MISSISSIPPI LEGISLATURE
2016 Regular Session
To: Finance
By: Senator(s) Watson
AN ACT ENTITLED THE "MISSISSIPPI EDUCATION IMPROVEMENT TAX CREDIT ACT OF 2016"; TO ESTABLISH AN EDUCATIONAL IMPROVEMENT TAX CREDIT (EITC) PROGRAM ADMINISTERED BY THE MISSISSIPPI DEVELOPMENT AUTHORITY TO PROVIDE FINANCIAL ASSISTANCE TO LOW- AND MIDDLE-INCOME FAMILIES SEEKING EDUCATIONAL OPTIONS FOR THEIR CHILDREN; TO AUTHORIZE THE INCOME TAX CREDIT FOR BUSINESS FIRMS MAKING CONTRIBUTIONS TO QUALIFIED EDUCATIONAL SCHOLARSHIP ORGANIZATIONS OR EDUCATIONAL IMPROVEMENT ORGANIZATIONS AND TO PROVIDE STANDARDS AND LIMITATIONS FOR SUCH CONTRIBUTIONS; TO PROVIDE THAT THE SCHOLARSHIPS RECEIVED BY AN ELIGIBLE STUDENT FROM A SCHOLARSHIP ORGANIZATION ARE DEDUCTIBLE AS AN ADJUSTMENT TO GROSS INCOME; TO AMEND SECTION 27-7-18, MISSISSIPPI CODE OF 1972, IN CONFORMITY THERETO; AND FOR RELATED PURPOSES.
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF MISSISSIPPI:
SECTION 1. Short title. Sections 1 through 8 of this act shall be known and may be cited as the "Mississippi Educational Improvement Tax Credit Act of 2016."
SECTION 2. Educational improvement tax credit (EITC). (1) Definitions. The following words and phrases when used in this section shall have the meanings given to them in this section unless the context clearly indicates otherwise:
(a) "Business firm" means an entity authorized to do business in this state and subject to taxes imposed under the Mississippi Income Tax Law, Section 27-7-1 et seq. The term includes a pass-through entity. For purposes of this section, a business firm shall be included in one (1) of the following groups:
(i) Group 1 includes any business firm that is either entering the second year of a two-year commitment or applying for tax credits for a contribution to an educational improvement organization that is also a school district foundation, public school foundation or charter school foundation.
(ii) Group 2 includes any business firm other than a business firm in Group 1.
(b) "Contribution" means a donation of cash, personal property or services, the value of which is the net cost of the donation to the donor or the pro rata hourly wage, including benefits, of the individual performing the services.
(c) "Authority" means the Mississippi Development Authority.
(d) "Educational improvement organization" means a nonprofit entity which:
(i) Is exempt from federal taxation under Section 501(c)(3) of the Internal Revenue Code of 1986 (Public Law 99-514, 26 USC Section 1 et seq.); and
(ii) Contributes at least eighty percent (80%) of its annual receipts as grants to a public school for innovative educational programs.
For purposes of this definition, a nonprofit entity "contributes" its annual cash receipts when it expends or otherwise irrevocably encumbers those funds for expenditure during the then-current fiscal year of the nonprofit entity or during the next succeeding fiscal year of the nonprofit entity. A "nonprofit entity" includes a school district foundation, public school foundation or charter school foundation.
(e) "Eligible student" means a school-age student, including an eligible student with a disability, who is enrolled in a school and is a member of a household with a maximum annual household income as increased by the applicable income allowance.
(f) "Eligible student with a disability" means a school-age student who meets all of the following:
(i) Is either enrolled in a special education school or has otherwise been identified, in accordance with applicable state and federal law relating to special education services and programs as a "child with a disability," as defined in 34 CFR Section 300.8 (relating to a child with a disability).
(ii) Needs special education and related services.
(iii) Is enrolled in a school.
(iv) Is a member of a household with a household income of not more than the maximum annual household income.
(g) "Household" means an individual living alone or with the following: a spouse, parent and their unemancipated minor children, other unemancipated minor children who are related by blood or marriage, or other adults or unemancipated minor children living in the household who are dependent upon the individual.
(h) "Household income" means all monies or property received of whatever nature and from whatever source derived. The term does not include the following:
(i) Periodic payments for sickness and disability other than regular wages received during a period of sickness or disability.
(ii) Disability, retirement or other payments arising under workers' compensation acts, occupational disease acts, and similar legislation by any government.
