(a)(1) An individual taxpayer who files a state income tax return and is not claimed as a dependent of another taxpayer, a taxpayer subject to the corporate income tax levied by Chapter 18 of Title 40, an Alabama S corporation as defined in Section 40-18-160, or a Subchapter K entity as defined in Section 40-18-1 may claim a credit for a contribution made to a scholarship granting organization. If the credit is claimed by an Alabama S corporation or Subchapter K entity, the credit shall pass through to and may be claimed by any taxpayer eligible to claim a credit under this subdivision who is a shareholder, partner, or member thereof, based on the taxpayer’s pro rata or distributive share, respectively, of the credit.

Terms Used In Alabama Code 16-6D-9. Tax credit claims; administrative accountability; verification of requirements; rules and procedures

  • appropriation: The provision of funds, through an annual appropriations act or a permanent law, for federal agencies to make payments out of the Treasury for specified purposes. The formal federal spending process consists of two sequential steps: authorization
  • corporation: A legal entity owned by the holders of shares of stock that have been issued, and that can own, receive, and transfer property, and carry on business in its own name.
  • dependent: A person dependent for support upon another.
  • donor: The person who makes a gift.
  • following: means next after. See Alabama Code 1-1-1
  • person: includes a corporation as well as a natural person. See Alabama Code 1-1-1
  • preceding: means next before. See Alabama Code 1-1-1
  • state: The word "state," when applied to the different parts of the United States, includes the District of Columbia and the several territories of the United States. See Alabama Code 1-1-1
  • year: means a calendar year; but, whenever the word "year" is used in reference to any appropriations for the payment of money out of the treasury, it shall mean fiscal year. See Alabama Code 1-1-1

(2) The tax credit may be claimed by an individual taxpayer or a married couple filing jointly in an amount equal to 100 percent of the total contributions the taxpayer made to a scholarship granting organization for educational scholarships during the taxable year for which the credit is claimed, up to 50 percent of the tax liability of the individual taxpayer, not to exceed fifty thousand dollars ($50,000) per individual taxpayer or married couple filing jointly. For purposes of this section, an individual taxpayer includes an individual who is a shareholder of an Alabama S corporation or a partner or member of a Subchapter K entity that made a contribution to a scholarship granting organization.

(3) The tax credit may be claimed by a taxpayer subject to the Alabama corporate income tax in an amount equal to 100 percent of the total contributions the taxpayer made to a scholarship granting organization for educational scholarships during the taxable year for which the credit is claimed, up to 50 percent of the tax liability of the taxpayer.

(4) A taxpayer subject to the Alabama corporate income tax, an individual taxpayer, or a married couple filing jointly may carry forward a tax credit earned under the tax credit scholarship program for up to three taxable years.

(5) The cumulative amount of tax credits issued pursuant to subdivision (2) and subdivision (3) shall not exceed thirty million dollars ($30,000,000) annually, based on the calendar year. A taxpayer making one or more otherwise tax-creditable contributions before the due date, with extensions, of a timely filed 2014 tax return may elect to treat all or a portion of such contributions as applying to and creditable against its 2014 Alabama income tax liability, if the taxpayer properly reserves the credit on the website of the Department of Revenue or another method provided by the Department of Revenue. The amount creditable against the taxpayer’s 2014 income tax liability shall be limited to the lesser of the amount so designated or the remaining balance, if any, of the cumulative amount of the twenty-five million dollars ($25,000,000) of tax credits available for the 2014 calendar year. No such contribution and election by a taxpayer to reserve tax credits against the remaining balance of the cumulative amount of tax credits available for 2014 shall preclude the taxpayer from making additional contributions in 2015 and reserving those amounts against the cumulative amount of tax credits available for 2015. The Department of Revenue shall develop a procedure to ensure that this cap is not exceeded and shall also prescribe the various methods by which these credits are to be issued.

(6) No credit may be claimed for a contribution made to a scholarship granting organization if the contribution is restricted or conditioned in any way by the donor including, but not limited to, requiring the scholarship granting organization to direct all or part of the contribution to a particular qualifying school or to grant an educational scholarship to a particular eligible student.

