69th OREGON LEGISLATIVE ASSEMBLY--1997 Regular Session
NOTE: Matter within { + braces and plus signs + } in an
amended section is new. Matter within { - braces and minus
signs - } is existing law to be omitted. New sections are within
{ + braces and plus signs + } .
LC 1794
A-Engrossed
House Bill 2637
Ordered by the House May 6
Including House Amendments dated May 6
Sponsored by Representative JENSON; Representatives BOWMAN,
DEVLIN, GARDNER, SUNSERI
SUMMARY
The following summary is not prepared by the sponsors of the
measure and is not a part of the body thereof subject to
consideration by the Legislative Assembly. It is an editor's
brief statement of the essential features of the measure.
Permits individual to establish education savings account with
authorized trustee. Exempts deposits totaling { - $500 - }
{ + $2,000 + } per year per { - child of account holder - }
{ + qualified beneficiary + } and account earnings from state
income tax. { + Prohibits amounts greater than $2,000 per year
to be contributed unless excess amounts are withdrawn. + }
Permits tax-free withdrawal to pay tuition and course expenses at
institutes of higher education { + and to pay room and board
expenses associated with attending institution + }. Imposes tax
on all other withdrawals and additional penalty if { - account
holder's children are - } { + qualified beneficiary is + }
under 25 years of age. Imposes tax on account balance upon
{ - youngest child of account holder - } { + qualified
beneficiary + } turning 25 years of age. Establishes reporting
requirements for education savings account trustee { - and
account holder - } .
Applies to tax years beginning on or after January 1, 1998.
A BILL FOR AN ACT
Relating to taxation; creating new provisions; and amending ORS
316.680.
Be It Enacted by the People of the State of Oregon:
SECTION 1. { + Sections 2 to 9 of this Act are added to and
made a part of ORS chapter 316. + }
SECTION 2. { + As used in sections 2 to 9 of this 1997 Act:
(1) 'Course expenses' means the expenses for books and other
materials, including course and laboratory fees, that are
required in order to complete a course in which the qualified
beneficiary is enrolled.
(2) 'Education savings account' means an account established to
pay the eligible education expenses of a qualified beneficiary
and that is in compliance with sections 2 to 9 of this 1997 Act.
(3) 'Eligible education expense' means an expense paid by or on
behalf of a qualified beneficiary for tuition or course expenses
incurred at an institute of higher education at which the
qualified beneficiary is matriculated and room and board expenses
associated with attending the educational institution.
(4) 'Institute of higher education' means a community college,
college or university that is accredited by a national or
regional accrediting association for community colleges or
colleges and universities or a private career school that is
licensed by the Department of Education or equivalent state
agency if located in another state.
(5) 'Qualified beneficiary' means the individual, under 18
years of age on the date the account is opened, who is designated
the beneficiary of the account and for whose educational benefit
the account is opened.
(6) 'Trustee' means a person authorized under section 4 of this
1997 Act to administer an education savings account. + }
SECTION 3. { + (1) A person may establish an education savings
account with a trustee authorized to administer the account. The
person shall identify the qualified beneficiary on whose behalf
the account is being opened.
(2) An education savings account established under sections 2
to 9 of this 1997 Act shall be established as a trust under the
laws of this state and shall be placed with a trustee.
(3) The funds placed in an education savings account shall be
used to pay the eligible education expenses of the qualified
beneficiary.
(4) An individual may be named as a qualified beneficiary on
only one education savings account. + }
SECTION 4. { + A financial institution as that term is defined
+ } { + in ORS 706.005 + } { + shall be authorized to act as
the trustee of an education savings account. + }
SECTION 5. { + (1) In each tax year, total deposits made to
the qualified beneficiary's education savings account may not
exceed $2,000.
(2) If total deposits to an education savings account for the
tax year exceed the amount described under subsection (1) of this
section, the account shall no longer be an education savings
account and the account balance shall be considered to be
distributed under section 6 of this 1997 Act.
