MEMORANDUM
Education Tax Credits: Experience from the States
During the last two years, State legislatures and governors have enacted laws establishing or expanding programs which incentives significant private sector contributions to K-12 schools and scholarship funds. During the 2005 and 2006 legislative sessions Arizona, Iowa, Ohio, Pennsylvania, Rhode Island, Utah, and Wisconsin have either authorized new private school choice programs or expanded existing ones so that a greater number of families benefit. Increasingly, new programs are being authorized with the approval of both Republicans and Democrats.
Arizona
– In 1997, the Arizona legislature created an individual tax credit for contributions
to organizations that give students education scholarships redeemable at private-sector elementary and secondary schools. (Arizona Revised Statutes 43-1089)
– Individuals can receive a dollar-for-dollar credit for up to $500 against their state income tax, and married couples filing jointly are eligible for a credit of up to $625.
– During the first three years of activity, thousands of taxpayers donated
over $32 million to scholarship organizations that then distributed 19,000 scholarships to students. These scholarships were distributed by more than 30 scholarship organizations.
– Scholarships may be awarded on the basis of academic talent, financial need, or any number of criteria, but a survey of the scholarship organizations published by the Cato Institute found that more than 80 percent of the scholarships were awarded on the basis of financial need.
– From 1998 to 2004, the program generated $146 million, which financed over 98,000 scholarships.
– In 2004, more than $30M went to Arizona schools from parents and patrons who took advantage of the state’s education tax credits, marking a $3.2M increase from 2003.
– The Corporate Tuition Tax Credit Act, enacted by the Arizona Legislature on March 27, 2006 allows businesses to “offset their taxes” by making cash donations to private “school tuition organizations.” During fiscal year 2006-2007, the Department of Revenue has allocated $10 million in corporate tax credits.
– The current expanded tax credit program (A.R.S. 43-1089.01) allows individuals to receive a tax credit for donation to local schools. Single individuals can receive a credit of up to $200; married couples filing a joint return can receive a credit of up to $400
Pennsylvania
– In May, 2001, by an overwhelming bi-partisan majority, Pennsylvania made history by becoming the first state to pass an education tax credit aimed at corporations.
– The corporate scholarship credit is capped at $100,000 per business and is worth 75 cents on the dollar for a one-year donation and 90 cents on the dollar for a two-year commitment.
– Since the program opened, more than 900 businesses have pledged donations
totaling nearly $19 million to scholarship organizations. To date, more than 75
nonprofit scholarship organizations have opened to distribute the scholarships.
– The program has helped thousands of students from low-income families attend private schools. In 2003, the State collected $29M in FY 2002 and over $28M in FY 2003.
– Less than two months into Pennsylvania’s 2006 fiscal year, businesses have claimed all the available tax credits in a $54 million state education funding program.
– In 2006 Governor Ed Rendell approved a $10 million increase in EITC funds brining the current total available to $54 million dollars from $44 million in previous years. Of those funds $36 million are given out as funding for private schools while the remaining $18 million is put towards innovative programming in public schools.
Florida
– In the spring of 2001, Florida lawmakers passed a scholarship credit for
corporations similar to that of Pennsylvania. (Florida Statute 220.187)
– The program lets businesses take a dollar-for-dollar tax credit for contributions to nonprofit scholarship organizations and is capped at $50 million annually. As in Pennsylvania, the scholarship organizations then pair the tuition scholarships with low-income children so that they can attend private schools chosen by their parents.
– The program, which opened on January 1, 2002, has raised thousands of scholarships worth $3,500 per student.
– As of 2002, Florida law now limits each contributor to a maximum of $5 million in Florida corporate tax credits per “eligible nonprofit scholarship funding organization” with an aggregate tax credit limit for the entire state of $50 million.
– The number of scholarships available rose to nearly 15,000, bringing within reach of its peak of 15,585 in 2002-03.
– Of the 734 Opportunity Scholarship students enrolled in private schools for the 2005-06 school year, most of whom came from low-income families, 64% were African American and 30% were Hispanic. Opportunity Scholarships gave these students educational choices other than remaining in low-performing public schools. The average annual scholarship for students participating in the 2005-06 school year was $4,206.
Illinois
– In 1999, the Illinois legislature enacted a State income tax credit for educational expenses, including tuition, and book and lab fees that are incurred on behalf of a K-12 student in an Illinois public or private schools. (Public Act 093-0871)
– The tax credit allows parents to receive a 25% credit for expenditures above $250, with a maximum of a $500 credit per family.
Minnesota
– Since the 1950s, Minnesota has permitted families with children to take a tax deduction for school expenses, such as tuition, transportation, textbooks, and other supplies, even including children attending a private, parochial, or home school.
– In 1999, the Minnesota tax program was expanded, adding an estimated 35,000 eligible families to the program. Qualifying expenses were also expanded to include tutoring, after-school or summer academic programs, music lessons, and back-to-school supplies. (Minnesota Statute 290.0674)
Iowa
– In 1987, initial legislation to allow tax credits or deductions was passed.
– Currently, families are allowed a tax credit of 25% of the first $1,000 spent on educational expenses for each of their dependents in grades K-12.
– “Educational expenses” include tuition (including private school tuition), textbooks, and “expenses which relate to extracurricular activities (i.e., sporting events, speech activities, etc.).”
– Under a new law passed in 2006, donors to private school tuition scholarship funds receive a 65 percent tax credit on Iowa income taxes.
– To be eligible for tuition scholarships, a schools family must be within 300 percent of the poverty level e.g. a family of four may have total income of $60,000. A family of six could earn $80, 400 and qualify for financial aid.
Rhode Island
– In June 2006, Rhode Island enacted the Tax Credits for Contributions to Scholarship Organizations program.
– Due to begin in January 2007, businesses in the state will be able to receive a 75% tax credit for donations they make to scholarship organizations which fund tuition for qualified families at Rhode Island nonprofit private schools.
New York
– In 2006, Governor George Pataki proposed an Education Tax Credit for educational expenses, including tutoring, enrichment, after school activities for all K-12 students in any school, as well as tuition at qualifying non public schools.
– The Legislature ultimately passed the bill as a “child tax credit” for families with school aged children (aged 4-17).
– Parents with income of less than $110,000 per year qualify for the credit automatically and receive a credit of $330 per child.
Louisiana
-In March 2008, Louisiana enacted legislation that provides a state tax deduction for 50 percent of the tuition and school fees for non-public schools up to $5,000.
-The maximum deduction per year for a parent in the highest tax bracket and qualifying for the largest tuition deduction would be $300.