Private School Tuition Tax Credit

History of Catholic Education Arizona Formed in July 1998 under the name Catholic Tuition Organization of the Diocese of Phoenix (CTODP), becoming one of the first School Tuition Organizations in Arizona Changed our name in July 2011 to Catholic Education Arizona (CEA) Awarded over 96,000 scholarships worth more than $155MM Fund 37 schools in the Diocese of Phoenix plus Boys Hope Girls Hope and St. Michael Indian School Qualified IRS 501(c)(3) non-profit charitable organization

History of Catholic Education Arizona Utilize 3rd party financial review (FAIR) to determine financial need Have never accepted student recommendations for scholarships We do accept school recommendations from individuals and corporations Low overhead with a staff of under 6 people Awarded over 94% of contributions for scholarships in 2015-16

Overview of Private School Tuition Tax Credits 1997: Original Individual Tax Credit (ITC) ARS §§ 43-1089; 43-1601 through 1605 2006: Low-Income Corporate Income Tax Credit (CTC) ARS §§ 43-1183; 43-1501 through 1507; and 20-224.06 2009: Disabled / Displaced Students Tax Credit – Corporate ARS §§ 15-891; 43-1184; 43-1501 through 1507; and 20-224.07 2010: Contribution deadline moved from 12/31 to 4/15 2012: “Switcher” Individual Tax Credit (STC) ARS §§ 43-1089.03

Overview of ITC First tax credit of its kind in the country Original credit limits were $250 single / $500 married filing joint return 2016 limits are $545 single filer / $1090 married filer Any student can qualify 70 participating School Tuition Organizations in Arizona receiving ITC funds ITC allows student recommendations as one of the criteria for awarding a student STOs must consider financial need when awarding scholarships and cannot make decisions based solely on donor recommendations Upheld by U.S. Supreme Court arguing that money never received by the state does not belong to the state.

Overview of “Switcher” Tax Credit (STC) 2nd Tax Credit for Individuals passed in 2012 Taxpayers can contribute to both ITC & STC Focused on students “switching” from public school to private school 2016 limits are $542 single filer / $1084 married Student recommendations are allowed but cannot be the only criteria for approval

Benefits To Individual Taxpayer chooses how their taxes are spent Keeps tax $ in local community Supporting their local Catholic school & parish Satisfaction of providing a quality Catholic education to someone that could not afford it Itemized deduction on Federal return

The Process – ITC / STC Individual determines amount of contribution State tax liability Maximum $1087 single filer / $2173 married Contribution is made before: December 31, 2016: state credit & federal deduction (itemized) are in 2016 April 15, 2017 : state credit is in 2016, federal deduction is in 2017 Detailed receipts from CEA are mailed listing tax forms (323 & 348) and amounts for each credit Over payments can be carried forward as credits for up to 5 years

Overview of CTC Enacted in 2006 to allow C-Corporations to contribute tax liability $ with NO LIMIT Expanded in 2009 to allow insurance companies to redirect their state premium tax liability (2%) Further expansion in July 2015 included S-Corps (minimum contribution is $5,000) State total cap of $61.9MM in 2016-17, increases by 20% each year To qualify for a scholarship, household income cannot exceed 185% of Federal Reduced Price Lunch Cannot recommend individual students, only schools 53% of families qualify statewide

Overview of Disabled / Displaced Tax Credit for Corporations Passed in 2009 to provide scholarships for students with special needs (Section 504), students in foster care, and children of active military members stationed in Arizona C-Corps, S-Corps, and Insurance companies all qualify State cap is $5MM with no annual adjustments No income requirements for families to qualify Catholic Education Arizona does not participate

The Process – CTC Corporation determines amount of contribution C-Corp = estimated corporate state tax liability for current year Insurance company = estimated state premium tax liability S-Corp = Owner’s estimated personal state tax liability Commitment form is submitted to CEA before June 30 CEA submits applications to Department of Revenue July 1 at 12:00 AM Department of Revenue notifies CEA of approved applications Company has 20 calendar days to submit contribution Company files Form 335 with end of year taxes S-Corps with multiple owners split the credit based on % ownership

Benefits To Corporations No-cost charitable giving opportunity and a Federal deduction Meets most corporate giving initiatives (education, low-income community investment) Provides for a strong workforce S-Corp owners can potentially contribute their entire personal tax liability

Common Objections I don’t pay state taxes / I get a refund I already donate to the Public School Tax Credit (or any other tax credit) My company is a LLC My company is based in another state It sounds too good to be true

MYTH: It takes away money from the public schools Program saves the state money and prevents overcrowding 99% of Catholic schools students graduate 97% continue to college College graduate = $660,000 to the economy Fewer high school dropouts = less social services