THE GENERAL ASSEMBLY OF PENNSYLVANIA

HOUSE BILL

INTRODUCED BY QUIGLEY, CLYMER, GABLER, COX, ADOLPH, AUMENT, BAKER, BARRAR, BEAR, BENNINGHOFF, BLOOM, BOBACK, BOYD, B. BOYLE, BRADFORD, BRENNAN, CALTAGIRONE, CAUSER, CHRISTIANA, CONKLIN, D. COSTA, P. COSTA, CREIGHTON, CUTLER, DAY, DELOZIER, DeLUCA, DENLINGER, DePASQUALE, DiGIROLAMO, ELLIS, J. EVANS, EVERETT, FARRY, FLECK, GEIST, GERGELY, GIBBONS, GILLEN, GINGRICH, GODSHALL, GRELL, GROVE, HACKETT, HARKINS, HARPER, HARRIS, HEFFLEY, HENNESSEY, HESS, HORNAMAN, HUTCHINSON, KAUFFMAN, M. K. KELLER, W. KELLER, KILLION, KNOWLES, KORTZ, KOTIK, KRIEGER, KULA, MAJOR, MALONEY, MANN, MARSHALL, MARSICO, McGEEHAN, METCALFE, METZGAR, MICCARELLI, MICOZZIE, MILLARD, MILLER, MILNE, MOUL, MURPHY, MURT, MUSTIO, MYERS, M. O'BRIEN, O'NEILL, PAYTON, PEIFER, PETRI, PYLE, QUINN, RAPP, READSHAW, REED, REESE, REICHLEY, ROAE, ROCK, SABATINA, SANTONI, SAYLOR, SCAVELLO, SCHRODER, SHAPIRO, SONNEY, STEPHENS, STERN, STEVENSON, TALLMAN, J. TAYLOR, TOEPEL, TURZAI, VEREB, VULAKOVICH, WAGNER AND WATERS, APRIL 11, 2011

REFERRED TO COMMITTEE ON EDUCATION, APRIL 11, 2011  

AN ACT

Amending the act of March 10, 1949 (P.L.30, No.14), entitled "An

act relating to the public school system, including certain

provisions applicable as well to private and parochial

schools; amending, revising, consolidating and changing the

laws relating thereto," providing for educational improvement

tax credit; and repealing provisions of the Tax Reform Code

of 1971 relating to educational improvement tax credit.

The General Assembly of the Commonwealth of Pennsylvania

hereby enacts as follows:

Section 1.  The act of March 10, 1949 (P.L.30, No.14), known

as the Public School Code of 1949, is amended by adding an

article to read:

ARTICLE XXV-B

EDUCATIONAL IMPROVEMENT TAX CREDIT

Section 2501-B.  Definitions.

The following words and phrases when used in this article

shall have the meanings given to them in this section unless the

context clearly indicates otherwise:

"Business firm."  An entity authorized to do business in this

Commonwealth and subject to taxes imposed under Article III, IV,

VI, VII, VIII, IX or XV of the act of March 4, 1971 (P.L.6,

No.2), known as the Tax Reform Code of 1971. The term includes a

pass-through entity.

"Contribution."  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.

"Department."  The Department of Community and Economic

Development of the Commonwealth.

"Educational improvement organization."  A nonprofit entity

which:

(1)  is exempt from Federal taxation under section 501(c)

(3) of the Internal Revenue Code of 1986 (Public Law 99-514,

26 U.S.C. § 1 et seq.); and

(2)  contributes at least 80% of its annual receipts as

grants to a public school, a chartered school as defined in

section 1376.1 or a private school approved under section

1376 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, charter school foundation or cyber

charter school foundation.

"Eligible prekindergarten student."  A student, including an

eligible student with a disability, who is enrolled in a

prekindergarten program and is a member of a household with a

maximum annual household income as increased by the applicable

income allowance.

"Eligible student."  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.

