 2021, and the House first read it on February 18, 2021.⁴¹ The House read the bill for a second time on February 22, 2021.⁴² The House Committee on Education favorably reported the bill by substitute on March 3, 2021.⁴³ The substitute revised the aggregate tax credit annual limit to $58 million for 2018, $100 million for 2019 through 2031, and $58 million for 2032 and beyond.⁴⁴ The Rules Committee Substitute, however, repealed the House Committee on Education's amendments, reverting the bill back to its original language.⁴⁵

The House read the bill for the third time on March 8, 2021.⁴⁶ The same day, the House passed and adopted by...