Assigned to FIN & HED                                                                                      FOR CAUCUS & FLOOR ACTION

ARIZONA STATE SENATE

Forty-seventh Legislature, Second Regular Session

AMENDED

FACT SHEET FOR H.B. 2280

tax deduction; 529 education plans.

(NOW: college savings plan; tax deduction)

Purpose

            Establishes an income tax subtraction for contributions to a 529 family college savings plan.

Background

            A 529 plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. 529 plans are usually categorized as either prepaid or savings, although some have elements of both. Every state now has at least one 529 plan available.

            The Arizona Family College Savings Program (AFCSP) is Arizona’s version of the savings plans permitted under Internal Revenue Code section 529. The AFCSP has certain tax benefits, established under federal law.  Earnings on contributions to the AFCSP grow tax-free and account holders will not have to pay federal income taxes on withdrawals used for qualified higher education expenses. For designated beneficiaries who are Arizona residents, funds are exempt from state taxation when used to pay qualified higher education expenses of the designated beneficiary. These tax benefits are due to sunset in 2010.  Additionally, Laws 2001, Chapter 172 requires any state student financial assistance program to disregard the balance in an AFCSP account for purposes of determining the income or financial need of the student or parent.

            According to a Joint Legislative Budget Committee fiscal note, H.B. 2280 will result in an estimated state General Fund revenue loss of $310,000 in FY 2006-2007, $390,000 in FY 2007-2008 and $490,000 in FY 2008-2009.

Provisions

1. Establishes an income tax subtraction for contributions to a 529 family college savings plan.  The maximum amount of the subtraction is:

a) $2,000 for a single taxpayer.

b) $4,000 for a married couple filing a joint return.

2. Requires the amount of any nonqualified withdrawal from a 529 family college savings plan account not included in federal adjusted gross income to be added to Arizona gross income.

3. Makes technical changes to blend multiple laws, passed in the 2005 legislative session, governing the income tax credits for water conservation systems and water conservation system plumbing stub outs.

4. Makes technical changes.

5. Becomes effective on the general effective date, retroactive to January 1, 2006.

Amendments Adopted by the Finance Committee

· Expands the tax subtraction to include contributions to any 529 family college savings plan.

House Action Senate Action

WM                 1/30/06     DPA/SE     8-0-0-1            FIN                 3/9/06     DP     7-0-2

3^rd Read           2/27/06                        56-0-4-0          FIN                 3/30/06   DPA   6-0-3

                                                                                    HED                3/22/06   DP      4-0-3

Prepared by Senate Research

March 31, 2006

SL/ac