(3) Notwithstanding subsection (2) of this section, if the
excess contributions under subsection (2) of this section are
withdrawn within six months after the close of the tax year in
which the excess contributions were made, the account shall
continue to be an education savings account under sections 2 to 9
of this 1997 Act. The interest attributable to the amount of the
withdrawal shall be considered to be taxable income of the
qualified beneficiary. + }
SECTION 6. { + (1) Notwithstanding section 3 of this 1997 Act,
moneys in an education savings account may be withdrawn at any
time and for any purpose. The interest attributable to an amount
withdrawn for a purpose other than as described under section 3
(3) of this 1997 Act shall be considered taxable income of the
qualified beneficiary under this chapter in the tax year in which
the amount is withdrawn.
(2) In the case of a withdrawal for a purpose other than as
described in section 3 (3) or 5 (3) of this 1997 Act and that
occurs at a time when the qualified beneficiary on whose behalf
the account was created is less than 25 years of age, a penalty
shall be imposed equal to 10 percent of the amount included in
taxable income under subsection (1) of this section.
(3) For purposes of sections 2 to 9 of this 1997 Act, a
withdrawal shall be considered a withdrawal of interest
accumulated in the account until all accumulated interest has
been withdrawn from the account.
(4) As of the day the qualified beneficiary turns 25 years of
age, the account shall cease to be an education savings account
and the accumulated interest remaining in the account shall be
subject to tax under this chapter. + }
SECTION 7. { + The interest earnings of an education savings
account shall not be subject to tax under this chapter except as
provided in section 6 of this 1997 Act. + }
SECTION 8. { + (1) The trustee of an education savings account
shall maintain separate records of all deposits and withdrawals
made by or on behalf of a qualified beneficiary.
(2) At the time that an education savings account is
established, the trustee shall file a statement with the
Department of Revenue stating the name and taxpayer
identification number of the qualified beneficiary.
(3) The trustee shall annually mail a statement to the
qualified beneficiary (or the parent or guardian of the qualified
beneficiary, if the qualified beneficiary is a minor) summarizing
the account activity for the year and stating that the account is
an education savings account.
(4) The qualified beneficiary shall maintain the records
necessary to authenticate that moneys withdrawn from an education
savings account were used to pay eligible education expenses. + }
SECTION 9. { + The Department of Revenue or its authorized
representative, upon written demand, may make such examinations
of the books, papers or records of an education savings account
trustee or qualified beneficiary and such other investigations as
it may deem necessary in carrying out the provisions of sections
2 to 9 of this 1997 Act. + }
SECTION 10. ORS 316.680 is amended to read:
316.680. (1) There shall be subtracted from federal taxable
income:
(a) The interest or dividends on obligations of the United
States and its territories and possessions or of any authority,
commission or instrumentality of the United States to the extent
includable in gross income for federal income tax purposes but
exempt from state income taxes under the laws of the United
States. However, the amount subtracted under this paragraph shall
be reduced by any interest on indebtedness incurred to carry the
obligations or securities described in this paragraph, and by any
expenses incurred in the production of interest or dividend
income described in this paragraph to the extent that such
expenses, including amortizable bond premiums, are deductible in
determining federal taxable income.
(b) The amount of any federal income taxes accrued by the
taxpayer during the taxable year as described in ORS 316.685,
less the amount of any refunds of federal taxes previously
accrued for which a tax benefit was received.
(c)(A) If the taxpayer does not qualify for the subtraction
under subparagraph (B) of this paragraph, compensation (other
than pension or retirement pay) received for active service
performed by a member of the Armed Forces of the United States in
an amount not to exceed $3,000 per annum.
(B) For the tax year of initial draft or enlistment into the
Armed Forces of the United States or for the tax year of
discharge from or termination of full-time active duty for the
Armed Forces of the United States, compensation (other than
pension or retirement pay or pay for service when on military
reserve duty) paid by the Armed Forces of the United States for
services performed outside this state, if the taxpayer is on
active duty as a full-time officer, enlistee or draftee, with the
Armed Forces of the United States.
