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Improving Pennsylvania's Educational Tax Credit Programs

Posted on September 11, 2014 In Blog

Pennsylvania House Bill 91: Backgrounder

House Bill 91 will improve the Educational Improvement Tax Credit (EITC) and the Opportunity Scholarship Tax Credit (OSTC) programs and make a significant difference to our children and families.

The changes to the EITC and OSTC programs proposed in HB 91 will make it easier for businesses to participate and will encourage more businesses to join the programs—creating even more scholarship opportunities for students across Pennsylvania.

House Bill 91 earned wide bipartisan support from Pennsylvania’s legislators, with a vote of 193-4 in the House of Representatives and passing unanimously in the State Senate.

When signed by the Governor, House Bill 91 will consolidate the EITC and OSTC business tax credit programs into one statute and will make changes intended to improve the operation of the tax credit programs.

Specifically, the changes to the EITC and OSTC programs in HB 91 include:

Career and Technical School Eligibility
The amendments allow for career and technical schools with eligibility to receive business donations within the Educational Improvement Organization (EIO) program of the Educational Improvement Tax Credit.

Pre‐K Student Age Increase
The amendments add five- and six-year-old students to the definition of Pre‐K program under the Educational Improvement Tax Credit.

Pre‐K Commitment Expansion
The amendments will allow businesses applying for Pre‐k credits under the Educational Improvement Tax Credit to apply for a two year commitment.

Additional Tax
The amendments will add the Malt Beverage Tax (Tax Reform Code Article XX) to the list of taxes to which credits could be applied.

Multiple Pass‐Throughs
The amendments will permit the distribution of tax credits through more than one level of pass‐through entities. The amendment will align the statutes with the basic principle that partnerships and other flow‐throughs, generally speaking, are not taxpayers; rather their individual, estate, trust and corporate partners, members or shareholders are taxpayers. When HB 91 is signed by the Governor, large partnerships and LLC’s will be able to create smaller subsidiary partnerships whose members can then participate in the EITC and OSTC programs.

Special Purpose Business Firms
Under the current statutes, a business firm applies for credits. The amendments would include, within the definition of business firm, an entity funded by the owners or employees of one or more other business firms, the special purpose of which is to make contributions that will qualify for credits. This will also allow smaller subsets of the owners of large entities to more easily participate in the programs.

Spousal Use
The amendments will permit credits distributed to a partner, member or shareholder to be applied not just to the income of the partner, member or shareholder but also to a spouse who files a joint return with the partner, member or shareholder.

Alternative Credits
The amendments will make four changes to facilitate the use of credits by participating business entities:

  • Upon application, a business firm may elect to apply for an alternate credit should its preferred credit be unavailable. For example, a business firm could apply for an Educational Improvement Tax Credit, and alternatively, an Opportunity Scholarship Tax Credit.
  • The department will re‐award credits from a waiting list if an awardee does not make the timely required contribution.
  • The $750,000 cap ($200,000 for pre‐kindergarten) on tax credits for contributions to scholarship, opportunity scholarship and pre‐kindergarten scholarship organizations will be lifted from October 1 through November 30 under the particular program if credits have gone unclaimed. The per‐business caps go back in place after November 30.
  • After January 1 of each fiscal year, the department will be permitted to transfer unused credits from one program to another. For example, a business firm applicant that unsuccessfully applied for an Educational Improvement Tax Credit may elect to have the department transfer unused Opportunity Scholarship Tax Credits to the Educational Improvement Tax Credit program.
    • In the case of the EITC Program, the department will contact SO and Pre‐K applicants who have been placed on the waiting list to inquire about credit transfers and subsequent application approval.
    • Applicants receiving approval due to credit transfers after January 1 will receive a 75 percent credit for a one‐year commitment.

The EITC program has been helping families choose the education that best fits their children’s needs for many years. The OSTC, which is only two years old, has already helped many families that have children residing in the area of a “low-achieving school.”