Senate Study Bill 1178 - Introduced SENATE/HOUSE FILE _____ BY (PROPOSED GOVERNOR BILL) A BILL FOR An Act creating a student debt reduction organization tax 1 credit available against the individual and corporate income 2 tax, providing for the exclusion of student debt reduction 3 grants from the individual income tax, and including 4 retroactive and other applicability provisions. 5 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 6 TLSB 1417XL (7) 86 mm/sc

S.F. _____ H.F. _____ Section 1. Section 422.7, Code 2015, is amended by adding 1 the following new subsection: 2 NEW SUBSECTION . 18. Subtract, to the extent included, the 3 amount received by the taxpayer as a student debt reduction 4 grant from a student debt reduction organization pursuant to 5 section 422.11K. 6 Sec. 2. NEW SECTION . 422.11K Student debt reduction 7 organization tax credit. 8 1. Definitions. As used in this section, unless the 9 context otherwise requires: 10 a. “Charitable” means the same as defined in 26 C.F.R. 11 §1.501(c)(3)-1. 12 b. “Community service organization” means an organization 13 that meets all of the following requirements: 14 (1) The organization is located in this state. 15 (2) The organization is organized under chapter 504. 16 (3) The organization qualifies under section 501(c)(3) of 17 the Internal Revenue Code as a charitable organization exempt 18 from federal income tax under section 501(a) of the Internal 19 Revenue Code. 20 (4) The organization performs charitable work. 21 c. “Educational loan” means any loan that is made, insured, 22 or guaranteed under Tit. IV of the federal Higher Education Act 23 of 1965, as amended. 24 d. “Eligible volunteer” means an individual who is a 25 resident of this state and who has an educational loan made 26 directly to that individual for attendance at a postsecondary 27 educational institution. 28 e. “Student debt reduction grant” means a grant to an 29 eligible volunteer to cover all or part of the educational loan 30 of the eligible volunteer, which grant is paid directly to the 31 holder of the educational loan. 32 f. “Student debt reduction organization” means an 33 organization that meets the requirements of subsection 2, 34 paragraph “a” . 35 -1- LSB 1417XL (7) 86 mm/sc 1/ 9

S.F. _____ H.F. _____ 2. Student debt reduction organizations —— registration —— 1 agreements —— student debt reduction grants. 2 a. In order to qualify as a student debt reduction 3 organization, an organization shall meet all of the following 4 requirements: 5 (1) The organization is located in this state. 6 (2) The organization is organized under chapter 504. 7 (3) The organization qualifies under section 501(c)(3) 8 of the Internal Revenue Code as an organization exempt from 9 federal income tax under section 501(a) of the Internal Revenue 10 Code. 11 (4) The organization is controlled by a board of directors 12 consisting of at least seven members. The names and addresses 13 of the members shall be provided to the department and made 14 available by the department to the public, notwithstanding any 15 state confidentiality restrictions. 16 (5) The organization allocates at least ninety percent 17 of its annual revenue to student debt reduction grants to 18 eligible volunteers who have fulfilled a student debt reduction 19 agreement. 20 (6) The organization only awards student debt reduction 21 grants to eligible volunteers who have fulfilled a student debt 22 reduction agreement. 23 (7) The organization prepares an annual financial statement 24 reviewed by a certified public accounting firm. 25 b. A student debt reduction organization shall register with 26 the department in the manner prescribed by the department. The 27 registration shall include all of the following: 28 (1) The information necessary to determine whether the 29 organization qualifies under paragraph “a” of this subsection. 30 (2) A list of the community service organizations 31 affiliated with the student debt reduction organization. 32 (3) Any other information deemed necessary by the 33 department to evaluate the eligibility of the student debt 34 reduction organization. 35 -2- LSB 1417XL (7) 86 mm/sc 2/ 9

