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Health & Fitness

How Student Scholarship Organization tax credits Should Work?

As humans, we need to know how things work.  Asking how a nonprofit, company or government agency works, is not being critical of those they serve.

The reason anyone questions any human organization, no matter if a Democrat or Republican backed program; is because there are doubts.  Doubts on those who lead them and how they operate, not those they serve.

Calling someone unpatriotic and against the troops, for questioning a President on war.  Attacking children for questioning how schools operate; is not the intention of doubters.  Doubts come from wanting to know how things operate, and getting resistance from the lack of transparency.

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This applies to Student Scholarship Organizations (SSOs) and doubts on how they work.

Georgia's SSOs by law cannot reveal their audits, reports or lists to the public, because that information has to be voluntarily given.  This confidential protection comes from being a nonprofit, which prevents public scrutiny.  A children's education and their statistics, are top secret.

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Dr. Kevin Welner, a professor of education at University of Colorado, calls these educational tax credit programs “neovouchers.”

Dr. Welner tells Patch how these neovoucher policies” work:

“(T)he government creates the voucher through a more involved tax credit mechanism.  Instead of paying tax money owed to the government, the taxpayer gives the money to a new entity, often called something like a “School Tuition Organization” (STO) or “Student Scholarship Organization” (SSO) and often created by the private schools themselves.  The SSO then bundles the money and gives a neovoucher to parents to take to a participating school.”

Herbert W. Garrett executive director of Georgia School Superintendents Association agrees with the voucher term, telling Patch:

“I tire of calling it a 'scholarship,' because it truly is a voucher...once a child gets a voucher to a certain private school, he cannot transfer to another private school and take the money with him/her.  In fact, any unused voucher money would go back to the SSO which is more than ironic, since so many Republican lawmakers continually talk about how the 'money should follow the child'.”

Dr. Welner tells Patch the problem arises when government support a specific religious organizations cause jealousy “If donors overwhelmingly support a subsector of the SSO sector that serves Catholic schools, for instance, then parents will be less able to get neovouchers to attend Protestant schools.”

If more Georgia religious-ideology groups created their own SSOs and private schools, like Hindus, Muslims, Sikhs, Humanists, Atheists, and others.  There would be more competition for those same tax credits by Christian schools.

How soon would Christian taxpayers sue over competition with others for those same tax credit, claiming it was unfair?  The problem is they cannot sue the government, because of the Arizona Christian School Tuition Organization (ACSTO) V. Kathleen M. Winn case.

Representative Earl Ehrhart (R – Powder Springs) tells Patch how SSOs work where:

“(N)o less an authority than the United States Supreme court ruled in ACSTO that the moneys given as donations to a 501c3 in these organizations ARE NOT tax money.  They are credits and their is a huge distinction thereto.  It is no different than the positive tax consequences someone receives when they give to the United Way or to their church or mosque in a tithe.  Do the opponents really want to say that these contributions are not subject to the laws of the land as if relates to tax law?”

Yes they are “contributions” not direct taxes, but Georgians still have to donate to a SSO before they can get their own Georgia income taxes back, as a tax credit.  There is a government process that redirects taxes from the Georgia Treasury.

Dr. Welner tells Patch because SSOs are nonprofits “this lack of direct government spending seems to result in less public disclosure, reporting and regulation of the system.”  This nonprofit confidentiality from the IRS tax code, prevents transparency.

After much research, this writer found few that could agree on how SSOs work.

When asked if private schools or SSOs award these scholarships to students.  Rep. Ehrhart, a sponsor of SSO laws tells Patch No the law is clear that the SSO awards the scholarships.  The schools may recommend.”

When asked what specific department approves this education tax credit cap every year.  According to the Georgia Department of Revenue (GADOR) it was the General Assembly.

Garrett tells Patch “The leader of this is Representative Earl Ehrhart of Cobb County, who heads one of these SSO’s himself, a job for which he says he gets no compensation.  The General Assembly does not look at this; it is all done by the DOR.”

When asked what committee determines the $50M cap on SSOs every year, Rep. Ehrhart tells Patch:

“The full general assembly determined the cap in original bill.  Any changes result from same process.”

“The 50 million dollar cap with an escalator tied to an index of the CPI is set in statute.  The general assembly does not go back each year and make a determination.  This is just like all other rebates or credits or tax rebates in statute.  Only the general assembly can raise or lower such credits or rebates on introduction of independent legislation.”

When asked why the General Assembly and the GADOR are the only ones that look at the lists, audits and reports of SSOs, over confidentiality as nonprofits under the SSO laws and IRS tax code.  Rep. Ehrhart tells Patch In the new legislation (H.B. 283) the only confidential information is individual taxpayer information.”

When the Georgia Department of Education (GADOE) was asked if they are responsible for the accountability of Georgia's SSOs.  The GADOE tells Patch “The law does not provide authority for the GaDOE to oversee or regulate SSO operations.  Audits/reports are not sent to the GaDOE.”

