Bill Text: AZ SB1318 | 2016 | Fifty-second Legislature 2nd Regular | Introduced


Bill Title: STO operational requirements

Spectrum: Partisan Bill (Democrat 9-0)

Status: (Introduced - Dead) 2016-01-28 - Referred to Senate FIN Committee [SB1318 Detail]

Download: Arizona-2016-SB1318-Introduced.html

 

 

 

REFERENCE TITLE: STO operational requirements

 

 

 

State of Arizona

Senate

Fifty-second Legislature

Second Regular Session

2016

 

 

SB 1318

 

Introduced by

Senators Farley, Dalessandro, Hobbs, Quezada: Contreras, Meza, Pancrazi; Representatives Alston, Kopec

 

 

AN ACT

 

Amending sections 20-224.06, 20-224.07, 43-1089, 43-1089.03, 43-1089.04, 43‑1183, 43-1184, 43-1502, 43-1503, 43-1507, 43-1602, 43-1603 and 43-1605, Arizona Revised Statutes; relating to school tuition organizations.

 

 

(TEXT OF BILL BEGINS ON NEXT PAGE)

 


Be it enacted by the Legislature of the State of Arizona:

Section 1.  Section 20-224.06, Arizona Revised Statutes, is amended to read:

START_STATUTE20-224.06.  Premium tax credit for contributions to school tuition organization; low-income scholarships

A.  A credit is allowed against the premium tax liability incurred by an insurer pursuant to section 20‑224, 20‑837, 20‑1010, 20‑1060 or 20‑1097.07 for the amount of voluntary cash contributions made by the insurer during the tax year to a school tuition organization.

B.  The amount of the credit is the total amount of the insurer's contributions for the tax year under subsection A of this section that is preapproved by the department of revenue pursuant to section 43‑1183, subsection D.

C.  The procedures, conditions, limitations, definitions and other requirements prescribed by section 43‑1183 and title 43, chapter 15 apply to:

1.  Insurers that claim a credit under this section.

2.  Claims for credit under this section.

3.  School tuition organizations that receive contributions from insurers for the purposes of this section.

4.  Schools that qualify to receive scholarship monies contributed by insurers for the purposes of this section.

5.  Students who receive scholarships from monies contributed by insurers for the purposes of this section.

D.  If the allowable amount of a credit under this section exceeds the insurer's state premium tax liability, the amount of the claim not used to offset the premium tax liability may be carried forward as a credit against the insurer's subsequent years' premium tax liability for a period not to exceed five taxable years.

E.  A credit is not allowed if the insurer designates requests or recommends the contribution for the direct benefit of any specific student.

F.  An insurer that claims a tax credit against state premium tax liability is not required to pay any additional retaliatory tax imposed pursuant to section 20‑230 as a result of claiming that tax credit.

G.  The department of insurance, with the cooperation of the department of revenue, shall adopt rules and publish and prescribe forms and procedures necessary for the administration of this section. END_STATUTE

Sec. 2.  Section 20-224.07, Arizona Revised Statutes, is amended to read:

START_STATUTE20-224.07.  Premium tax credit for contributions to school tuition organization; displaced students and students with disabilities

A.  A credit is allowed against the premium tax liability incurred by an insurer pursuant to section 20‑224, 20‑837, 20‑1010, 20‑1060 or 20‑1097.07 for the amount of voluntary cash contributions made by the insurer during the tax year to a school tuition organization.

B.  The amount of the credit is the total amount of the insurer's contributions for the tax year under subsection A of this section that is preapproved by the department of revenue pursuant to section 43‑1184, subsection D.

C.  The procedures, conditions, limitations, definitions and other requirements prescribed by section 43‑1184 and title 43, chapter 15 apply to:

1.  Insurers that claim a credit under this section.

2.  Claims for credit under this section.

3.  School tuition organizations that receive contributions from insurers for the purposes of this section.

4.  Qualified schools that participate under this section.

5.  Students who receive scholarships from monies contributed by insurers for the purposes of this section.

D.  If the allowable amount of a credit under this section exceeds the insurer's state premium tax liability, the amount of the claim not used to offset the premium tax liability may be carried forward as a credit against the insurer's subsequent years' premium tax liability for a period not to exceed five taxable years.