(iii) Payments commonly recognized as old-age or retirement benefits paid to persons retired from service after reaching a specific age or after a stated period of employment.
(iv) Payments commonly known as public assistance or unemployment compensation payments by a governmental agency.
(v) Payments to reimburse actual expenses.
(vi) Payments made by employers or labor unions for programs covering hospitalization, sickness, disability or death, supplemental unemployment benefits, strike benefits, social security and retirement.
(vii) Compensation received by United States servicemen serving in a combat zone.
(i) "Income allowance" means:
(i) Subject to subparagraph (ii) of this paragraph, the amount of:
1. Before July 1, 2017, Ten Thousand Dollars ($10,000.00) for each eligible student and dependent member of a household.
2. After June 30, 2018, Twelve Thousand Dollars ($12,000.00) for each eligible student and dependent member of a household.
(ii) Beginning July 1, 2019, the Mississippi Development Authority shall annually adjust the income allowance amounts under subparagraph (i) of this paragraph to reflect any upward changes in the Consumer Price Index for all consumers for the Mississippi area in the preceding twelve (12) months and shall immediately submit the adjusted amounts to the Secretary of State for publication as a notice.
(j) "Innovative educational program" means an advanced academic or similar program that is not part of the regular academic program of a public school but that enhances the curriculum or academic program of the public school.
(k) "Maximum annual household income" means:
(i) Except as stated in subparagraph (ii) of this paragraph and subject to subparagraph (iii) of this paragraph, the following:
1. Before July 1, 2016, not more than Fifty Thousand Dollars ($50,000.00).
2. After June 30, 2016, not more than Sixty Thousand Dollars ($60,000.00).
(ii) With respect to an eligible student with a disability, as calculated by multiplying the sum of:
1. The applicable amount under subparagraph (i) of this paragraph; and
2. The applicable income allowance; by
3. The applicable support level factor according to the following table:
Support Level Support Level Factor
1 1.50
2 2.993
(iii) Beginning July 1, 2017, the Mississippi Development Authority shall annually adjust the income amounts under subparagraphs (i) and (ii) of this paragraph to reflect any upward changes in the Consumer Price Index for all consumers for the Mississippi area in the preceding twelve (12) months and shall immediately submit the adjusted amounts to the Secretary of State for publication as a notice.
(l) "Pass-through entity" means a partnership or a single-member limited liability company treated as a disregarded entity for federal income tax purposes or a Mississippi S Corporation as defined in Section 27-8-1.
(m) "Scholarship" means an award under a scholarship program.
(n) "Scholarship organization" means a nonprofit entity that:
(i) Is exempt from federal taxation under Section 501(c)(3) of the Internal Revenue Code of 1986 (Public Law 99-514, 26 USC Section 1 et seq.); and
(ii) Contributes at least eighty percent (80%) of its annual cash receipts to a scholarship program. For purposes of this definition, a nonprofit entity "contributes" its annual cash receipts to a scholarship program when it expends or otherwise irrevocably encumbers those funds for distribution during the then-current fiscal year of the nonprofit entity or during the next succeeding fiscal year of the nonprofit entity.
(o) "Scholarship program" means a program to provide tuition to eligible students to attend a school located in this state. A scholarship program must include an application and review process for the purpose of making awards to eligible students. The award of scholarships to eligible students shall be made without limiting availability to only students of one (1) school.
(p) "School" means an elementary school or secondary school at which the compulsory attendance requirements of the state may be met.
(q) "School age" means from the earliest admission age to a school's kindergarten program or, when no kindergarten program is provided, the school's earliest admission age for students, until the end of the school year the student attains twenty-one (21) years of age or graduation from high school, whichever occurs first.
(r) "Special education school" means a school or program within a school that is designated specifically and exclusively for students with any of the disabilities listed in 34 CFR Section 300.8 (relating to a child with a disability) and meets one (1) of the following:
(i) Is licensed;
(ii) Is accredited by an accrediting association approved by the State Board of Education;
(iii) Is a school for the blind or deaf receiving state appropriations; or
(iv) Is operated by or under the authority of a bona fide religious institution or by the state or any political subdivision thereof.
(s) "Support level" means the level of support needed by an eligible student with a disability, as stated in the following:
(i) Support level 1. The student is not enrolled in a special education school.
(ii) Support level 2. The student is enrolled in a special education school.
(t) "Tax credit" means the educational improvement tax credit established under this section.