The GADOE only posts valid SSOs on their website and removes them if “the SSO fails to correct all deficiencies.”  If any deficiencies are found, the SSO has to cease operations and transfer all money “to a properly operating SSO.”

When asked how much do corporations get off of their state income taxes, few could give an example.  The GADOR would not give an example.

Garrett gives Patch an example:

“What the law allows is for a corporation to donate up to 75% of its own income tax liability to the SSO (not income taxes of its employees).  So, if a company had a tax obligation to the state of Georgia for $10,000, it could make a $7,500 donation to a SSO and send the state of Georgia the other $2,500, and that’s how the $10K would go.”

When this example was given to Rep. Ehrhart he agreed telling Patch, C corporations are entitled to receive up to 75% of their tax liability in a Ga tax credit for a contribution to an SSO.  If their entire liability is $10,000 then they can receive a credit for $7500.00.”

Garrett said Rep. Ehrhart, is an unpaid CEO that gets “no compensation” from his SSO called Faith First Georgia.

On FFG's website, an example by the Carr, Riggs & Ingram public accountants in Atlanta shows how the tax credit works.  “(M)arried couples in a 35% federal tax bracket who donate $2,500 would receive a credit of approximately $875 on federal taxes and would also receive a $2,500 Georgia tax credit.  Thus, realizing a total credit of $3,225 on their $2,500 contribution.”

For 2013, a 35% federal tax bracket for a married couple earns over $398,350-$450,000.

When this example was given to the GADOR they tell Patch, “a taxpayer cannot claim the Georgia Tax Credit and a charitable deduction for Georgia purposes.  Therefore the taxpayer must add back on their Georgia return the corresponding part of their federal deduction in order to claim the tax credit.”

The GADOE states “SSOs are exempt from federal income taxation under Section 501(c)(3) of the Internal Revenue Code.”

GADOR gives an example on how SSO tax credits work:

“Married couple filing joint return.  Taxpayers contribute $4,000 to an SSO.  All $4,000 is deducted on their federal return.  Taxpayers applied for and were allowed a $2,500 state tax credit which equals state tax savings of $2,500.  Taxpayers must add back $2,500 of the charitable contribution deduction on their Georgia return which means they are only able to deduct $1,500 in charitable contributions on their state return.”

The GADOR law reads:

No qualified education expense credit shall be allowed under O.C.G.A. § 48-7-29.16, with respect to any amount deducted from taxable net income by the taxpayer as a charitable contribution to a bona fide charitable organization qualified under Section 501(c)(3) of the Internal Revenue Code.  Accordingly, the taxpayer must add back to Georgia taxable income that part of any federal charitable contribution deduction taken on a federal return for which a Georgia qualified education expense credit is allowed.”

When it comes to GADOR law, Rep. Ehrhart tells Patch:

“The effect is as it states on the website:  You get the state tax credit and then on your federal return you get the charitable deduction as well.  Remember that on the federal deduction you only receive your marginal tax rate as the deduction not a dollar for dollar credit.  Depending on your tax bracket.  Example:  If you give 1 dollar to United Way you receive on average 35 cents in deductive credit.  This is the same as with any other contribution to any other 501c3.”

GADOR replies to Rep. Ehrhart's statement telling Patch “This is law. This is not a DOR statement.  All of the various code sections are listed within the above paragraph.”

Rep. Ehrhart replies to GADOR telling Patch This is clear to me.  It states that you cannot tax a charitable deduction on your state form to the 501c3 which would be a double dip on the same credit.  This is on the State Return.  The above regulation does not and could not affect the deduction you take on your federal tax form.  State law cannot affect Federal law.”

The GADOR replies to Rep. Ehrhart's statement telling Patch “See my above answer about how that is law.”

Most Georgians pay monthly “GA Withholdings” from their pay cheques by their employers, which goes directly to the GADOR and the State Treasury, till April 15th.

Where does the education tax credit come from, if not from the State Treasury?  Donors of SSOs redirect their own taxes back to themselves from the Treasury for donating, on April 15th.

When the GADOR was asked about how companies remit the Withholdings of their employee's state income taxes.  The GADOR tells Patch:

“If your total tax due is $1000 and you are approved and donate $1000 to an SSO you would then owe $0...You take total tax owed and subtract the credit amount from what is owed (credit cannot be more than what is owed)...If you owe more than what has been withheld, you will still owe taxes.”

The GADOR would not say if the tax credit comes from the State Treasury, yet our Withholding taxes does go there every month.

It seems a lawmaker and a law enforcer disagree on how the law works; much like a CEO and corporate security disagree on how to enforce a company rule.

Other than semantics, here are examples from SSOs and private schools on how the tax credit works.