E.  A credit is not allowed if the insurer designates requests or recommends the contribution for the direct benefit of any specific student.

F.  An insurer that claims a tax credit against state premium tax liability is not required to pay any additional retaliatory tax imposed pursuant to section 20‑230 as a result of claiming that tax credit.

G.  The department of insurance, with the cooperation of the department of revenue, shall adopt rules necessary for the administration of this section. END_STATUTE

Sec. 3.  Section 43-1089, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1089.  Credit for contributions to school tuition organization

A.  A credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions by the taxpayer or on the taxpayer's behalf pursuant to section 43‑401, subsection G during the taxable year to a school tuition organization that is certified pursuant to chapter 16 of this title at the time of donation.  Except as provided by subsection C of this section, the amount of the credit shall not exceed:

1.  Five hundred dollars in any taxable year for a single individual or a head of household.

2.  One thousand dollars in any taxable year for a married couple filing a joint return.

B.  A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one‑half of the tax credit that would have been allowed for a joint return.

C.  For each taxable year beginning on or after January 1, the department shall adjust the dollar amounts prescribed by subsection A, paragraphs 1 and 2 of this section according to the average annual change in the metropolitan Phoenix consumer price index published by the United States bureau of labor statistics, except that the dollar amounts shall not be revised downward below the amounts allowed in the prior taxable year.  The revised dollar amounts shall be raised to the nearest whole dollar.

D.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

E.  The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

F.  The tax credit is not allowed if the taxpayer designates requests or recommends the taxpayer's contribution to the school tuition organization for the direct benefit of any dependent of the taxpayer student or if the taxpayer designates requests or recommends a student beneficiary as a condition of the taxpayer's contribution to the school tuition organization. The tax credit is not allowed if the taxpayer, with the intent to benefit the taxpayer's dependent, agrees with one or more other taxpayers to designate each taxpayer's contribution to the school tuition organization for the direct benefit of the other taxpayer's dependent.

G.  For the purposes of this section, a contribution, for which a credit is claimed, that is made on or before the fifteenth day of the fourth month following the close of the taxable year may be applied to either the current or preceding taxable year and is considered to have been made on the last day of that taxable year. END_STATUTE

Sec. 4.  Section 43-1089.03, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1089.03.  Credit for contributions to certified school tuition organization

A.  A credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions by the taxpayer or on the taxpayer's behalf pursuant to section 43‑401, subsection G during the taxable year to a school tuition organization that is certified pursuant to chapter 16 of this title at the time of donation.  Except as provided by subsection C of this section, the amount of the credit shall not exceed:

1.  Five hundred dollars in any taxable year for a single individual or a head of household.

2.  One thousand dollars in any taxable year for a married couple filing a joint return.

B.  A husband and wife who file separate returns for a taxable year in which they could have filed a joint return may each claim only one-half of the tax credit that would have been allowed for a joint return.

C.  For each taxable year beginning on or after January 1, the department shall adjust the dollar amounts prescribed by subsection A, paragraphs 1 and 2 of this section according to the average annual change in the metropolitan phoenix consumer price index published by the United States bureau of labor statistics, except that the dollar amounts shall not be revised downward below the amounts allowed in the prior taxable year.  The revised dollar amounts shall be raised to the nearest whole dollar.

D.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

E.  The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

F.  The tax credit is not allowed if the taxpayer designates requests or recommends the taxpayer's contribution to the school tuition organization for the direct benefit of any dependent of the taxpayer student or if the taxpayer designates requests or recommends a student beneficiary as a condition of the taxpayer's contribution to the school tuition organization. The tax credit is not allowed if the taxpayer, with the intent to benefit the taxpayer's dependent, agrees with one or more other taxpayers to designate each taxpayer's contribution to the school tuition organization for the direct benefit of the other taxpayer's dependent.

G.  For the purposes of this section, a contribution, for which a credit is claimed, that is made on or before the fifteenth day of the fourth month following the close of the taxable year may be applied to either the current or preceding taxable year and is considered to have been made on the last day of that taxable year.