SECTION 3. Qualification and application. (1) Establishment. An educational improvement tax credit program is established to enhance the educational opportunities available to all students in this state.
(2) Information. In order to qualify under this section, a scholarship organization or an educational improvement organization must submit information to the Mississippi Development Authority that enables the authority to confirm that the organization is exempt from taxation under Section 501(c)(3) of the Internal Revenue Code of 1986.
(3) Scholarship organizations. A scholarship organization must certify to the authority that the organization is eligible to participate in the program established under this section and must agree to annually report the following information to the authority by September 1 of each year:
(a) (i) The number of scholarships awarded during the immediately preceding school year to eligible students.
(ii) The total and average amounts of scholarships awarded during the immediately preceding school year to eligible students.
(iii) The number of scholarships awarded during the immediately preceding school year to eligible students in Kindergarten through Grade 8.
(iv) The total and average amounts of scholarships awarded during the immediately preceding school year to eligible students in Kindergarten through Grade 8.
(v) The number of scholarships awarded during the immediately preceding school year to eligible students in Grades 9 through 12.
(vi) The total and average amounts of scholarships awarded during the immediately preceding school year to eligible students in Grades 9 through 12.
(vii) Where the scholarship organization collects information on a county-by-county basis, the total number and the total dollar amount of scholarships awarded during the immediately preceding school year to residents of each county in which the scholarship organization awarded scholarships.
(b) The information required under paragraph (a) of this subsection shall be submitted on a form provided by the authority. No later than May 1 of each year, the authority shall annually distribute such sample forms, together with the forms on which the reports are required to be made, to each listed scholarship organization.
(c) The authority may not require any other information to be provided by scholarship organizations, except as expressly authorized in this section.
(4) Educational improvement organization. (a) An application submitted by an educational improvement organization must describe its proposed innovative educational program or programs in a form prescribed by the authority. In prescribing the form, the authority shall consult with the Department of Education as necessary. The authority shall review and approve or disapprove the application. In order to be eligible to participate in the program established under this section, an educational improvement organization must agree to annually report the following information to the authority by September 1 of each year:
(i) The name of the innovative educational program or programs and the total amount of the grant or grants made to those programs during the immediately preceding school year.
(ii) A description of how each grant was utilized during the immediately preceding school year and a description of any demonstrated or expected innovative educational improvements.
(iii) The names of the public schools and school districts where innovative educational programs that received grants during the immediately preceding school year were implemented.
(iv) Where the educational improvement organization collects information on a county-by-county basis, the total number and the total dollar amount of grants made during the immediately preceding school year for programs at public schools in each county in which the educational improvement organization made grants.
(b) The information required under paragraph (a) of this subsection shall be submitted on a form provided by the authority. No later than May 1 of each year, the authority shall annually distribute such sample forms, together with the forms on which the reports are required to be made, to each listed educational improvement organization.
(c) The authority may not require any other information to be provided by educational improvement organizations, except as expressly authorized in this section.
(5) Notification. The authority shall notify the scholarship organization or educational improvement organization that the organization meets the requirements of this section for that fiscal year no later than sixty (60) days after the organization has submitted the information required under this section.
(6) Publication. The authority shall annually publish a list of each scholarship organization or educational improvement organization qualified under this section. The list shall also be posted and updated as necessary on the publicly accessible Internet website of the authority.
SECTION 4. Application. (1) Scholarship organization. In order to receive a tax credit, a business firm shall apply to the authority. A business firm shall receive a tax credit if the scholarship organization that receives the contribution appears on the list established under Section 3 of this act.
(2) Educational improvement organization. In order to receive a tax credit, a business firm shall apply to the authority. A business firm shall receive a tax credit if the authority has approved the program provided by the educational improvement organization that receives the contribution.
(3) Contributions. A contribution by a business firm to a scholarship organization or educational improvement organization shall be made no later than sixty (60) days following the approval of an application under subsection (1) or (2) of this section.
SECTION 5. Tax credit. (1) Scholarship or educational improvement organizations. In accordance with Sections 1 through 8 of this act, the Mississippi Department of Revenue shall grant a tax credit against any income tax due to a business firm providing proof of a contribution to a scholarship organization or educational improvement organization in the taxable year in which the contribution is made which shall not exceed seventy-five percent (75%) of the total amount contributed during the taxable year by the business firm. The tax credit shall not exceed Three Hundred Thousand Dollars ($300,000.00) annually per business firm for contributions made to scholarship organizations or educational improvement organizations.