(d) For taxable years open to audit on October 5, 1973, the
amount of any deferred income which was added to federal taxable
income for state tax purposes under subsection (2)(e) of this
section in a prior taxable year and which is now added to federal
taxable income. For purposes of this paragraph, the amount
subtracted shall not exceed the amount of gain now reported on
the federal return. If the gain is a capital gain or subject to
capital gain treatment, the adjustments under this paragraph
shall be similar to the adjustments made under subsection (2)(e)
of this section in the prior year.
(e)(A) Any expenses under ORS 118.070 (6) that have not been
deducted in computing federal taxable income and have not been
and will not be claimed as deductions for Oregon inheritance tax
purposes under ORS 118.070.
(B) Amounts allowable under sections 2621 (a)(2) and 2622 (b)
of the Internal Revenue Code to the extent that the taxpayer does
not elect under section 642(g) of the Internal Revenue Code to
reduce federal taxable income by those amounts.
(f) Any supplemental payments made to JOBS Plus Program
participants under ORS 411.892.
{ + (g) Earnings of an education savings account described in
section 7 of this 1997 Act, for which the taxpayer is the
qualified beneficiary, to the extent that the earnings are taken
into account as taxable income on the taxpayer's federal return
for the tax year. + }
(2) There shall be added to federal taxable income:
(a) Interest or dividends, exempt from federal income tax, on
obligations or securities of any foreign state or of a political
subdivision or authority of any foreign state. However, the
amount added under this paragraph shall be reduced by any
interest on indebtedness incurred to carry the obligations or
securities described in this paragraph and by any expenses
incurred in the production of interest or dividend income
described in this paragraph.
(b) Interest or dividends on obligations of any authority,
commission, instrumentality and territorial possession of the
United States which by the laws of the United States are exempt
from federal income tax but not from state income taxes. However,
the amount added under this paragraph shall be reduced by any
interest on indebtedness incurred to carry the obligations or
securities described in this paragraph and by any expenses
incurred in the production of interest or dividend income
described in this paragraph.
(c) The amount of any federal estate taxes allocable to income
in respect of a decedent not taxable by Oregon.
(d) The amount of any allowance for depletion in excess of the
taxpayer's adjusted basis in the property depleted, deducted on
the taxpayer's federal income tax return for the taxable year,
pursuant to sections 613, 613A, 614, 616 and 617 of the Internal
Revenue Code.
(e) The amount of any gain which is deferred for tax
recognition purposes upon the voluntary or involuntary conversion
or exchange of tangible real or personal property as provided
under ORS 314.290.
(f) For taxable years beginning on and after January 1, 1972,
any expenses under ORS 118.070 (6) that have been or will be
claimed as deductions for Oregon inheritance tax purposes in an
amount not to exceed the deductions actually claimed by the
taxpayer on the federal income tax return for the same taxable
year.
(g) For taxable years beginning on or after January 1, 1985,
the dollar amount deducted under section 151 of the Internal
Revenue Code for personal exemptions for the taxable year.
(h) The amount taken as a deduction on the taxpayer's federal
return for unused qualified business credits under section 196 of
the Internal Revenue Code.
(i) The amount of any increased benefits paid to a taxpayer
under chapter 569, Oregon Laws 1995, under the provisions of
chapter 796, Oregon Laws 1991, and under section 26, chapter 815,
Oregon Laws 1991, that is not includable in the taxpayer's
federal taxable income under the Internal Revenue Code.
{ + (j) Amounts subject to tax under section 5 (3) or 6 of
this 1997 Act, unless such amounts are taken into account on the
taxpayer's federal return for the tax year. + }
(3) Discount and gain or loss on retirement or disposition of
obligations described under subsection (2)(a) of this section
issued on or after January 1, 1985, shall be treated for purposes
of this chapter in the same manner as under sections 1271 to 1283
and other pertinent sections of the Internal Revenue Code as if
the obligations, although issued by a foreign state or a
political subdivision of a foreign state, were not tax exempt
under the Internal Revenue Code.
SECTION 11. { + Sections 2 to 9 of this Act and the amendments
to ORS 316.680 by section 10 of this Act apply to tax years
beginning on or after January 1, 1998. + }
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