H.  A taxpayer may not claim a credit under this section and also under section 43‑1089 with respect to the same contribution.  If a taxpayer's contribution to a school tuition organization exceeds the amount of the credit allowed under section 43‑1089, a taxpayer may claim a credit under this section and also under section 43‑1089.  If a taxpayer's contribution to a school tuition organization does not exceed the amount of the credit allowed by section 43‑1089, the contribution is considered to have been made pursuant to section 43‑1089. END_STATUTE

Sec. 5.  Section 43-1089.04, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1089.04.  Pro rata credit for business contributions by S corporation to school tuition organizations; definition

A.  A credit is allowed against the taxes imposed by this title for the pro rata amount of contributions made by an S corporation pursuant to section 43‑1183, subsection F or section 43‑1184, subsection F, or both.  To qualify for the credit:

1.  The aggregate contribution in the taxable year must be at least five thousand dollars.

2.  All other requirements of section 43‑1183 or 43‑1184 and the applicable sections of chapter 15 of this title must be met.

B.  Co-owners of the S corporation may each claim the pro rata share of the credit allowed under sections 43‑1183 and 43‑1184 based on the taxpayer's ownership interest.  The total of the credits allowed all the owners of the corporation may not exceed the amount that would have been allowed a sole owner of the corporation.

C.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

D.  The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

E.  The tax credit is not allowed if the S corporation or a shareholder designates requests or recommends the contribution to the school tuition organization for the direct benefit of any dependent of a shareholder of the corporation claiming a credit under this section student or if the corporation or a shareholder designates requests or recommends a student beneficiary as a condition of the contribution to the school tuition organization.  The tax credit is not allowed if the corporation or a shareholder, with the intent to benefit a shareholder's dependent, agrees with one or more other taxpayers to designate reciprocal contributions to school tuition organizations for the direct benefit of the other taxpayer's dependent.

F.  For the purposes of this section, "S corporation" or "corporation" means an S corporation as defined in section 1361 of the internal revenue code. END_STATUTE

Sec. 6.  Section 43-1183, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1183.  Credit for contributions to school tuition organization

A.  Beginning from and after June 30, 2006, a credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions made by the taxpayer during the taxable year to a school tuition organization that is certified pursuant to chapter 15 of this title at the time of donation.

B.  The amount of the credit is the total amount of the taxpayer's contributions for the taxable year under subsection A of this section and is preapproved by the department of revenue pursuant to subsection D of this section.

C.  The department of revenue:

1.  Shall not allow tax credits under this section and section 20‑224.06 that exceed in the aggregate a combined total of ten million dollars in any fiscal year.  Beginning in fiscal year 2007‑2008, the aggregate dollar amount of the tax credit cap from the previous fiscal year shall be annually increased by twenty percent.

2.  Shall preapprove tax credits under this section and section 20‑224.06 subject to subsection D of this section.

3.  Shall allow the tax credits under this section and section 20‑224.06 on a first come, first served basis.

D.  For the purposes of subsection C, paragraph 2 of this section, before making a contribution to a school tuition organization, the taxpayer under this title or title 20 must notify the school tuition organization of the total amount of contributions that the taxpayer intends to make to the school tuition organization.  Before accepting the contribution, the school tuition organization shall request preapproval from the department of revenue for the taxpayer's intended contribution amount.  The department of revenue shall preapprove or deny the requested amount within twenty days after receiving the request from the school tuition organization.  If the department of revenue preapproves the request, the school tuition organization shall immediately notify the taxpayer, and the department of insurance in the case of a credit under section 20‑224.06, that the requested amount was preapproved by the department of revenue.  In order to receive a tax credit under this subsection, the taxpayer shall make the contribution to the school tuition organization within twenty days after receiving notice from the school tuition organization that the requested amount was preapproved.  If the school tuition organization does not receive the preapproved contribution from the taxpayer within the required twenty days, the school tuition organization shall immediately notify the department of revenue, and the department of insurance in the case of a credit under section 20‑224.06, and the department of revenue shall no longer include this preapproved contribution amount when calculating the limit prescribed in subsection C, paragraph 1 of this section.

E.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

F.  Co-owners of a business, including corporate partners in a partnership and stockholders of an S corporation as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

G.  The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

H.  A taxpayer shall not claim a credit under this section and also under section 43‑1184 with respect to the same contribution.

I.  The tax credit is not allowed if the taxpayer designates requests or recommends the taxpayer's contribution to the school tuition organization for the direct benefit of any specific student.

