Chapter 746 Oregon Laws 1999

Session Law

AN ACT

SB 756

Relating to qualified tuition savings programs; creating new provisions; and amending ORS 316.680.

Be It Enacted by the People of the State of Oregon:

SECTION 1. Definitions. As used in sections 1 to 11 of this 1999 Act:

(1) "Account" means an individual trust account or savings account established in accordance with sections 1 to 11 of this 1999 Act.

(2) "Account owner" means the individual or individuals, other than the designated beneficiary identified at the time the account is opened, who have the right to withdraw funds from the account.

(3) "Board" means the Oregon Qualified Tuition Savings Board.

(4) "Designated beneficiary" means, except as provided in section 9 of this 1999 Act, the individual designated at the time the account is opened as having the right to receive a qualified withdrawal for the payment of qualified higher education expenses, or if the designated beneficiary is replaced in accordance with section 9 of this 1999 Act, the replacement.

(5) "Financial institution" means a bank, a commercial bank, a national bank, a savings bank, a savings and loan, a thrift institution, a credit union, an insurance company, a trust company, a mutual fund, an investment firm or other similar entity authorized to do business in this state.

(6) "Higher education institution" means an eligible education institution as defined in section 529(e)(5) of the Internal Revenue Code.

(7) "Internal Revenue Code" means the federal Internal Revenue Code, as amended and in effect for the tax year of the taxpayer for whom the inclusion or exclusion of income from federal taxable income is being determined, in whole or part, under sections 1 to 11 of this 1999 Act.

(8) "Member of the family" shall have the same meaning as contained in section 529(e) of the Internal Revenue Code.

(9) "Nonqualified withdrawal" means a withdrawal from an account that is not:

(a) A qualified withdrawal;

(b) A withdrawal made as the result of the death or disability of the designated beneficiary;

(c) A withdrawal made as the result of a scholarship, allowance or payment described in section 135(d)(1)(B) or (C) of the Internal Revenue Code that is received by the designated beneficiary, but only to the extent of the amount of the scholarship, allowance, or payment; or

(d) A rollover or change in the designated beneficiary described in section 9 of this 1999 Act.

(10) "Program" means the Oregon Qualified Tuition Savings Program established under sections 1 to 11 of this 1999 Act.

(11) "Qualified higher education expenses" means tuition and other permitted expenses as set forth in section 529(e) of the Internal Revenue Code for the enrollment or attendance of a designated beneficiary at a higher education institution.

(12) "Qualified withdrawal" means a withdrawal from an account to pay the qualified higher education expenses of the designated beneficiary, but only if the withdrawal is also made in accordance with the requirements of section 10 of this 1999 Act.

SECTION 2. Policy. It is the intent of the Legislative Assembly, in enacting sections 1 to 11 of this 1999 Act, to create a higher education tuition savings program:

(1) That increases the ability of families and individuals to save for higher education.

(2) In which the earnings on contributions of program participants are exempt from both federal and state income taxation until the moneys are withdrawn by the beneficiary for higher education expenses.

(3) In which qualified withdrawals are subject to tax at the rate applicable to the beneficiary's income bracket for both federal and state income tax purposes.

(4) That utilizes the private sector to administer and invest the contributions to the program under the guidance of the Oregon Qualified Tuition Savings Board.

SECTION 3. Board established; membership. (1) There is established the Oregon Qualified Tuition Savings Board to administer sections 1 to 11 of this 1999 Act.

(2) The board shall consist of:

(a) The State Treasurer, who shall serve as the board chairperson;

(b) A member of the State Board of Higher Education, to be selected by the State Board of Higher Education;

(c) A representative of accredited private colleges and universities located in this state, who shall be appointed by the State Treasurer; and

(d) Two public members, who by reason of their education and experience are qualified to serve, and who shall be appointed by the State Treasurer.

(3)(a) The board member who is a member of the State Board of Higher Education shall serve at the pleasure of the State Board of Higher Education but may not serve on the board following the end of the member's term on the State Board of Higher Education.

(b) The representative of private colleges and universities and the public members of the board shall serve at the pleasure of the State Treasurer for a term of office of three years. These members of the board may be reappointed to subsequent terms.