"Eligible student with a disability."  A prekindergarten

student or a school-age student who meets all of the following:

(1)  Is either enrolled in a special education school or

has otherwise been identified, in accordance with 22 Pa. Code

Ch. 14 (relating to special education services and programs),

as a "child with a disability," as defined in 34 CFR § 300.8

(relating to child with a disability).

(2)  Needs special education and related services.

(3)  Is enrolled in a prekindergarten program or in a

school.

(4)  Is a member of a household with a household income

of not more than the maximum annual household income.

"Household."  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.

"Household income."  All moneys or property received of

whatever nature and from whatever source derived. The term does

not include the following:

(1)  Periodic payments for sickness and disability other

than regular wages received during a period of sickness or

disability.

(2)  Disability, retirement or other payments arising

under workers' compensation acts, occupational disease acts

and similar legislation by any government.

(3)  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.

(4)  Payments commonly known as public assistance or

unemployment compensation payments by a governmental agency.

(5)  Payments to reimburse actual expenses.

(6)  Payments made by employers or labor unions for

programs covering hospitalization, sickness, disability or

death, supplemental unemployment benefits, strike benefits,

Social Security and retirement.

(7)  Compensation received by United States servicemen

serving in a combat zone.

"Income allowance."

(1)  Subject to paragraph (2), the amount of:

(i)  Before July 1, 2011, $10,000 for each eligible

student, eligible prekindergarten student and dependent

member of a household.

(ii)  After June 30, 2011, through June 30, 2012,

$12,000 for each eligible student, eligible

prekindergarten student and dependent member of a

household.

(iii)  After June 30, 2012, through June 30, 2013,

$15,000 for each eligible student, eligible

prekindergarten student and dependent member of a

household.

(2)  Beginning July 1, 2013, the Department of Community

and Economic Development shall annually adjust the income

allowance amounts under paragraph (1) to reflect any upward

changes in the Consumer Price Index for All Urban Consumers

for the Pennsylvania, New Jersey, Delaware and Maryland area

in the preceding 12 months and shall immediately submit the

adjusted amounts to the Legislative Reference Bureau for

publication as a notice in the Pennsylvania Bulletin. 

"Innovative educational program."  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 a public school, chartered school as defined in

section 1376.1(a) or private school approved in accordance with

section 1376, or provides prekindergarten programs to public

school students, students of a chartered school as defined in

section 1376.1(a) or students of a private school approved in

accordance with section 1376.

"Maximum annual household income."

(1)  Except as stated in paragraph (2) and subject to

paragraph (3), the following:

(i)  Before July 1, 2011, not more than $50,000.

(ii)  After June 30, 2011, through June 30, 2012, not

more than $60,000.

(iii)  After June 30, 2012, not more than $75,000.

(2)  With respect to an eligible student with a

disability, as calculated by multiplying:

(i)  the sum of:

(A)  the applicable amount under paragraph (1);

and

(B)  the applicable income allowance; by

(ii)  the applicable support level factor according

to the following table:

(3)  Beginning July 1, 2012, the Department of Community

and Economic Development shall annually adjust the income

amounts under paragraphs (1) and (2) to reflect any upward

changes in the Consumer Price Index for All Urban Consumers

for the Pennsylvania, New Jersey, Delaware and Maryland area

in the preceding 12 months and shall immediately submit the

adjusted amounts to the Legislative Reference Bureau for

publication as a notice in the Pennsylvania Bulletin.

"Pass-through entity."  A partnership as defined in section

301(n.0) of the act of March 4, 1971 (P.L.6, No.2), known as the

Tax Reform Code of 1971, a single-member limited liability

company treated as a disregarded entity for Federal income tax

purposes or a Pennsylvania S corporation as defined in section

301(n.1) of the Tax Reform Code of 1971.

"Prekindergarten program."  A program of instruction for

three-year-old or four-year-old students that utilizes a

curriculum aligned with the curriculum of the school with which

it is affiliated and that provides:

(1)  a minimum of two hours of instructional and

developmental activities per day at least 60 days per school

year; or

(2)  a minimum of two hours of instructional and

developmental activities per day at least 20 days over the

summer recess.