J.  The department of revenue, with the cooperation of the department of insurance, shall adopt rules and publish and prescribe forms and procedures necessary for the administration of this section. END_STATUTE

Sec. 7.  Section 43-1184, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1184.  Credit for contributions to school tuition organization; displaced students; students with disabilities

A.  Beginning from and after June 30, 2009, a credit is allowed against the taxes imposed by this title for the amount of voluntary cash contributions made by the taxpayer during the taxable year to a school tuition organization that is certified pursuant to chapter 15 of this title at the time of donation.

B.  The amount of the credit is the total amount of the taxpayer's contributions for the taxable year under subsection A of this section and is preapproved by the department of revenue pursuant to subsection D of this section.

C.  The department of revenue:

1.  Shall not allow tax credits under this section and section 20‑224.07 that exceed in the aggregate a combined total of five million dollars in any fiscal year.

2.  Shall preapprove tax credits under this section and section 20‑224.07 subject to subsection D of this section.

3.  Shall allow the tax credits under this section and section 20‑224.07 on a first come, first served basis.

D.  For the purposes of subsection C, paragraph 2 of this section, before making a contribution to a school tuition organization, the taxpayer under this title or title 20 must notify the school tuition organization of the total amount of contributions that the taxpayer intends to make to the school tuition organization.  Before accepting the contribution, the school tuition organization shall request preapproval from the department of revenue for the taxpayer's intended contribution amount.  The department of revenue shall preapprove or deny the requested amount within twenty days after receiving the request from the school tuition organization.  If the department of revenue preapproves the request, the school tuition organization shall immediately notify the taxpayer that the requested amount was preapproved by the department of revenue.  In order to receive a tax credit under this subsection, the taxpayer shall make the contribution to the school tuition organization within twenty days after receiving notice from the school tuition organization that the requested amount was preapproved.  If the school tuition organization does not receive the preapproved contribution from the taxpayer within the required twenty days, the school tuition organization shall immediately notify the department of revenue and the department shall no longer include this preapproved contribution amount when calculating the limit prescribed in subsection C, paragraph 1 of this section.

E.  If the allowable tax credit exceeds the taxes otherwise due under this title on the claimant's income, or if there are no taxes due under this title, the taxpayer may carry the amount of the claim not used to offset the taxes under this title forward for not more than five consecutive taxable years' income tax liability.

F.  Co-owners of a business, including corporate partners in a partnership and stockholders of an S corporation as defined in section 1361 of the internal revenue code, may each claim only the pro rata share of the credit allowed under this section based on the ownership interest.  The total of the credits allowed all such owners may not exceed the amount that would have been allowed a sole owner.

G.  The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purposes.

H.  A taxpayer shall not claim a credit under this section and also under section 43‑1183 with respect to the same contribution.

I.  The tax credit is not allowed if the taxpayer designates requests or recommends the taxpayer's contribution to the school tuition organization for the direct benefit of any specific student.

J.  The department of revenue shall adopt rules necessary for the administration of this section. END_STATUTE

Sec. 8.  Section 43-1502, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1502.  Certification as a school tuition organization

A.  A nonprofit organization in this state that is exempt or has applied for exemption from federal taxation under section 501(c)(3) of the internal revenue code may apply to the department of revenue for certification as a school tuition organization, and the department shall certify the school tuition organization if it meets the requirements prescribed by this chapter.  An organization must apply for certification on a form prescribed and furnished on request by the department.

B.  The department shall:

1.  Maintain a public registry of currently certified school tuition organizations.

2.  Make the registry available to the public on request.

3.  Post the registry on the department's official website.

C.  The department shall send written notice by certified mail to a school tuition organization if the department determines that the school tuition organization has engaged in any of the following activities:

1.  Failing Failed or refusing refused to allocate at least ninety per cent NINETY‑FIVE PERCENT of annual revenues from contributions made for the purposes of sections 20‑224.06, 20‑224.07, 43‑1183 and 43-1184 for educational scholarships or tuition grants.

2.  Failing FAILED or refusing REFUSED to file the annual reports required by section 43‑1506.

3.  Limiting LIMITED THE availability of scholarships to students of only one school.

4.  Encouraging, facilitating ENCOURAGED, FACILITATED or knowingly permitting PERMITTED taxpayers to engage in actions prohibited by this article.