(b)(1) Administrative accountability standards. All scholarship granting organizations shall do all of the following:

a. Notify the Department of Revenue of their intent to provide educational scholarships to eligible students.

b. Demonstrate to the Department of Revenue that they have been granted exemption from the federal income tax as an organization described in Section 501(c)(3) of the Internal Revenue Code, as in effect from time to time.

c. Distribute periodic educational scholarship payments as checks made out and mailed to or directly deposited with the school where the student is enrolled.

d. Provide a Department of Revenue approved receipt to taxpayers for contributions made to the scholarship granting organization.

e. Ensure that all determinations with respect to the eligibility of a student to receive an educational scholarship shall be made by the scholarship granting organization. A scholarship granting organization shall not delegate any responsibility for determining the eligibility of a student for an educational scholarship or any other requirements it is subject to under this chapter to any qualifying school or an entity affiliated therewith.

f. Ensure that at least 95 percent of their revenue from donations is expended on educational scholarships, and that all revenue from interest or investments is expended on educational scholarships. A scholarship granting organization may expend up to five percent of its revenue from donations on administrative and operating expenses in the calendar year of the donation or in any subsequent calendar year.

g. Ensure that scholarship funds on hand at the beginning of a calendar year are expended on educational scholarships by the end of the academic year ending within the next succeeding calendar year. Any scholarship funds on hand at the beginning of a calendar year that are not expended on educational scholarships by the end of the academic year ending within the next succeeding calendar year shall be turned over to and deposited with the State Department of Education for the benefit of its At-Risk Student Program to be distributed to local boards of education on the basis determined by the State Department of Education in furtherance of support to underperforming schools.

h. Ensure that at least 75 percent of first-time recipients of educational scholarships were not continuously enrolled in a private school during the previous academic year.

i. Cooperate with the Department of Revenue to conduct criminal background checks on all of their employees and board members and exclude from employment or governance any individual who may reasonably pose a risk to the appropriate use of contributed funds.

j. Ensure that educational scholarships are portable during the academic year and can be used at any qualifying school that accepts the eligible student according to the wishes of the parent. If an eligible student transfers to another qualifying school during an academic year, the educational scholarship amount may be prorated.

k. Publicly report to the Department of Revenue by September 1 of each year all of the following information prepared by a certified public accountant regarding their educational scholarships funded in the previous academic year:

1. The name and address of the scholarship granting organization.

2. The total number and total dollar amount of contributions received during the previous academic year.

3. The total number and total dollar amount of educational scholarships awarded and funded during the previous academic year, the total number and total dollar amount of educational scholarships awarded and funded during the previous academic year for students qualifying for the federal free and reduced-price lunch program, and the percentage of first-time recipients of educational scholarships who were enrolled in a public school during the previous academic year.

l. Publicly report to the Department of Revenue, by the 15th day after the close of each calendar quarter, all of the following information about educational scholarships granted during the quarter:

1. The total number of scholarships awarded and funded.

2. The names of the qualifying schools that received funding for educational scholarships, the total amount of funds paid to each qualifying school, and the total number of scholarship recipients enrolled in each qualifying school.

3. The total number of eligible students zoned to attend a failing school who received educational scholarships from the scholarship granting organization.

4. The total number of first time scholarship recipients who were continuously enrolled in a nonpublic school prior to receiving an educational scholarship from that scholarship granting organization.

m. Ensure that educational scholarships are not provided for eligible students to attend a school with paid staff or board members, or relatives thereof, in common with the scholarship granting organization.

n. Ensure that educational scholarships are provided in a manner that does not discriminate based on the gender, race, or disability status of the scholarship applicant or his or her parent.

o. Ensure that educational scholarships are provided only to eligible students who are zoned to attend a failing school so that the eligible student can attend a qualifying school. To ensure compliance with the immediately preceding sentence, the local board of education for the county or municipality in which an eligible student applying for an educational scholarship resides, upon written request by a parent, shall provide written verification that a particular address is in the attendance zone of a specified public school. The State Department of Education shall provide written verification of enrollment in a failing school under this chapter. With respect to first time educational scholarship recipients, scholarship granting organizations shall give priority to eligible students zoned to attend failing schools over eligible students not zoned to attend failing schools. Any scholarship funds unaccounted for on July 31st of each calendar year may be made available to eligible students to defray the costs of attending a qualifying school, whether or not the student is zoned to attend a failing school. Any provision of this section to the contrary notwithstanding, once an eligible student receives an educational scholarship under this program, scholarship funds may be made available to the student for educational scholarships until the student graduates from high school or reaches 19 years of age, regardless of whether the student is zoned to attend a failing school, subject to the income eligibility requirements of paragraph b. of subdivision (4) of Section 16-6D-4.

p. Ensure that no donations are directly made to benefit specifically designated scholarship recipients or to particular qualifying schools.

q. Submit to the Department of Revenue annual verification of the scholarship granting organization’s policies and procedures used to determine scholarship eligibility. The verification shall confirm that the scholarship granting organization, and not one or more qualifying schools accepting educational scholarship recipients or scholarship funds, is determining whether scholarship applicants are eligible to receive educational scholarships. The verification shall also confirm that the scholarship granting organization is giving priority to receive an educational scholarship to eligible students zoned to attend failing schools.

r. Submit to the Department of Revenue annual verification that none of its actions or policies restricts a parent’s educational choice by limiting or prohibiting the enrollment of eligible students in a qualifying school if those eligible students received educational scholarships from other scholarship granting organizations.