Georgia GOAL states:

“A taxpayer re-directing all or a portion of his or her Georgia income tax payments to GOAL and designating our school receives an income tax CREDIT against their Georgia income taxes for the amount of their contribution. Thus, if a married couple filing a joint return owes $6,000 of Georgia income taxes and makes the maximum contribution to GOAL of $2,500, they will only have to pay $3,500 of income taxes to the state of Georgia.”

Christian Heritage School states:

“If a married couple would normally owe $3,000 in state taxes for example, and they make the maximum donation of $2,500 through this program, then they’ll only owe $500 in state taxes.  Note that the $3,000 used in this example refers to the amount of GA income tax you pay in a year, which is usually deducted from your paycheck by your employer throughout the year.”

Mount Vernon Presbyterian School states they:

“partnered with Apogee Georgia School Choice Scholarship Fund, a state approved SSO, to enable the School to take advantage of this program.  With a donation to the fund, a Georgia State Income Tax Credit is available to you for the tax year that the donation is made.  Your donation also means that you may be allowed a charitable contribution deduction on your Federal tax return.”

“Corporations can receive a tax credit for amounts contributed to the SSO for up to 75% of their Georgia income tax liability or the actual amount donated, whichever is less.  Currently, this tax credit is only available to 'C' corporations; therefore, until the law is altered, regardless of the amount contributed to Apogee by an 'S' corporation, its shareholders are subject to the individual limitations depicted above in the amounts of $2500 or $1000.”

Doubts come from some websites, describing how the tax credit should work.  You would assume all SSOs and schools would say the same exact thing, to prevent public criticism.

Academe of the Oaks states:

“To participate in this program, you must pre-pay your taxes (or a portion of your taxes) through a contribution to Apogee Scholarship Fund.  When you make a contribution to Apogee Scholarship Fund, you will receive a dollar-for-dollar Georgia tax credit which comes to you in the mail as a voucher for the amount of your contribution.  This opportunity is open to anyone who has Georgia tax liability—grandparents, family, friends, colleagues!”

“How Do I Redirect My Georgia Income Taxes?  Complete the Apogee Authorization Form  Sign page 2, Section C, of Form IT-QEE-TP1  Write check to Apogee Scholarship Fund.”

“Within thirty days, you will receive an approval form from the Georgia Department of Revenue.  Fax, mail, or e-mail a copy of the approval form to Apogee to confirm approval.  As tax-time approaches, you will receive confirmation of your participation:  submit this confirmation form and the original approval form with your tax return.”

Student Scholarship Organization for Greek Americans states:

“Why is the contribution called a 'REDIRECTING' of tax dollars?  It is simply terminology, but each Georgia taxpayer does have the option of sending their tax dollars to the Georgia Department of Revenue or REDIRECTING those same funds to a Georgia approved SSO such as the SSO for GA.  Donors ARE going to spend the monies one way or the other and the SSO for GA is simply asking for you to send those dollars to our SSO instead of to the Department of Revenue.

“After a recipient student's first SSO for GA scholarship year, will he or she automatically receive SSO for GA funding each subsequent year that he or she is enrolled in a qualified school?  Yes.  SSO for GA scholarships are awarded for the duration of a student's enrollment at his or her qualified school of choice.  However, the amount of the SSO for GA scholarship received in each year is determined annually based on the contributions received.”

Liberty Scholarship Foundation states:

“What Do I Need To Do To Participate:  obtain pre approval by completing Form IT-QEE-TPI; then submit to the GADOR; receive a confirmation by IT-QEE-SSO1; send a check to Liberty Scholarship Foundation (SSO); claim a tax credit; and a Liberty Scholarship is awarded.”

Is this scholarship only “awarded” to your child directly or to other unrelated children?

After reading SSO laws and other sources, this is my observations on how SSOs work.

If one donates $1,000 to a SSO and also paid $1,000 in their own Georgia income taxes during that year to their employer, the donor paid $2,000 total for both their state income taxes and SSO donation.  The donor would only get back $1,000 from their own income taxes, paid during that year through their employment.

The GADOR redirects the donor's income taxes back to themselves that they already paid, so the whole process is both a private donation and a tax credit.  The donor does not get their initial $1,000 donation in this process, out of the total $2,000 paid.

The GADOR tells Patch:

“Your scenario (above) is correct.  If you are preapproved for $1000 and donate $1000, you would be able to claim $1000 credit against what you owe the state in income tax.  If that amount is $1000, it would balance out to be $0 when the credit is applied.  Thus you would be out your $1000 donation to the SSO.”

When contacting people on how this educational tax credit works, seems to be a war of semantics.  A shell game.

Asking how education works, does not mean one is against children.  Doubts come from making sure leaders that support their bureaucracy, are not using children as human shields for their own Noble Cause Corruption.  No matter, if public or private education.

Since most expect uniformity on how things work.  It was surprising, how different sources would not agree on how SSOs work.

Like any public or private human organization, once they becomes larger; it is harder to determine what the left or right hands are doing, nor how they work together.




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