5.  Knowingly colluding COLLUDED with any other school tuition organization to circumvent the limits of section 43‑1504, subsection C.

D.  A school tuition organization that receives notice from the department pursuant to subsection C of this section has ninety days to correct the violation identified by the department in the notice.  If a school tuition organization fails or refuses to comply after ninety days, the department may remove the organization from the list of certified school tuition organizations and shall make available to the public notice of removal as soon as possible.  An organization that is removed from the list of certified school tuition organizations must notify any taxpayer who attempts to make a contribution that the contribution is not eligible for the tax credit and offer to refund all donations received after the date of the notice of termination of certification.

E.  A school tuition organization may request an administrative hearing on the revocation of its certification as provided by title 41, chapter 6, article 10.  Except as provided in section 41‑1092.08, subsection H, a decision of the department is subject to judicial review pursuant to title 12, chapter 7, article 6. END_STATUTE

Sec. 9.  Section 43-1503, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1503.  Operational requirements for school tuition organizations

A.  A certified school tuition organization must be established to receive contributions from taxpayers for the purposes of income tax credits under sections 43‑1183 and 43‑1184 and insurance premium tax credits under sections 20‑224.06 and 20‑224.07 and to pay educational scholarships or tuition grants to allow students to attend any qualified school of their parents' or custodians' choice.

B.  To be eligible for certification and retain certification, the school tuition organization:

1.  Must allocate at least ninety ninety-five percent of its annual revenue from contributions made for the purposes of sections 20‑224.06, 20‑224.07, 43‑1183 and 43‑1184 for educational scholarships or tuition grants.

2.  Must allocate at least ninety percent of its annual revenue from contributions made for the purposes of sections 20‑224.06, 20‑224.07, 43‑1183 and 43‑1184 for educational scholarships or tuition grants for students whose family income does not exceed one hundred eighty‑five percent of the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1785) for free or reduced‑price lunches.  A child is eligible to receive an educational scholarship or tuition grant under this paragraph if the child meets the criteria to receive a reduced‑price lunch but does not actually claim that benefit.

2.  3.  Shall not limit the availability of educational scholarships or tuition grants to only students of one school.

3.  4.  Must allow the department of revenue to verify that the educational scholarships and tuition grants that are issued are awarded to students who attend a qualified school.

4.  5.  Must not knowingly collude with any other school tuition organization to circumvent the limits of section 43‑1504, subsection C.

5.  6.  Must not award educational scholarships or tuition grants to students who are simultaneously enrolled in a district school or charter school and a qualified school.

6.  7.  Shall include on the organization's website, if one exists, the percentage and total dollar amount of educational scholarships and tuition grants awarded during the previous fiscal year to:

(a)  Students whose family income meets the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1785) for free or reduced‑price lunches.

(b)  Students whose family income exceeds the threshold prescribed by subdivision (a) of this paragraph but does not exceed one hundred eighty‑five percent of the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1785) for free or reduced‑price lunches. END_STATUTE

Sec. 10.  Section 43-1507, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1507.  Audit; costs

A.  On or before September 30 of each year, each school tuition organization that received one million dollars or more in total donations in the previous fiscal year shall provide for a financial audit of the organization.  The audit must:

1.  Be conducted in accordance with generally accepted auditing standards. and must

2.  Evaluate the organization's compliance with section 43‑1503, subsection B, paragraph 1.  The audit must

3.  Be conducted by an independent certified public accountant licensed in this state.  The certified public accountant and the firm the certified public accountant is affiliated with shall be independent with respect to the organization, its officers and directors, services performed and all other independent relationships prescribed by generally accepted auditing standards.

B.  On or before September 30 of each year, each school tuition organization that received less than one million dollars in total donations in the previous fiscal year shall provide for a financial review of the organization.  The review must be conducted in accordance with standards for accounting and review services and must evaluate the organization's compliance with the fiscal requirements of this article.  The review must be conducted by an independent certified public accountant licensed in this state.  The certified public accountant and the firm the certified public accountant is affiliated with shall be independent with respect to the organization, its officers and directors, services performed and all other independent relationships prescribed by generally accepted auditing standards.

C.  B.  Within five days after receiving the audit or financial review, the school tuition organization shall file a signed copy of the audit or financial review with the department.