(2) Additional amount. The Mississippi Department of Revenue shall grant a tax credit of up to eighty percent (80%) of the total amount contributed during the taxable year if the business firm provides a written commitment to provide the scholarship organization or educational improvement organization with the same amount of contribution for two (2) consecutive tax years. The business firm must provide the written commitment under this subsection to the authority at the time of application.
(3) Combination of tax credits. A business firm may receive tax credits from the Department of Revenue in any tax year for any combination of contributions under subsection (1) or (2) of this section. In no case may a business firm receive tax credits in any tax year in excess of Three Hundred Thousand Dollars ($300,000.00) for contributions under subsections (1) and (2) of this section.
(4) Pass-through entity. (a) If a pass-through entity does not intend to use all approved tax credits under this section, it may elect in writing to transfer all or a portion of the tax credit to shareholders, members or partners in proportion to the share of the entity's distributive income to which the shareholder, member or partner is entitled for use in the taxable year in which the contribution is made or in the taxable year immediately following the year in which the contribution is made. The election shall designate the year in which the transferred tax credits are to be used and shall be made according to procedures established by the Department of Revenue.
(b) A pass-through entity and a shareholder, member or partner of a pass-through entity shall not claim the tax credit under this section for the same contribution.
(c) The shareholder, member or partner may not carryforward, carryback, obtain a refund of, or sell or assign the tax credit.
(d) The shareholder, member or partner may claim the credit on a joint return, but the tax credit may not exceed the separate income of that shareholder, member or partner.
(5) Restriction on applicability of credits. No tax credits shall be applied against any tax withheld by an employer from an employee.
(6) Time of application for credits. (a) The authority may accept applications beginning on May 15 from business firms for tax credits available during a fiscal year that is to begin on July 1.
(b) If, on July 1 of a fiscal year, applications for tax credits available during the fiscal year exceed the total aggregate amount of tax credits available for the fiscal year, the authority shall approve applications for tax credits on the following basis, subject to the provisions of this section:
(i) Group 1 firms whose applications were received by July 1 shall be accorded first priority in the approval of tax credit applications. If tax credits applied for by Group 1 firms exceed the total aggregate amount of tax credits available for the program under Section 6 of this act, the authority shall approve on a pro rata basis the applications of all Group 1 firms that applied by July 1, and the applications of Group 2 and Group 3 firms shall be denied. Approval of a reduced tax credit under this subparagraph shall not disqualify a Group 1 firm from receiving an eighty percent (80%) tax credit under subsection (2) of this section even if the amount of tax credit approved would require the Group 1 firm to make a lower scholarship contribution in the second year of a two-year commitment.
(ii) If tax credits remain available after credits have been awarded under subparagraph (i) of this paragraph, Group 2 firms whose applications were received by July 1 shall be accorded priority in the approval of applications for the remaining tax credits. If the sum of the tax credits approved under subparagraph (i) of this paragraph and the credits applied for by Group 2 firms exceeds the total aggregate amount of tax credits available for the program under Section 6 of this act, the authority shall approve on a pro rata basis the applications for the remaining tax credits submitted by all Group 2 firms that applied by July 1, and the applications of Group 3 firms shall be denied.
(iii) If tax credits remain available on July 1 after credits have been awarded under subparagraphs (i) and (ii) of this paragraph, applications of Group 3 firms shall be approved, on a pro rata basis within that group if necessary. Thereafter, the authority shall approve the applications of all business firms on a daily basis. If, on any day after July 1, the cumulative sum of the tax credits approved and the tax credits applied for on that day exceeds the total aggregate amount of tax credits available for the program under Section 6 of this act, the authority shall approve on a pro rata basis the applications received on that day.
SECTION 6. Limitations. (1) Amount. (a) For the fiscal years 2016-2017, 2017-2018 and 2018-2019, the total aggregate amount of all tax credits approved for scholarship organizations and educational improvement organizations shall not exceed Ninety-two Million Dollars ($92,000,000.00) in a fiscal year. No less than seventy-five percent (75%) of the total aggregate amount of all tax credits approved shall be used to provide tax credits for contributions from business firms to scholarship organizations. No less than twenty-five (25%) of the total aggregate amount of all tax credits approved shall be used to provide tax credits for contributions from business firms to educational improvement organizations.
