First Regular Session Seventieth General Assembly STATE OF COLORADO INTRODUCED LLS NO. 15-0731.01 Jason Gelender x4330 SENATE BILL 15-118 SENATE SPONSORSHIP Merrifield, Johnston, Todd, Aguilar, Carroll, Garcia, Guzman, Heath, Kerr, Ulibarri HOUSE SPONSORSHIP (None), Senate Committees House Committees Finance A BILL FOR AN ACT Concerning the state income tax deductions for contributions to and distributions of investment earnings from the qualified state tuition program established by collegeinvest. Bill Summary (Note: This summary applies to this bill as introduced and does not reflect any amendments that may be subsequently adopted. If this bill passes third reading in the house of introduction, a bill summary that applies to the reengrossed version of this bill will be available at http://www.leg.state.co.us/billsummaries.) For purposes of calculating a taxpayer's Colorado taxable income, current state law begins from a base of the taxpayer's federal taxable income and provides for various modifications to that base, including subtractions from federal taxable income (state income tax deductions) in amounts equal to the full amounts of both contributions made by a taxpayer to the qualified state tuition program established by collegeinvest and distributions of investment earnings taken from the plan. The bill modifies these state income tax deductions by making the percentages of the amounts of contributions or distributions allowed to be subtracted from a taxpayer's taxable income dependent upon the amount of the taxpayer's federal adjusted gross income as follows: 200% of the amounts of contributions or distributions for a taxpayer whose federal adjusted gross income is $75,000 or less; 150% of the amounts of contributions or distributions for a taxpayer whose federal adjusted gross income is more than $75,000 but not more than $200,000; and 100% of the amounts of contributions or distributions for a taxpayer whose federal adjusted gross income is more than $200,000 but not more than $250,000. The bill eliminates deductions for a taxpayer whose federal adjusted gross income is more than $250,000. Be it enacted by the General Assembly of the State of Colorado: SECTION 1. Legislative declaration. (1) The general assembly hereby finds and declares that: (a) Current state law allows state income tax deductions to any taxpayer in amounts equal to the full amounts of both contributions made by a taxpayer to the qualified state tuition program established by collegeinvest and distributions of investment earnings taken from the plan; (b) The rationale for allowing these deductions is to encourage students and their families to save money for higher education and to reduce the cost of higher education so that more students can afford it; (c) While the deductions have helped taxpayers at all income levels, they have disproportionately benefited taxpayers whose federal adjusted gross income is over one hundred thousand dollars, with eighty-one percent of the total amount of deductions allowed going to such taxpayers and thirty-five percent of the total deductions allowed going to taxpayers whose federal adjusted gross income is over two hundred fifty thousand dollars; and (d) In order to better serve the purpose of increasing access to higher education by reducing the cost of higher education for students for whom cost is a significant barrier, it is necessary, appropriate, and in the best interest of all Coloradans to increase the amount of the deductions for lower and middle-income taxpayers, maintaining the deductions at their current levels for upper middle-income taxpayers, and eliminating the deductions for high-income taxpayers in the manner specified in this act. SECTION 2. In Colorado Revised Statutes, 39-22-104, amend (4) (i) (I) and (4) (i) (II); and add (4) (i) (I.5) and (4) (i) (II.5) as follows: 39-22-104. Income tax imposed on individuals, estates, and trusts - single rate - definitions - repeal. (4) There shall be subtracted from federal taxable income: (i) (I) For income tax years commencing on or after January 1, 1998, but before January 1, 2016, an amount equal to the portion attributable to interest and other income of a distribution under a qualified state tuition program that is distributed for the purpose of meeting qualified higher education expenses of a designated beneficiary, to the extent such amount is included in federal taxable income; (I.5) For income tax years commencing on or after January 1, 2016, an amount equal to: (A) Two hundred percent of the portion attributable to interest and other income of a distribution under a qualified state tuition program that is distributed for the purpose of meeting qualified higher education expenses of a designated beneficiary, to the extent such amount is included in federal taxable income, if the taxpayer's federal adjusted gross income is seventy-five thousand dollars or less; (B) One hundred fifty percent of the portion attributable to interest and other income of a distribution under a qualified state tuition program that is distributed for the purpose of meeting qualified higher education expenses of a designated beneficiary, to the extent such amount is included in federal taxable income, if the taxpayer's federal adjusted gross income is more than seventy-five thousand dollars but not more than two hundred thousand dollars; and (C) One hundred percent of the portion attributable to interest and other income of a distribution under a qualified state tuition program that is distributed for the purpose of meeting qualified higher education expenses of a designated beneficiary, to the extent such amount is included in federal taxable income, if the taxpayer's federal adjusted gross income is more than two hundred thousand dollars but not more than two hundred fifty thousand dollars. (II) For income tax years commencing on or after January 1, 2001, but before January 1, 2016, an amount equal to all payments or contributions made during the taxable year under an advance payment contract, to a savings trust account, or otherwise in connection with a qualified state tuition program established by collegeinvest created in section 23-3.1-203, C.R.S., or to a qualified state tuition program that is affiliated with an educational institution in the state and that is established and maintained pursuant to section 529 of the internal revenue code or any successor section; (II.5) For income tax years commencing on or after January 1, 2016, an amount equal to: (A) Two hundred percent of all payments or contributions made during the taxable year under an advance payment contract, to a savings trust account, or otherwise in connection with a qualified state tuition program established by collegeinvest created in section 23-3.1-203, C.R.S., or to a qualified state tuition program that is affiliated with an educational institution in the state and that is established and maintained pursuant to section 529 of the internal revenue code or any successor section if the taxpayer's federal adjusted gross income is seventy-five thousand dollars or less; (B) One hundred fifty percent of all payments or contributions made during the taxable year under an advance payment contract, to a savings trust account, or otherwise in connection with a qualified state tuition program established by collegeinvest created in section 23-3.1-203, C.R.S., or to a qualified state tuition program that is affiliated with an educational institution in the state and that is established and maintained pursuant to section 529 of the internal revenue code or any successor section if the taxpayer's federal adjusted gross income is more than seventy-five thousand dollars but not more than two hundred thousand dollars; and (C) One hundred percent of all payments or contributions made during the taxable year under an advance payment contract, to a savings trust account, or otherwise in connection with a qualified state tuition program established by collegeinvest created in section 23-3.1-203, C.R.S., or to a qualified state tuition program that is affiliated with an educational institution in the state and that is established and maintained pursuant to section 529 of the internal revenue code or any successor section if the taxpayer's federal adjusted gross income is more than two hundred thousand dollars but not more than two hundred fifty thousand dollars. SECTION 3. Act subject to petition - effective date. This act takes effect at 12:01 a.m. on the day following the expiration of the ninety-day period after final adjournment of the general assembly (August 5, 2015, if adjournment sine die is on May 6, 2015); except that, if a referendum petition is filed pursuant to section 1 (3) of article V of the state constitution against this act or an item, section, or part of this act within such period, then the act, item, section, or part will not take effect unless approved by the people at the general election to be held in November 2016 and, in such case, will take effect on the date of the official declaration of the vote thereon by the governor.