D.  C.  The school tuition organization shall pay the fees and costs of the certified public accountant under this section from the organization's operating monies.  The fees and costs shall be excluded from the calculation of total revenues spent on scholarships and tuition grants. END_STATUTE

Sec. 11.  Section 43-1602, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1602.  Certification as a school tuition organization

A.  A nonprofit organization in this state that is exempt or has applied for exemption from federal taxation under section 501(c)(3) of the internal revenue code may apply to the department of revenue for certification as a school tuition organization, and the department shall certify the school tuition organization if it meets the requirements prescribed by this chapter.  An organization must apply for certification on a form prescribed and furnished on request by the department.

B.  The department shall:

1.  Maintain a public registry of currently certified school tuition organizations.

2.  Make the registry available to the public on request.

3.  Post the registry on the department's official website.

C.  The department shall send written notice by certified mail to a school tuition organization if the department determines that the school tuition organization has engaged in any of the following activities:

1.  Failing failed or refusing refused to allocate at least ninety per cent ninety‑five percent of annual revenues from contributions made for the purposes of sections 43‑1089 and 43‑1089.03 for educational scholarships or tuition grants.

2.  Failing failed or refusing refused to file the annual reports required by section 43‑1604.

3.  Limiting limited the availability of scholarships to students of only one school.

4.  Encouraging, facilitating encouraged, facilitated or knowingly permitting permitted taxpayers to engage in actions prohibited by this article.

5.  Awarding, restricting awarded, restricted or reserving reserved educational scholarships or tuition grants for use by a particular student based solely on the recommendation of the donor.

D.  A school tuition organization that receives notice from the department pursuant to subsection C of this section has ninety days to correct the violation identified by the department in the notice.  If a school tuition organization fails or refuses to comply after ninety days, the department may remove the organization from the list of certified school tuition organizations and shall make available to the public notice of removal as soon as possible.  An organization that is removed from the list of certified school tuition organizations must notify any taxpayer who attempts to make a contribution that the contribution is not eligible for the tax credit and offer to refund all donations received after the date of the notice of termination of certification.

E.  A school tuition organization may request an administrative hearing on the revocation of its certification as provided by title 41, chapter 6, article 10.  Except as provided in section 41‑1092.08, subsection H, a decision of the department is subject to judicial review pursuant to title 12, chapter 7, article 6. END_STATUTE

Sec. 12.  Section 43-1603, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1603.  Operational requirements for school tuition organizations; notice; qualified schools

A.  A certified school tuition organization must be established to receive contributions from taxpayers for the purposes of income tax credits under sections 43‑1089 and 43‑1089.03 and to pay educational scholarships or tuition grants to allow students to attend any qualified school of their parents' choice.

B.  To be eligible for certification and retain certification, the school tuition organization:

1.  Must allocate at least ninety ninety-five percent of its annual revenue from contributions made for the purposes of sections 43‑1089 and 43‑1089.03 for educational scholarships or tuition grants.

2.  Must allocate at least ninety percent of its annual revenue from contributions made for the purposes of sections 43‑1089 and 43‑1089.03 for educational scholarships or tuition grants to students whose family income does not exceed one hundred eighty-five percent of the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1785) for free or reduced‑price lunches.  A child is eligible to receive an educational scholarship or tuition grant under this paragraph if the child meets the criteria to receive a reduced‑price lunch but does not actually claim that benefit.

2.  3.  Shall not limit the availability of educational scholarships or tuition grants to only students of one school.

3.  4.  May allow donors to recommend student beneficiaries, but Shall not award, designate or reserve scholarships solely on the basis of donor recommendations.

4.  5.  Shall not allow donors to designate recommend student beneficiaries as a condition of any contribution to the organization, or facilitate, encourage or knowingly permit the exchange of beneficiary student designations in violation of section 43‑1089, subsection F.

5.  6.  Shall include on the organization's website, if one exists, the percentage and total dollar amount of educational scholarships and tuition grants awarded during the previous fiscal year to:

(a)  Students whose family income meets the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1785) for free or reduced‑price lunches.

(b)  Students whose family income exceeds the threshold prescribed by subdivision (a) of this paragraph but does not exceed one hundred eighty-five percent of the economic eligibility requirements established under the national school lunch and child nutrition acts (42 United States Code sections 1751 through 1785) for free or reduced‑price lunches.