"Prekindergarten scholarship organization."  A nonprofit

entity that:

(1)  Either is exempt from Federal taxation under section

501(c)(3) of the Internal Revenue Code of 1986 (Public Law

99-514, 26 U.S.C. § 1 et seq.) or is operated as a separate

segregated fund by a scholarship organization that has been

qualified under section 2502-B.

(2)  Contributes at least 80% of its annual cash receipts

to a prekindergarten scholarship program by expending or

otherwise irrevocably encumbering those funds for

distribution during the then current fiscal year of the

organization or during the next succeeding fiscal year of the

organization.

"Prekindergarten scholarship program."  A program to provide

tuition to eligible prekindergarten students to attend a

prekindergarten program operated by or in conjunction with a

school located in this Commonwealth and that includes an

application and review process for the purpose of making awards

to eligible prekindergarten students and awards scholarships to

eligible prekindergarten students without limiting availability

to only students of one school.

"Public school."  A public prekindergarten where compulsory

attendance requirements do not apply or a public kindergarten,

elementary school or secondary school at which the compulsory

attendance requirements of this Commonwealth may be met and that

meets the applicable requirements of Title VI of the Civil

Rights Act of 1964 (Public Law 88-352, 78 Stat. 241).

"Scholarship."  An award under a scholarship program.

"Scholarship organization."  A nonprofit entity that:

(1)  is exempt from Federal taxation under section 501(c)

(3) of the Internal Revenue Code of 1986 (Public Law 99-514,

26 U.S.C. § 1 et seq.); and

(2)  contributes at least 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.

"Scholarship program."  A program to provide tuition to

eligible students to attend a school located in this

Commonwealth. 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

school.

"School."  A kindergarten, elementary school or secondary

school at which the compulsory attendance requirements of the

Commonwealth may be met and that meets the applicable

requirements of Title VI of the Civil Rights Act of 1964 (Public

Law 88-352, 78 Stat. 241), or a public or nonpublic

prekindergarten.

"School age."  From the earliest admission age to a school's

prekindergarten or kindergarten program or, when no

prekindergarten or kindergarten program is provided, the

school's earliest admission age for beginners, until the end of

the school year the student attains 21 years of age or

graduation from high school, whichever occurs first.

"Special education school."  A school or program within a

school that is designated specifically and exclusively for

students with any of the disabilities listed in 34 CFR § 300.8

(relating to child with a disability) and meets one of the

following:

(1)  is licensed under the act of January 28, 1988

(P.L.24, No.11), known as the Private Academic Schools Act;

(2)  is accredited by an accrediting association approved

by the State Board of Education;

(3)  is a school for the blind or deaf receiving

Commonwealth appropriations; or

(4)  is operated by or under the authority of a bona fide

religious institution or by the Commonwealth or any political

subdivision thereof.

"Support level."  The level of support needed by an eligible

student with a disability, as stated in the following matrix:

(1)  Support level 1. The student is not enrolled in a

special education school.

(2)  Support level 2. The student is enrolled in a

special education school.

"Tax credit."  The educational improvement tax credit

established under this article.

Section 2502-B.  Qualification and application.

(a)  Establishment.--In accordance with section 14 of Article

III of the Constitution of Pennsylvania, an educational

improvement tax credit program is established to enhance the

educational opportunities available to all students in this

Commonwealth.

(b)  Information.--In order to qualify under this article, a

scholarship organization, a prekindergarten scholarship

organization or an educational improvement organization must

submit information to the department that enables the department

to confirm that the organization is exempt from taxation under

section 501(c)(3) of the Internal Revenue Code of 1986 (Public

Law 99-514, 26 U.S.C. § 1 et seq.).

(c)  Scholarship organizations and prekindergarten

scholarship organizations.--A scholarship organization or

prekindergarten scholarship organization must certify to the

department that the organization is eligible to participate in

the program established under this article and must agree to

annually report the following information to the department by

September 1 of each year:

(1)  (i)  The number of scholarships awarded during the

immediately preceding school year to eligible

prekindergarten students.

