Quick Facts on Scholarship Tax Credits - HB 498
HB 498, sponsored by State Representative Ed Robb (R-Columbia), establishes the “Milton Friedman ‘Put Parents in Charge’ Education Program” which authorizes a state income tax credit equal to 65 percent of any qualifying contribution made to a educational assistance organization offering certain K-12 scholarships.
Qualifying Contributions, Allowable Tax Credit:
A taxpayer, which may include an individual or a business, must make a “qualifying contribution” to an “educational assistance organization” (see next section) in the form of a donation of cash, stock, bonds or other marketable securities. Sixty-five percent of the amount of the qualifying contribution may be claimed as a tax credit if the contribution is not claimed on the taxpayer’s federal income tax return. A taxpayer cannot claim the tax credit on behalf of their dependent or, if a business is claiming the credit, on behalf of the business’s agent’s dependent. The cumulative amount of tax credits awarded in any single year may not exceed 40 million dollars.
Educational Assistance Organization – Requirements:
An educational assistance organization receiving the qualifying contribution must be a charitable organization registered in this state that is exempt from federal taxation, certified by the director of the Missouri Department of Economic Development, and that allocates all of its annual revenue derived from “qualifying contributions,” except for an allowable portion for marketing and administration, for educational assistance and which does not provide scholarships to students of only one particular school.
Educational assistance organizations are required to allocate at least 80 percent of their qualifying contributions in a given state fiscal year to provide scholarships to “qualified students,” while the remaining 20 percent may be allocated to “income eligible students.” (See next section “Student Eligibility for Scholarships”).
Educational assistance organizations must report annually to either the director of the Missouri Department of Economic Development or the oversight organization designated by the director concerning participating qualified schools and scholarship recipients. Contributions received by these organizations for which the tax credit is not claimed are not considered “qualifying contributions” and are not subject to the guidelines of HB 498.
Scholarship Amounts, Uses of Scholarship:
Scholarships may not exceed an average of $5,000 per student each school year. This amount is to be adjusted annually for inflation based on the Consumer Price Index. However, larger scholarships may be offered to certain students with disabilities. The scholarships may be used to cover tuition, transportation, textbooks, supplies and other related educational expenses. Educational assistance organizations are not to award a scholarship until a student has been identified as either an income eligible student or a qualified student, and potential vacancies have been identified or the student has been placed. The scholarship assistance may also be used in certain cases for private tutoring of public school students, apprenticeship programs, participation in voluntary desegregation programs and similar purposes.
Student Eligibility for Scholarships:
Only certain types of K-12 students are eligible for scholarships derived from revenue generated by “qualifying contributions.”
Income eligible student:
A student must be deemed an “income eligible student” and meet one of the following three criteria:
- The elementary or secondary student resides in an unaccredited or provisionally or interim accredited public school districtand the student’s parents’ or guardians’ income is no more than 185 percent of the level that would qualify the student for a reduced price lunch under the national school lunch program (for a family of four, annual income could not exceed $68,450), or the student is of school age and resides in such a district but does not attend school and does not hold a high school diploma;
- The student resides in any public school district in the state and is age three or older and has disabilities and the student’s parents, regardless of income, reside in Missouri and have un-reimbursed medical expenses in excess of seven and one-half percent of their federal adjusted gross income; or
- The student attends a public school in any public school district in the state and the principal has identified and the superintendent has approved the student for scholarship help based on the fact that the student has been suspended at least two times for a total of at least twelve days or has been expelled, or the student has scored in the two lowest levels of proficiency on statewide assessments or has a GPA of one point nine or lower on a four point scale.
Up to 20 percent of qualifying contributions made to an educational assistance organization may be allocated to “income eligible students.” These scholarships may be used for attendance at a “qualified school” (as discussed in the next section), private tutoring for public school students, apprenticeship programs, for students participating in a voluntary desegregation program and other purposes.