6.  7.  Must not award educational scholarships or tuition grants to students who are simultaneously enrolled in a district school or charter school and a qualified school.

C.  A school tuition organization shall include the following notice in any printed materials soliciting donations, in applications for scholarships and on its website, if one exists:

Notice

A school tuition organization cannot award, restrict or reserve scholarships solely on the basis of a donor's recommendation.

A taxpayer may not claim a tax credit if the taxpayer agrees to swap donations with another taxpayer to benefit either taxpayer's own dependent.

A tax credit is not allowed if a taxpayer requests or recommends the taxpayer's contribution to the school tuition organization for the benefit of any student or if the taxpayer requests or recommends a student beneficiary as a condition of the taxpayer's contribution to the school tuition organization.

D.  In evaluating applications and awarding, designating or reserving scholarships, a school tuition organization:

1.  Shall not award, designate or reserve a scholarship solely on the requests or recommendation of any person contributing money to the organization, but may consider the recommendation among other factors.

2.  Shall consider the financial need of applicants.

E.  A taxpayer's contribution to a school tuition organization that exceeds the amount of the credit allowed by section 43‑1089 but does not exceed the amount of the credit allowed by section 43‑1089.03 is considered a contribution pursuant to section 43‑1089.03.  A school tuition organization must use at least ninety percent of contributions made pursuant to section 43‑1089.03 for educational scholarships or tuition grants for students to whom any of the following applies:

1.  Attended a governmental primary or secondary school as a full-time student as defined in section 15‑901 or attended a preschool program that offers services to students with disabilities at a governmental school for at least ninety days of the prior fiscal year and transferred from a governmental school to a qualified school.

2.  Enrolls in a qualified school in a kindergarten program or a preschool program that offers services to students with disabilities.

3.  Is the dependent of a member of the armed forces of the United States who is stationed in this state pursuant to military orders.

4.  Received an educational scholarship or tuition grant under paragraph 1, 2 or 3 of this subsection or under chapter 15 of this title if the student continues to attend a qualified school in a subsequent year.

F.  In awarding educational scholarships or tuition grants from contributions made pursuant to section 43‑1089.03, a school tuition organization shall give priority to students and siblings of students on a waiting list for scholarships if the school tuition organization maintains a waiting list.

G.  If an individual educational scholarship or tuition grant exceeds the school's tuition, the amount in excess shall be returned to the school tuition organization that made the award or grant.  The school tuition organization may allocate the returned monies as a multiyear award for that student and report the award pursuant to section 43‑1604, paragraph 5, subdivision (b) or may allocate the returned monies for educational scholarships or tuition grants for other students. END_STATUTE

Sec. 13.  Section 43-1605, Arizona Revised Statutes, is amended to read:

START_STATUTE43-1605.  Audit; costs

A.  On or before September 30 of each year, each school tuition organization that received one million dollars or more in total donations in the previous fiscal year shall provide for a financial audit of the organization.  The audit must:

1.  Be conducted in accordance with generally accepted auditing standards. and must

2.  Evaluate the organization's compliance with section 43‑1603, subsection B, paragraph 1.  The audit must

3.  Be conducted by an independent certified public accountant licensed in this state.  The certified public accountant and the firm the certified public accountant is affiliated with shall be independent with respect to the organization, its officers and directors, services performed and all other independent relationships prescribed by generally accepted auditing standards.

B.  On or before September 30 of each year, each school tuition organization that received less than one million dollars in total donations in the previous fiscal year shall provide for a financial review of the organization.  The review must be conducted in accordance with standards for accounting and review services and must evaluate the organization's compliance with the fiscal requirements of this article.  The review must be conducted by an independent certified public accountant licensed in this state.  The certified public accountant and the firm the certified public accountant is affiliated with shall be independent with respect to the organization, its officers and directors, services performed and all other independent relationships prescribed by generally accepted auditing standards.

C.  B.  Within five days after receiving the audit, or financial review the school tuition organization shall file a signed copy of the audit or financial review with the department. 

D.  C.  The school tuition organization shall pay the fees and costs of the certified public accountant under this section from the organization's operating monies.  The fees and costs shall be excluded from the calculation of total revenues spent on scholarships and tuition grants. END_STATUTE

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