S.F. _____ H.F. _____ c. Once the student debt reduction organization has 1 registered, it is not required to amend its registration unless 2 the community service organizations with which it is affiliated 3 changes. 4 d. A student debt reduction organization shall notify the 5 department immediately of a change in circumstances that would 6 cause the organization to no longer qualify as a student debt 7 reduction organization. 8 e. A student debt reduction organization shall notify 9 the department of each contribution it receives in the time, 10 manner, and form prescribed by the department. 11 f. A student debt reduction organization shall report to the 12 department, on a form prescribed by the department, by January 13 12 of each tax year all of the following information: 14 (1) The name and address of the members and the chairperson 15 of the governing board of the student debt reduction 16 organization. 17 (2) A list of the individual donors for the previous tax 18 year that includes the dollar value of each contribution. 19 (3) The total number and dollar value of the student debt 20 reduction agreements entered into during the previous year 21 with each affiliate community service organization, and the 22 total number and dollar value of all outstanding student debt 23 reduction agreements with each affiliate community service 24 organization. 25 (4) The total number and amount of student debt reduction 26 grants awarded during the previous year from student debt 27 reduction agreements with each affiliate community service 28 organization, identified by the year in which the agreement was 29 entered into. 30 g. A student debt reduction organization may affiliate with 31 one or more community service organizations, but a community 32 service organization shall be affiliated with only one student 33 debt reduction organization. 34 h. A student debt reduction organization, an affiliate 35 -3- LSB 1417XL (7) 86 mm/sc 3/ 9

S.F. _____ H.F. _____ community service organization, and an eligible volunteer may 1 enter into a student debt reduction agreement for the awarding 2 of a student debt reduction grant upon completion of volunteer 3 service by the eligible volunteer with the community service 4 organization. The college student aid commission shall by 5 rule pursuant to chapter 17A establish uniform agreement 6 requirements relating to student debt reduction grants, 7 including but not limited to uniform rules on eligibility for 8 receiving grants, qualifying volunteer service, amount and 9 calculation of grants, and procedures for awarding grants. 10 In order to qualify for a student debt reduction grant, the 11 volunteer service provided by the eligible volunteer shall, at 12 a minimum, be charitable work performed under the supervision 13 and control of the community service organization and in 14 furtherance or support of the mission of the community service 15 organization. The volunteer service need not be performed in 16 this state. 17 i. The total value of the student debt reduction grants 18 provided for in the outstanding student debt reduction 19 agreements of a student debt reduction organization shall not 20 exceed the amount of contributions the student debt reduction 21 organization has received that are allocated to and available 22 for the payment of student debt reduction grants. 23 3. Student debt reduction organization tax credit —— 24 application —— maximum tax credits —— reports. 25 a. The taxes imposed under this division, less the credits 26 allowed under section 422.12, shall be reduced by a student 27 debt reduction organization tax credit equal to sixty-five 28 percent of the amount of the voluntary cash contributions made 29 by the taxpayer during the tax year to a student debt reduction 30 organization, subject to the availability of tax credits as 31 provided in paragraph “b” . The tax credit shall be claimed by 32 way of a tax credit certificate issued by the department and 33 included with the person’s tax return. 34 b. The aggregate amount of tax credits authorized pursuant 35 -4- LSB 1417XL (7) 86 mm/sc 4/ 9

