HOUSE FILE 2251

BY  ISENHART

A BILL FOR

An Act providing for a tax credit for the repayment of certain student loan debt and including applicability provisions.
BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA:

    Section 1.  NEW SECTION.  261.113  Educational Opportunities Tax Credit Program.
   1.  For purposes of this section, unless the context otherwise requires:
   a.  “Commission” means the college student aid commission.
   b.  “Eligible institution” means a postsecondary educational institution in this state that meets the requirements of the provisions of the federal Higher Education Act of 1965 for student participation in the federal interest subsidy program and the requirements prescribed by rule of the commission.
   c.  “Eligible lender” means the same as defined in section 261.35.
   d.  “Eligible student” means a person who has entered into a program agreement that meets the requirements of subsections 4 and 5. 
   e.  “Program” means the educational opportunities tax credit program established in this section.
   f.  “Program agreement” means an agreement to attend an eligible institution entered into between the commission and a student pursuant to subsections 4 and 5. 
   g.  “Qualified student debt” means the maximum amount of an eligible student’s loan principal as determined pursuant to subsection 7.
   2.  The commission shall establish and administer an educational opportunities tax credit program pursuant to this section. The purpose of the program is to reimburse eligible students who agree to remain Iowa residents, or employers of such students, for the amount of qualified student debt borrowed and repaid in order to attend an eligible institution.
   3.  The commission shall coordinate with eligible institutions, eligible students, eligible lenders, and the department of revenue in the administration of the program.
   4.  The commission shall enter into a program agreement with a student wishing to enroll at an eligible institution and participate in the program. As part of the program agreement, the student shall covenant and agree to the following:
   a.  That the person is an Iowa resident, will remain a resident while pursuing a degree from an eligible institution, and will be for the entirety of each tax year for which the person wishes to claim a tax credit under the program. A person not meeting the residency requirements of this paragraph is not eligible to claim the tax credit.
   b.  To enroll in a degree program at an eligible institution. The degree to be pursued and the time allowed for its completion shall be determined under the terms of the agreement. A student shall not be required to complete the degree at the eligible institution at which the student initially enrolled provided all coursework for the degree is completed at eligible institutions.
   c.  To keep all necessary financial and educational records relating to the degree pursued and the qualified student debt incurred for a period of not less than three years after the last tax year in which a tax credit under the program is claimed.
   d.  That only qualified student debt is eligible to be claimed as a tax credit under the program.
   e.  That any acceleration in the repayment schedule of the qualified student debt will result in a forfeiture of the tax credit in that tax year and all subsequent tax years.
   f.  To refinance the loans comprising qualified student debt only if they remain separate from all other debt and if both the annual repayments and the total remaining indebtedness under the loan’s amortization schedule will be reduced by such refinancing.
   5.  A student shall not enter into more than one program agreement or claim the tax credit available under the program more than once.
   6.  An eligible institution shall notify the commission when an eligible student has completed applicable degree requirements contained in the program agreement’s covenants and shall certify to the commission the eligible student’s amount of qualified student debt.
   7.
  a.  An eligible student’s qualified student debt shall be the lesser of the following:
   (1)  The total amount of principal borrowed from an eligible lender for purposes of paying the amount of tuition and mandatory fees required in order to obtain a degree from an eligible institution.
   (2)  The standard principal amount. For purposes of this section, “standard principal amount” means the total average annual amount of in-state tuition and mandatory fees charged for attendance at the institutions of higher learning under the control of the state board of regents during the time the eligible student attended an eligible institution.
   b.  Only loans included as part of a financial aid package awarded to the eligible student by an eligible institution shall be included in the amount of qualified student debt determined pursuant to this subsection.
   8.  After verifying the fulfillment of the program agreement’s covenants and certifying the amount of qualified student debt, the commission shall issue to the eligible student a tax credit certificate which shall contain the eligible student’s name, address, tax identification number, the amount of the tax credit, and any other information required by the department of revenue. 
   9.  The commission, in consultation with the department of revenue, shall adopt rules pursuant to chapter 17A for the implementation and administration of the program.
   10.
  a.  (1)  An educational opportunities tax credit shall be allowed against the taxes imposed in chapter 422, divisions II, III, and V, and in chapter 432, and against the moneys and credits tax imposed in section 533.329, for the repayment of qualified student debt. 
   (2)  An individual may claim the tax credit under this section of a partnership, limited liability company, S corporation, estate, or trust electing to have income taxed directly to the individual. The amount claimed by the individual shall be based upon the pro rata share of the individual’s earnings from the partnership, limited liability company, S corporation, estate, or trust. 
   b.
  (1)  An employer may claim a tax credit under this section for payments made directly to an eligible lender on behalf of an eligible student with qualified student debt who has been issued a tax credit certificate pursuant to this section.
   (2)  Such an employer may claim the tax credit in an amount equal to the payments made by the employer of qualified student debt that came due during the eligible student’s period of employment with the employer.
   (3)  The employer may require a person to provide a copy of the program agreement and a copy of the tax credit certificate issued pursuant to this section in order to verify that a person is an eligible student with qualified student debt.
   (4)  The employer claiming a tax credit under the program shall retain all relevant records for at least three tax years following the last tax year in which the tax credit is claimed.
   c.  An eligible student and the eligible student’s employer may both claim tax credits for payments of qualified student debt, but the same payment of qualified student debt shall not be claimed by more than one taxpayer.
