Amendments to the Great Schools Tax Credit Program Act (Scholarship Tax Credit)
This amendment closes a loophole between the federal and state tax codes, which in theory allows for a very small number of taxpayers to get more in tax benefits for donating to a scholarship-granting organization than they receive back.
Section 3 (B): After “taxpayer’s tax liability.” add “Taxpayers may not claim the state tax credit if in the same tax year they also pay the federal alternative minimum tax and claim a federal charitable tax deduction for their scholarship donation that exceeds the difference between the scholarship donation they made and the state tax credit they are eligible to receive. Taxpayers may also not claim the state income tax credit if in the same tax year they claim both the maximum federal tax deduction for state and local taxes paid and a federal charitable tax deduction for their scholarship donation that exceeds the difference between the scholarship donation they made and the state tax credit they are eligible to receive.”
Amend endnote IV as follows:
After “at the state level.” delete “How the federal tax code treats these donations is a matter for federal policymakers. If legislators feel the need to act at the state level to address this federal problem, they could require that taxpayers may only claim a state tax credit for that portion of their contribution for which they do not intend to claim a federal tax deduction. However, policymakers should be aware that doing so might disadvantage the scholarship tax credit and make it non-uniform relative to other tax credits in the state.”
Amend endnote V as follows:
After the first paragraph, insert this new paragraph:
“Without the language in Section 3 (B), some individuals who pay the federal alternative minimum tax (AMT) could legally receive state plus federal tax benefits which exceed the amount of their charitable contribution to a scholarship organization due to the interaction of state and federal taxes. This same situation could occur for individuals who claim the maximum federal tax deduction for state and local taxes. This language is intended to ensure that if these individuals want to claim the state tax credit they may only claim a federal tax deduction for that portion of their donation for which they did not receive a state tax credit. This language allows states to proactively address a federally-created issue and ensure that a contributor does not violate the intent of the state legislature by receiving a tax benefit greater than their charitable contribution. State policymakers should be aware that this same situation may exist with other tax credits their state offers. They may wish to place the same constraints on those other tax credits so that all similar tax credits are treated uniformly and the scholarship tax credit is not disadvantaged relative to the others.”
Approved by the ALEC Board of Directors May 24, 2018.