(2) Financial accountability standards.

a. All scholarship granting organizations shall demonstrate their financial accountability by doing all of the following:

1. Annually submitting to the Department of Revenue a financial information report for the scholarship granting organization that complies with uniform financial accounting standards established by the Department of Revenue and conducted by a certified public accountant.

2. Having the auditor certify that the report is free of material misstatements.

b. All qualifying nonpublic schools shall demonstrate financial viability, if they are to receive donations of fifty thousand dollars ($50,000) or more during the academic year, by doing either of the following:

1. Filing with the scholarship granting organization prior to receipt of the first educational scholarship payment for that academic year a surety bond payable to the scholarship granting organization in an amount equal to the aggregate amount of scholarship funds expected to be received during the academic year.

2. Filing with the scholarship granting organization prior to receipt of the first educational scholarship payment for that academic year financial information that demonstrates the financial viability of the qualifying nonpublic school.

(c)(1) Each scholarship granting organization shall annually collect and submit to the Department of Revenue with the annual report required by paragraph k. of subdivision (1) of subsection (b) written verification from qualifying nonpublic schools that accept its educational scholarship students that those schools do all of the following:

a. Comply with all health and safety laws or codes that otherwise apply to nonpublic schools.

b. Hold a valid occupancy permit if required by the municipality.

c. Certify compliance with nondiscrimination policies set forth in 42 U.S.C. 1981.

d. Conduct criminal background checks on employees and then do all of the following:

1. Exclude from employment any person not permitted by state law to work in a public school.

2. Exclude from employment any person who may reasonably pose a threat to the safety of students.

(2) By August 1 of each year, each qualifying nonpublic school shall provide to each scholarship granting organization from which it receives educational scholarships verification that the qualifying nonpublic school is in compliance with the Alabama Child Protection Act of 1999, Chapter 22A of this title. Any qualifying nonpublic school failing to timely provide such annual verification shall be prohibited from participating in the scholarship program. Each scholarship granting organization shall annually submit to the Department of Revenue with the annual report required by paragraph k. of subdivision (1) of subsection (b) copies of the written verifications it receives from each qualifying nonpublic school.

(3) Academic accountability standards. There shall be sufficient information about the academic impact educational scholarship tax credits have on students participating in the tax credit scholarship program in order to allow parents and taxpayers to measure the achievements of the tax credit scholarship program, and therefore:

a. Each scholarship granting organization shall ensure that qualifying schools that accept its educational scholarship students shall do all of the following:

1. Annually administer either the state achievement tests or nationally recognized norm-referenced tests that measure learning gains in math and language arts to all students receiving an educational scholarship in grades that require testing under the accountability testing laws of the state for public schools, in order that the state can compare the academic achievement and learning gains of students receiving educational scholarships with students of the same socioeconomic and educational backgrounds who are taking the state achievement tests or nationally norm-referenced tests.

2. Allow the costs of the testing requirement to be covered by the educational scholarships distributed by the scholarship granting organizations.

3. Provide the parents of each student who was tested with a copy of the results of the tests on an annual basis, beginning with the first year of testing.

4. Provide the test results to the Department of Revenue on an annual basis, beginning with the first year of testing.

5. Report student information that allows the state to aggregate data by grade level, gender, family income level, and race.

6. Provide graduation rates of those students benefitting from education scholarships to the Department of Revenue or an organization chosen by the state in a manner consistent with nationally recognized standards.

7. Ensure that a student who receives an educational scholarship conforms to the attendance requirements of the qualifying school. If a student fails to conform, the qualifying school shall immediately communicate the failure to the applicable scholarship granting organization.

b.1. The Department of Revenue shall select an independent research organization, which may be a public or private entity or university, to analyze the results of the testing required by paragraph a. every other academic year. The cost of analyzing and reporting on the test results to the Department of Revenue by the independent research organization shall be borne by all scholarship granting organizations in proportion to the total scholarship donations received for the two calendar years prior to the report being published. Scholarship granting organizations may receive and use funds from outside sources to pay for its share of the biennial report.

2. The independent research organization shall report to the Department of Revenue every other year on the learning gains of students receiving educational scholarships and the report shall be aggregated by the grade level, gender, family income level, number of years of participation in the tax credit scholarship program, and race of the student receiving an educational scholarship. The report shall also include, to the extent possible, a comparison of the learning gains of students participating in the tax credit scholarship program to the statewide learning gains of public school students with socioeconomic and educational backgrounds similar to those students participating in the tax credit scholarship program.