Qualified Student:
Eighty percent of the scholarships provided from the qualifying contributions of donors are to be allocated to “qualified students” to attend a qualified school. Qualified students must be “income eligible students” and then meet these additional requirements:
- The student during the previous school year was enrolled in a public school in Missouri or the student received a scholarship as a qualified student in a previous school year and now attends a school other than a public school in the student’s district of residence, for example, a Catholic school. However, the term “qualified student” shall also include all income eligible kindergarten and first grade students, and all income eligible students moving from outside the state.
- Priority in granting scholarships to qualified students shall be given to students who demonstrate the greatest need, which may include but is not limited to:
- Children from single-parent homes;
- Any student scoring at the two lowest levels of proficiency on the statewide assessments administered by public schools;
- Any child of school age in foster care, or who is currently residing in a shelter or has been displaced from the child’s lawful place of residence;
- Any child with a disability or any child assigned to a priority public school in a low-performing public school district.
Qualified School:
A qualified school is any elementary or secondary school which a child may attend to satisfy the compulsory school attendance law, which would include all private schools, including Catholic schools, and which does not discriminate on the basis of race, color, or national origin. Qualified schools are to provide the Director of the Missouri Department of Economic Development a profile of their school which can be posted on the department’s website. This profile shall include:
- A link to the school’s website, if applicable;
- The school’s mission statement, years of operation, academic and extracurricular program and types of students served;
- Education credentials, qualifications, and experiences of teaching and administrative staff;
- The most recent year’s test scores from a statewide assessment, norm-referenced test or similar assessment (none of this or other reporting information shall be personally identifiable to an individual student); and,
- Names of educational assistance organizations supplying scholarships to the school.
Qualified schools, with the exception of home schools and public schools, must also meet the following accountability requirements:
- Filing of statement of intent to participate;
- For initial applicants, the website information listed above for posting on the Missouri Department of Economic Development’s website;
- Fiscal soundness as evidenced by three years of existence, a surety bond, or a letter of credit covering the amount of funds received on behalf of scholarship recipients;
- Accreditation by a regional or national accrediting agency, or for a school that is not currently accredited, provisional approval pending the achievement of accreditation no later than the fourth school year of participation;
- Criminal background check for the owner or operator and all personnel with direct student contact, unless the owner or operator or other person has successfully completed a background check within the previous twelve months;
- Administration of the statewide assessment required of public schools or a nationally recognized norm-referenced assessment (for example, Iowa Basic Skills Test), provided that such assessment shall not be required to be given more frequently in a grade than the statewide assessments are given;
- Annual administration of a parental satisfaction survey; and
- Evidence of the annual transmittal of above information to parents of scholarship recipients and evidence of its availability to applicants.
The results of the assessments administered by qualified schools shall be compiled by the Missouri Department of Economic Development and reported to the governor and the general assembly. Qualified schools shall have on record a form signed by the parent or guardian of the scholarship student agreeing to the release of the following information: the student’s participation as a scholarship recipient; testing results; and the parental satisfaction survey. Again, none of the information reported by the qualified school to the Missouri Department of Economic Development shall be personally identifiable to an individual student. As a condition of participation, the parents and the scholarship recipients shall agree to abide by a code of conduct and parental involvement requirements, unless the qualified school waives these requirements.
Public School Right of First Acceptance:
Qualified students must initially select a public school district which is neither unaccredited nor provisionally accredited and which is located adjacent to the qualified student’s district or within twenty miles of the qualified student’s place of residence. This public school district has the “right of first acceptance of the qualified student.” If the district declines to accept the applicant, then the qualified student may select from any qualified school, which may include private schools. “Income eligible students” may select from any qualified school without the “right of first acceptance” limitation.
Oversight Organization:
The director of the Missouri Department of Economic Development may enter into a contract with an oversight organization located in Missouri to administer the “Milton Friedman ‘Put Parents in Charge’ Education Program.” To qualify as the oversight organization an organization must:
- Have administrative capability to promote the success of the tax credit program by recruiting and coordinating activities with all interested education assistance organizations and certifying those organizations that meet certification requirements;
- Demonstrate the ability to handle large volumes of and amounts of financial transactions;
- Review the staff qualifications, evaluate fund-raising capabilities and confirm tax-exempt status of educational assistance organizations;
- Create standardized application for use by educational assistance organizations; and
- Produce an annual report for the general assembly.
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