   d.  Any tax credit in excess of the taxpayer’s liability for the tax year is not refundable but may be credited to the tax liability for the following ten years or until depleted, whichever is earlier. A tax credit shall not be carried back to a tax year prior to the tax year in which the taxpayer first receives the tax credit.
   e.  An eligible student or employer may claim the tax credit only if the eligible student is in compliance with the program agreement, is an Iowa resident while working for the employer located in Iowa, and is not in arrears on the repayment schedule for the qualified student debt.
   11.
  a.  (1)  To claim the educational opportunities tax credit, an eligible student must attach the tax credit certificate issued by the commission to the taxpayer’s tax return.
   (2)  To claim the educational opportunities tax credit for payments made on behalf of an eligible student, a taxpayer shall attach a copy of the tax credit certificate issued to the eligible student and any information required by the department of revenue pertaining to the payments made to an eligible lender.
   b.  The tax credit certificate or certificates attached to the taxpayer’s tax return shall be issued in the eligible student’s name, expire on or after the last day of the taxable year for which the taxpayer is claiming the tax credit, and show a tax credit amount equal to or greater than the tax credit claimed on the taxpayer’s tax return.
   c.  The tax credit certificate, unless rescinded by the commission, shall be accepted by the department of revenue as payment for taxes imposed pursuant to chapter 422, divisions II, III, and V, and in chapter 432, and for the moneys and credits tax imposed in section 533.329, subject to any conditions or restrictions placed by the commission upon the face of the tax credit certificate and subject to the limitations of this section.
   d.  Except as otherwise provided in this section, a tax credit certificate is not transferable to any person or entity.
   12.  An eligible student who exercises the forbearance or deferment provisions of a loan agreement that comprises a portion of the student’s qualified student debt does not forfeit the right to claim the tax credit available under this section. The department of revenue shall toll the carryforward provisions of subsection 10, paragraph “d”, for any student exercising such forbearance or deferment provisions. 
   13.  The department of revenue, in consultation with the commission, may adopt rules pursuant to chapter 17A for the implementation of subsections 10 through 12.
    Sec. 2.  NEW SECTION.  422.11R  Educational opportunities tax credit.
   The taxes imposed under this division, less the credits allowed under section 422.12, shall be reduced by an educational opportunities tax credit authorized pursuant to section 261.113.
    Sec. 3.  Section 422.33, Code Supplement 2011, is amended by adding the following new subsection:
   NEW SUBSECTION.  29.  The taxes imposed under this division shall be reduced by an educational opportunities tax credit authorized pursuant to section 261.113.
    Sec. 4.  Section 422.60, Code Supplement 2011, is amended by adding the following new subsection:
   NEW SUBSECTION.  14.  The taxes imposed under this division shall be reduced by an educational opportunities tax credit authorized pursuant to section 261.113.
    Sec. 5.  NEW SECTION.  432.12N  Educational opportunities tax credit.
   The taxes imposed under this chapter shall be reduced by an educational opportunities tax credit authorized pursuant to section 261.113.
    Sec. 6.  Section 533.329, subsection 2, Code Supplement 2011, is amended by adding the following new paragraph:
   NEW PARAGRAPH.  m.  The moneys and credits tax imposed under this section shall be reduced by an educational opportunities tax credit authorized pursuant to section 261.113.
    Sec. 7.  APPLICABILITY.  This Act applies to tax years beginning on or after January 1, 2013, for qualified student debt incurred on or after that date.
EXPLANATION
   This bill provides for the establishment of an educational opportunities tax credit program to be administered by the college student aid commission and the department of revenue.
   The purpose of the program is to provide a tax credit to eligible students who agree to remain Iowa residents after graduation, or their employers, for payments made toward the student’s qualified student debt. For purposes of the bill, qualified student debt is either the total amount of principal borrowed by the student or the total average annual amount of in-state tuition charged to attend one of the institutions of higher learning under the control of the state board of regents, whichever is less. Only those loans included as part of an eligible student’s financial aid package from an eligible institution may be included in the amount of qualified student debt.
   To be eligible for the program, a student must be an Iowa resident, agree to remain so while pursuing a degree at an eligible institution, and agree to be an Iowa resident for the entirety of any tax year in which the student seeks to claim the tax credit available under the program. An eligible student must also agree to pursue a degree program at an eligible institution. For purposes of the bill, an eligible institution is a postsecondary educational institution in this state which meets the requirements of the provisions of the federal Higher Education Act of 1965 for student participation in the federal interest subsidy program and the requirements prescribed by rule of the commission. An eligible student must enter into an agreement with the college student aid commission for the completion of the degree program and the certification of the amount of qualified student debt incurred by the student.
   The commission is required to coordinate with eligible institutions, eligible students, eligible lenders, and the department of revenue in the administration of the program. When an eligible student has completed the degree required by the agreement, the eligible institution the student was attending must notify the commission and certify to the commission the amount of qualified student debt. Upon verification of the completion of the degree and certification of the amount of qualified student debt, the commission must issue a tax credit certificate to the student. 
   The student may claim the amount of qualified student debt as a credit against state income taxes, and may carry the credit forward for up to 10 years. An employer may claim the portion of the credit for payments made directly to eligible lenders on the student’s behalf to the extent that such payments are due under the terms of the loan during the student’s period of employment with that employer. The credit is not refundable or transferable and may not be carried back to prior tax years. The credit is only available if the eligible student is in compliance with the agreement entered into with the college student aid commission, is an Iowa resident working for the employer located in Iowa, and is not in arrears on the repayment schedule for the qualified student debt. 
   The bill provides for rulemaking by both the college student aid commission and the department of revenue for the administration of the program.
   The bill applies to tax years beginning on or after January 1, 2013, for qualified student debt incurred on or after that date.