WHAT THE BILL WOULD DO
SB 539 would help Californians get around the the new $10,000 federal cap on state and local deductions by expanding to 75 percent an existing tax credit for contributions to a state college scholarship program. Amended onto another bill in late June by Sen. Kevin de León, a Los Angeles Democrat running for U.S. Senate, it was one of three proposed state workarounds to the federal tax overhaul, and the only one that passed.
WHO SUPPORTS IT
California Democrats have assailed the new federal cap on state and local tax deductions as a partisan slap by congressional Republicans at high-tax blue states, and proposed the workaround as a way for Californians to circumvent a likely tax hit. UC and CSU student organizations also support it, since the program being expanded benefits working and low-income college students.
Teachers unions opposed the expanded tax credit as a potential drain on revenue and therefore school funding. Business and tax groups also say the charitable write-off workaround is legally dubious, and Gov. Jerry Brown has expressed skepticism. In August, the IRS issued a proposed new regulation that would outlaw most federal tax deductions for state and local tax payments above the limit.
WHY IT MATTERS
Property values in California are higher than in most states and so are property taxes, so the federal cap will dramatically reduce a significant deduction for many California homeowners, including many in the middle class. If this workaround is approved, it would soften some of the financial blow while increasing aid to college students. If not, many Californians could end up paying higher federal taxes, on top of relatively high state taxes.
Vetoed by Governor Brown on September 29, 2018.
From the governor’s veto message: “This measure started as a bold idea but because of adverse changes in the federal tax law, it now confuses an already complicated scheme and could invite intervention by the Internal Revenue Service.”