(i) From the tax credits for contributions by business firms to educational improvement organizations, twenty percent (20%) of the available amount shall initially be set aside for contributions by business firms to educational improvement organizations that are also school district foundations, public school foundations, or charter school foundations and shall be distributed in accordance with Section 5 of this act.
(ii) Tax credits remaining from the amount set aside in subparagraph (i) of this paragraph after July 1 of each year shall be made available to business firms for contributions to any educational improvement organization and shall be distributed in accordance with Section 5 of this act.
(b) (i) Subject to adjustment under subparagraph (ii) of this paragraph, in the fiscal year 2018-2019 and each fiscal year thereafter, the total aggregate amount of all tax credits available shall equal the total aggregate amount of all tax credits available in the prior fiscal year.
(ii) Beginning in the fiscal year 2018-2019, in any fiscal year in which the total aggregate amount of all tax credits approved for the prior fiscal year is equal to or greater than ninety percent (90%) of the total aggregate amount of all tax credits available for the prior fiscal year, the total aggregate amount of all tax credits available shall increase by five percent (5%). The authority shall publish on its Internet website the total aggregate amount of all tax credits available when the amount is increased under this paragraph.
(2) Activities. No tax credit shall be approved for activities that are a part of a business firm's normal course of business.
(3) Tax liability. (a) Except as provided in paragraph (b) of this subsection, a tax credit granted for any one (1) taxable year may not exceed the tax liability of a business firm.
(b) In the case of a credit granted to a pass-through entity which elects to transfer the credit according to Section 5 of this act, a tax credit granted for any one (1) taxable year and transferred to a shareholder, member or partner may not exceed the tax liability of the shareholder, member or partner.
(4) Use. A tax credit not used by the applicant in the taxable year the contribution was made or in the year designated by the shareholder, member or partner to whom the credit was transferred may not be carried forward or carried back and is not refundable or transferable.
(5) Nontaxable income. A scholarship received by an eligible student shall be deductible as an adjustment to gross income under the Mississippi Income Tax Law as provided in Section 27-7-18.
SECTION 7. Lists. The Department of Revenue shall provide to the Legislature, by June 30 of each year, a list of all scholarship organizations and educational improvement organizations that receive contributions from business firms granted a tax credit.
SECTION 8. Guidelines. The Mississippi Development Authority, in consultation with the Department of Education, shall develop guidelines to determine the eligibility of an innovative educational program.
SECTION 9. Sections 1 through 8 of this act shall be codified in Chapter 7, Title 27, Mississippi Code of 1972.
SECTION 10. Section 27-7-18, Mississippi Code of 1972, is amended as follows:
27-7-18. (1) Alimony payments. In the case of a person described in Section 27-7-15(2)(e), there shall be allowed as a deduction from gross income amounts paid as periodic payments to the extent of such amounts as are includible in the gross income of the spouse as provided in Section 27-7-15(2)(e), payment of which is made within the person's taxable year.
(2) Unreimbursed moving expenses incurred after December 31, 1994, are deductible as an adjustment to gross income in accordance with provisions of the United States Internal Revenue Code, and rules, regulations and revenue procedures thereunder relating to moving expenses, not in direct conflict with the provisions of the Mississippi Income Tax Law.
(3) Amounts paid after December 31, 1998, by a self-employed individual for insurance which constitute medical care for the taxpayer, his spouse and dependents, are deductible as an adjustment to gross income in accordance with provisions of the United States Internal Revenue Code, and rules, regulations and revenue procedures thereunder relating to such payments, not in direct conflict with the provisions of the Mississippi Income Tax Law.
(4) Contributions or payments to a Mississippi Affordable College Savings (MACS) Program account are deductible from gross income as provided in Section 37-155-113. Payments made under a prepaid tuition contract entered into under the Mississippi Prepaid Affordable College Tuition Program are deductible as provided in Section 37-155-17.
(5) (a) Unreimbursed travel expenses, lodging expenses and lost wages an individual incurred as a result of, and related to, the donation, while living, of one or more of his or her organs for human organ transplantation, are deductible from gross income. The deduction from gross income authorized by this subsection may be claimed for only once and may not exceed Ten Thousand Dollars ($10,000.00).
(b) As used in this subsection, "organ" means all or part of a liver, pancreas, kidney, intestine, lung or bone marrow.
(6) Scholarships received by an eligible student from a scholarship organization as defined in Section 2 of this act that has qualified under Section 3 of this act are deductible as an adjustment to gross income.
SECTION 11. This act shall take effect and be in force from and after July 1, 2016.