(ii)  The total and average amounts of scholarships

awarded during the immediately preceding school year to

eligible prekindergarten students.

(iii)  The number of scholarships awarded during the

immediately preceding school year to eligible students in

grades kindergarten through eight.

(iv)  The total and average amounts of scholarships

awarded during the immediately preceding school year to

eligible students in grades kindergarten through eight.

(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 or

prekindergarten 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 or

prekindergarten scholarship organization awarded

scholarships.

(2)  The information required under paragraph (1) shall

be submitted on a form provided by the department. No later

than May 1 of each year, the department shall annually

distribute such sample forms, together with the forms on

which the reports are required to be made, to each listed

scholarship organization and prekindergarten scholarship

organization.

(3)  The department may not require any other information

to be provided by scholarship organizations or

prekindergarten scholarship organizations, except as

expressly authorized in this article.

(d)  Educational improvement organization.--

(1)  An application submitted by an educational

improvement organization must describe its proposed

innovative educational program or programs in a form

prescribed by the department. In prescribing the form, the

department shall consult with the Department of Education as

necessary. The department shall review and approve or

disapprove the application. In order to be eligible to

participate in the program established under this article, an

educational improvement organization must agree to annually

report the following information to the department 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.

(2)  The information required under paragraph (1) shall

be submitted on a form provided by the department. No later

than May 1 of each year, the department 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.

(3)  The department may not require any other information

to be provided by educational improvement organizations,

except as expressly authorized in this article.

(e)  Notification.--The department shall notify the

scholarship organization, prekindergarten scholarship

organization or educational improvement organization that the

organization meets the requirements of this article for that

fiscal year no later than 60 days after the organization has

submitted the information required under this section.

(f)  Publication.--The department shall annually publish a

list of each scholarship organization, prekindergarten

scholarship organization or educational improvement organization

qualified under this section in the Pennsylvania Bulletin. The

list shall also be posted and updated as necessary on the

publicly accessible Internet website of the department.

Section 2503-B.  Application.

(a)  Scholarship organization or prekindergarten scholarship

organization.--A business firm shall apply to the department for

a tax credit. A business firm shall receive a tax credit if the

scholarship organization or prekindergarten scholarship

organization that receives the contribution appears on the list

established under section 2502-B(f).

(b)  Educational improvement organization.--A business firm

must apply to the department for a tax credit. A business firm

shall receive a tax credit if the department has approved the

program provided by the educational improvement organization

that receives the contribution.

(c)  Availability of tax credits.--Tax credits shall be made

available by the department on a first-come-first-served basis

within the limitations established under section 2505-B(a).

(d)  Contributions.--A contribution by a business firm to a

scholarship organization, prekindergarten scholarship

organization or educational improvement organization shall be

made no later than 60 days following the approval of an

application under subsection (a) or (b).

Section 2504-B.  Tax credit.

(a)  Scholarship or educational improvement organizations.--

In accordance with section 2505-B(a), the Department of Revenue

shall grant a tax credit against any tax due under Article III,

IV, VI, VII, VIII, IX or XV of the act of March 4, 1971 (P.L.6,

No.2), known as the Tax Reform Code of 1971, 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 75% of the

total amount contributed during the taxable year by the business

firm. The tax credit shall not exceed $750,000 annually per

business firm for contributions made to scholarship

organizations or educational improvement organizations.

(b)  Additional amount.--The Department of Revenue shall

grant a tax credit of up to 90% 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 consecutive tax years. The business firm

must provide the written commitment under this subsection to the

department at the time of application.

(c)  Prekindergarten scholarship organizations.--In

accordance with section 2505-B(a), the Department of Revenue

shall grant a tax credit against any tax due under Article III,

IV, VI, VII, VIII, IX or XV of the Tax Reform Code of 1971 to a

business firm providing proof of a contribution to a

prekindergarten scholarship organization in the taxable year in

which the contribution is made which shall be equal to 100% of

the first $10,000 contributed during the taxable year by the

business firm, and which shall not exceed 90% of the remaining

amount contributed during the taxable year by the business firm.