S.F. _____ H.F. _____ to this section shall not exceed two million dollars per 1 calendar year. 2 c. (1) To receive a tax credit, a taxpayer must submit 3 an application to the department for each contribution. The 4 application shall include a written acknowledgment from the 5 student debt reduction organization and any other information 6 required by the department. The department shall not issue a 7 certificate until it verifies as correct the date and amount of 8 the contribution with the student debt reduction organization. 9 The department shall issue certificates under this section on 10 a first-come, first-served basis, which certificates may be 11 redeemed for tax credits. 12 (2) If in a calendar year the aggregate amount of tax 13 credits applied for exceeds the maximum amount specified 14 in paragraph “b” of this subsection, the department shall 15 establish a wait list for certificates. Applications that 16 were approved but for which certificates were not issued shall 17 be placed on the wait list in the order the applications 18 were received and shall be given priority for receiving 19 certificates in succeeding calendar years. Placement on a 20 wait list pursuant to this subparagraph shall not constitute a 21 promise binding the state. The availability of a tax credit 22 and issuance of a tax credit certificate pursuant to this 23 subsection in a future calendar year is contingent upon the 24 availability of tax credits in that particular calendar year. 25 d. To be eligible for this credit, all of the following 26 shall apply: 27 (1) A deduction pursuant to section 170 of the Internal 28 Revenue Code for any amount of the contribution is not taken 29 for state tax purposes. 30 (2) The contribution does not designate that any part of the 31 contribution be used for the direct benefit of the taxpayer or 32 any other person designated by the taxpayer. 33 e. Any credit in excess of the tax liability is not 34 refundable but the excess for the tax year may be credited to 35 -5- LSB 1417XL (7) 86 mm/sc 5/ 9

S.F. _____ H.F. _____ the tax liability for the following five tax years or until 1 depleted, whichever is the earlier. 2 f. A tax credit shall not be transferable to any other 3 person. 4 g. An individual may claim the tax credit allowed a 5 partnership, limited liability company, S corporation, estate, 6 or trust electing to have the income taxed directly to the 7 individual. The amount claimed by the individual shall be 8 based upon the pro rata share of the individual’s earnings of 9 the partnership, limited liability company, S corporation, 10 estate, or trust. 11 4. Reports. The department shall annually submit to the 12 governor and the general assembly a report containing the 13 information collected by the department pursuant to this 14 section, and any other information the department may deem 15 relevant and appropriate, except that the information collected 16 pursuant to subsection 2, paragraph “f” , subparagraph (2), 17 shall be reported in the aggregate and shall not include 18 individual donor information. 19 5. Rules. The department and the student aid commission 20 shall each adopt rules pursuant to chapter 17A to administer 21 this section. 22 Sec. 3. Section 422.33, Code 2015, is amended by adding the 23 following new subsection: 24 NEW SUBSECTION . 27. The taxes imposed under this division 25 shall be reduced by a student debt reduction organization tax 26 credit allowed under section 422.11K. The maximum amount of 27 tax credits that may be authorized under this subsection for a 28 calendar year equals twenty-five percent of the maximum amount 29 of tax credits that may be authorized for a calendar year 30 pursuant to section 422.11K, subsection 2, paragraph “b” . 31 Sec. 4. APPLICABILITY. This Act applies to contributions 32 made to a student debt reduction organization on or after July 33 1, 2015. 34 Sec. 5. RETROACTIVE APPLICABILITY. This Act applies 35 -6- LSB 1417XL (7) 86 mm/sc 6/ 9

S.F. _____ H.F. _____ retroactively to January 1, 2015, for tax years beginning on 1 or after that date. 2 EXPLANATION 3 The inclusion of this explanation does not constitute agreement with 4 the explanation’s substance by the members of the general assembly. 5 This bill creates a student debt reduction organization tax 6 credit equal to 65 percent of the amount of a voluntary cash 7 contribution made to a student debt reduction organization, 8 provides for the creation of student debt reduction 9 organizations, and excludes student debt reduction grants from 10 the individual income tax. 11 STUDENT DEBT REDUCTION ORGANIZATIONS. The bill provides 12 for the creation and registration of student debt reduction 13 organizations (SDRO). In order to qualify as an SDRO, an 14 organization must be a nonprofit, Internal Revenue Code 15 §501(c)(3) tax-exempt organization located in Iowa and 16 organized under Code chapter 504 (revised Iowa nonprofit 17 corporation Act). The organization must be controlled by 18 a board of directors consisting of at least seven members, 19 the names and addresses of which must be provided to the 20 department of revenue (department) and made available to the 21 public. The organization must prepare an annual financial 22 statement reviewed by a certified public accounting firm. The 23 organization must award at least 90 percent of its annual 24 revenue in student debt reduction grants, and such grants must 25 be made exclusively to eligible volunteers who have fulfilled 26 student debt reduction agreements. “Student debt reduction 27 grant”, “eligible volunteer”, and related terms are defined in 28 the bill. 29 SDROs are required to register with the department in 30 the manner provided in the bill and as prescribed by the 31 department. SDROs are authorized to affiliate with community 32 service organizations for the purpose of providing student debt 33 reduction grants. An SDRO may affiliate with several community 34 service organizations, but a community service organization 35 -7- LSB 1417XL (7) 86 mm/sc 7/ 9