3. The first report under this paragraph shall be submitted to the Department of Revenue by September 1, 2016. Each biennial report thereafter shall be submitted to the Department of Revenue on September 1 of the year the report is due. All biennial reports required by this paragraph shall be published on the website of the Department of Revenue.

4. Each scholarship granting organization shall collect all test results from qualifying schools accepting its scholarship recipients and turn over such test results to the independent research organization described in this paragraph by August 15 of each calendar year.

5. The sharing and reporting of student learning gain data under this paragraph shall conform to the requirements of the Family Educational Rights and Privacy Act, 20 U.S.C. § 1232g., and shall be for the sole purpose of creating the biennial report required by this paragraph. All parties shall preserve the confidentially of such information as required by law. The biennial report shall not disaggregate data to a level that could identify qualifying schools participating in the tax credit scholarship program or disclose the academic level of individual students.

6. At the same time the biennial report under paragraph 2 is submitted to the Department of Revenue, it shall be submitted to the Chair of the Senate Education Policy Committee and the Chair of the House Education Policy Committee.

(d)(1) The Department of Revenue shall adopt rules and procedures consistent with this section as necessary.

(2) The Department of Revenue shall provide a standardized format for a receipt to be issued by a scholarship granting organization to a taxpayer to indicate the value of a contribution received. The Department of Revenue shall require a taxpayer to provide a copy of the receipt when claiming the tax credit pursuant to this section.

(3) The Department of Revenue shall provide a standardized format for a scholarship granting organization to report the information required in paragraphs k. and l. of subdivision (1) of subsection (b).

(4) The Department of Revenue may conduct either a financial review or audit of a scholarship granting organization.

(5) The Department of Revenue may bar a scholarship granting organization or a qualifying school from participating in the tax credit scholarship program if the Department of Revenue establishes that the scholarship granting organization or the qualifying school has intentionally and substantially failed to comply with the requirements in subsection (b) or subsection (c).

(6) If the Department of Revenue decides to bar a scholarship granting organization or a qualifying school from the tax credit scholarship program, the Department of Revenue shall notify affected educational scholarship students and their parents of the decision as quickly as possible.

(7) The Department of Revenue shall publish and routinely update, on the website of the department, a list of scholarship granting organizations in the state, by county.

(8) The Department of Revenue shall publish and make publicly available on its website all annual and quarterly reports required to be filed with it by scholarship granting organizations under paragraphs k. and l. of subdivision (1) of subsection (b).

(e)(1) All schools participating in the tax credit scholarship program shall be required to operate in Alabama.

(2) All schools participating in the tax credit scholarship program shall comply with all state laws that apply to public schools regarding criminal background checks for employees and exclude from employment any person not permitted by state law to work in a public school.

(3) All qualifying nonpublic schools participating in the tax credit scholarship program shall maintain a website that describes the school, the instructional program of the school, and the tuition and mandatory fees charged by the school, updated prior to the beginning of each semester.

(4) The amount of a scholarship awarded a student to attend a nonpublic school may not exceed the total sum of tuition and mandatory fees normally charged a student to attend the nonpublic school for the same attendance period. The amount of a scholarship awarded a student to attend a public school may not exceed the total state appropriation provided for a student to attend the public school for the same attendance period.

(f) The tax credit provided in this section may be first claimed for the 2013 tax year but may not be claimed for any tax year prior to the 2013 tax year.

(g)(1) Nothing in this section shall be construed to force any public school, school system, or school district or any nonpublic school, school system, or school district to enroll any student. No qualifying school may enter into any agreement, whether oral or written, with a scholarship granting organization that would prohibit or limit an eligible student from enrolling in the school based on the identity of the scholarship granting organization from which the eligible student received an educational scholarship.

(2) A public school, school system, or school district or any nonpublic school, school system, or school district may develop the terms and conditions under which it will allow a student who receives a scholarship from a scholarship granting organization pursuant to this section to be enrolled, but such terms and conditions may not discriminate on the basis of the race, gender, religion, color, disability status, or ethnicity of the student or of the student’s parent.

(3) Nothing in this section shall be construed to authorize the violation of or supersede the authority of any court ruling that applies to the public school, school system, or school district, specifically any federal court order related to the desegregation of the local school system’s student population.

(h) Nothing in this chapter shall affect or change the athletic eligibility rules of student athletes governed by the Alabama High School Athletic Association or similar association.

(Act 2013-64, p. 112, §9; Act 2013-265, p. 894, §§1, 3; Act 2015-434, §1.)