The tax credit shall not exceed $250,000 annually per business

firm for contributions made to prekindergarten scholarship

organizations.

(d)  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 (a), (b) or

(c). In no case may a business firm receive tax credits in any

tax year in excess of $750,000 for contributions under

subsections (a) and (b). In no case shall a business firm

receive tax credits in any tax year in excess of $250,000 for

contributions under subsection (c).

(e)  Pass-through entity.--

(1)  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.

(2)  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.

(3)  The shareholder, member or partner may not carry

forward, carry back, obtain a refund of or sell or assign the

tax credit.

(4)  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.

(f)  Restriction on applicability of credits.--No tax credits

shall be applied against any tax withheld by an employer from an

employee under Article III of the Tax Reform Code of 1971.

(g)  Time of application for credits.--

(1)  Except as provided in paragraphs (2) and (3), the

department may accept applications for tax credits available

during a fiscal year no earlier than July 1 of each fiscal

year.

(2)  The application of any business firm for tax credits

available during a fiscal year as part of the second year of

a two-year commitment or as a renewal of a two-year

commitment that was fulfilled in the previous fiscal year may

be accepted no earlier than June 15 preceding the fiscal

year.

(3)  The application of any business firm for tax credits

available during a fiscal year for an educational improvement

organization that is also a school district foundation,

public school foundation, charter school foundation or cyber

charter school foundation may be accepted no earlier than May

15 preceding the fiscal year.

Section 2505-B.  Limitations.

(a)  Amount.--

(1)  For the fiscal year 2011-2012, the total aggregate

amount of all tax credits approved shall not exceed

$100,000,000. No less than 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 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.

(2)  In the fiscal year 2012-2013, the total aggregate

amount of all tax credits approved shall not exceed

$200,000,000.

(3)  For the fiscal years 2011-2012 and 2012-2013, the

total aggregate amount of all tax credits approved for

contributions from business firms to prekindergarten

scholarship programs shall not exceed $8,000,000 in a fiscal

year.

(b)  Activities.--No tax credit shall be approved for

activities that are a part of a business firm's normal course of

business.

(c)  Tax liability.--

(1)  Except as provided in paragraph (2), a tax credit

granted for any one taxable year may not exceed the tax

liability of a business firm.

(2)  In the case of a credit granted to a pass-through

entity which elects to transfer the credit according to

section 2504-B(e), a tax credit granted for any one taxable

year and transferred to a shareholder, member or partner may

not exceed the tax liability of the shareholder, member or

partner.

(d)  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 under section 2504-B(e) may not be carried forward

or carried back and is not refundable or transferable.

(e)  Nontaxable income.--A scholarship received by an

eligible student or eligible prekindergarten student shall not

be considered to be taxable income for the purposes of Article

III of the act of March 4, 1971 (P.L.6, No.2), known as the Tax

Reform Code of 1971.

Section 2506-B.  Lists.

The Department of Revenue shall provide to the General

Assembly, by June 30 of each year, a list of all scholarship

organizations, prekindergarten scholarship organizations and

educational improvement organizations that receive contributions

from business firms granted a tax credit.

Section 2507-B.  Guidelines.

The department, in consultation with the Department of

Education, shall develop guidelines to determine the eligibility

of an innovative educational program.

Section 2.  Repeals are as follows:

(1)  The General Assembly declares that the repeal under

paragraph (2) is necessary to effectuate the addition of

Article XXV-B of the act.

(2)  Article XVII-F and section 2902-E(b) of the act of

March 4, 1971 (P.L.6, No.2), known as the Tax Reform Code of

1971, are repealed.

Section 3.  The provisions of Article XXV-B of the act are

severable. If any provision of that article or its application

to any person or circumstance is held invalid, the invalidity

shall not affect other provisions or applications of that

article which can be given effect without the invalid provision

or application.

Section 4.  This act shall take effect in 60 days.