S.F. _____ H.F. _____ may be affiliated with only one SDRO. Community service 1 organizations are nonprofit, Internal Revenue Code §501(c)(3) 2 tax-exempt charitable organizations that are located in Iowa, 3 organized under Code chapter 504, and that perform charitable 4 work. “Charitable” is defined in the bill. 5 An SDRO, an affiliate community service organization, and 6 an eligible volunteer may enter into a student debt reduction 7 agreement for the awarding of a student debt reduction grant 8 upon completion of volunteer service with the community 9 service organization. The college student aid commission is 10 required to establish uniform agreement requirements relating 11 to student loan reduction grants, but in order to qualify for 12 such a grant the volunteer service must, at a minimum, be 13 charitable work performed under the supervision and control 14 of the community service organization and in furtherance or 15 support of the mission of the community service organization. 16 The volunteer service need not be performed in this state. The 17 bill prohibits the value of the student debt reduction grants 18 provided for in an SDRO’s outstanding agreements from exceeding 19 the amount of contributions the SDRO has received that are 20 allocated to and available for the payment of student debt 21 reduction grants. 22 When the volunteer service has been performed and the 23 agreement fulfilled, an SDRO is authorized to award a student 24 debt reduction grant to the eligible volunteer and pay the 25 grant directly to the holder of the eligible volunteer’s 26 educational loan. The bill provides that student debt 27 reduction grants are exempt from the Iowa individual income 28 tax. 29 SDROs are required to notify the department of the 30 contributions they receive and are required to annually 31 report various information as provided in the bill to the 32 department. The department is required to annually publish a 33 report containing that information and submit the report to the 34 governor and general assembly. 35 -8- LSB 1417XL (7) 86 mm/sc 8/ 9

S.F. _____ H.F. _____ STUDENT DEBT REDUCTION ORGANIZATION TAX CREDIT. The bill 1 provides for a tax credit against the individual and corporate 2 income tax equal to 65 percent of the amount of a voluntary 3 cash contribution made to an SDRO during the tax year. 4 Contributions may not be deducted as a charitable deduction for 5 state tax purposes or be designated for the direct benefit of 6 the taxpayer or any other person designated by the taxpayer. 7 The total amount of tax credits authorized each calendar 8 year shall not exceed $2 million, and of that amount only 25 9 percent ($500,000) may be authorized against the corporate 10 income tax. 11 In order to receive a tax credit, a taxpayer must submit 12 an application for each contribution to the department 13 containing a written acknowledgment from the SDRO and any 14 other information required by the department. After verifying 15 the validity of the contribution, the department shall issue 16 a tax credit certificate to the taxpayer. The department is 17 required to issue tax credit certificates each calendar year on 18 a first-come, first-served basis until the $2 million cap is 19 reached. Eligible applicants that do not receive a tax credit 20 certificate in a given calendar year are placed on a wait 21 list in the order the application was received and are given 22 priority for receiving a certificate in succeeding calendar 23 years. The tax credit is nontransferable and nonrefundable, 24 but any excess credit may be carried forward for up to five tax 25 years. 26 The bill applies to contributions made to a student debt 27 reduction organization on or after July 1, 2015, and applies 28 retroactively to tax years beginning on or after January 1, 29 2015. 30 -9- LSB 1417XL (7) 86 mm/sc 9/ 9