(4) The State Treasurer and the Department of Higher Education shall provide staff and assistance to the Oregon Qualified Tuition Savings Board in the administration of the program as directed by the board.

(5) A member of the board is entitled to compensation and expenses as provided in ORS 292.495.

(6) A majority of the members of the board constitutes a quorum for the transaction of business.

SECTION 4. Staggered Initial Terms. Notwithstanding section 3 (3)(b) of this 1999 Act, of the public members of the Oregon Qualified Tuition Savings Board who are first appointed to the board:

(1) One shall serve for a term ending December 31, 2000.

(2) One shall serve for a term ending December 31, 2001.

SECTION 5. Board powers and duties; establishment of program. The Oregon Qualified Tuition Savings Board shall have the following powers, duties, and functions:

(1) To establish, develop, implement and maintain the Oregon Qualified Tuition Savings Program in a manner consistent with sections 1 to 11 of this 1999 Act and section 529 of the Internal Revenue Code and to obtain the benefits of section 529 of the Internal Revenue Code for the program and its participants.

(2) To adopt rules for the general administration of the program, to administer sections 1 to 11 of this 1999 Act and to ensure the program's compliance with section 529 of the Internal Revenue Code.

(3) To maintain, invest and reinvest the funds contributed into the program consistent with the investment restrictions established by the board. The investment restrictions shall be consistent with the objectives of the program, and the board shall exercise the judgment and care then prevailing that persons of prudence, discretion and intelligence exercise in the management of their own affairs with due regard to the probable income and level of risk from certain types of investments of money, in accordance with the policies established by the board.

(4) To make and enter into any and all contracts, agreements or arrangements, and to retain, employ and contract for the services of private and public financial institutions, depositories, consultants, investment advisors or managers and third-party plan administrators and for research, technical and other services necessary or desirable for carrying out the purposes of sections 1 to 11 of this 1999 Act.

SECTION 6. Program participation. (1) An account owner may establish an account by making an initial contribution to the Oregon Qualified Tuition Savings Program in the name of the designated beneficiary. At the time of the initial contribution, either the account owner or designated beneficiary must be a resident of this state as defined by the Oregon Qualified Tuition Savings Board. Once a contribution is made it becomes part of the program and subject to the provisions of sections 1 to 11 of this 1999 Act.

(2) Any person may make a contribution to an account once an account is opened.

(3) Contributions to an account shall be made only in cash.

(4) Total contributions to all accounts established on behalf of a particular beneficiary may not exceed those reasonably necessary, considering the return on contributions, the age and circumstances of the designated beneficiary, to provide for the qualified higher education expenses of the designated beneficiary. The board shall establish maximum contribution limits applicable to program accounts and shall require the provision of any information from the account owner and the designated beneficiary as is necessary to establish the limit as it relates to such account.

(5) Separate records and accounting shall be required for each account and reports shall be made no less frequently than annually to the account owner and the designated beneficiary.

(6) The board shall be permitted to collect application, account or administrative fees to defray the costs of the program.

SECTION 7. Investment direction. (1) Except as permitted in section 529 of the Internal Revenue Code, no person other than the Oregon Qualified Tuition Savings Board or a financial institution in which Oregon Qualified Tuition Savings Program funds have been invested shall have the right to direct the investment of any contributions to or earnings from the program.

(2) The program, the board, each board member and the State of Oregon may not insure any account or guarantee any rate of return or any interest rate on any contribution. The program, the board, each board member and the State of Oregon may not be liable for any loss incurred by any person as a result of participating in the program.

(3) The board, in the exercise of its sole discretion and without liability, may remove the program's funds from any financial institution and reinvest the funds in a similar or different investment alternative at another financial institution pursuant to a contract, agreement or arrangement entered into under section 5 (4) of this 1999 Act.

SECTION 8. Prohibitions. (1) An account and any interest in an account may not be assignable or pledged or otherwise used to secure or obtain a loan or other advancement.

(2) A refund of a qualified educational expense payment may not be paid by a higher education institution directly to the designated beneficiary or to the account owner. Any refund of qualified tuition expenses owed by a higher education institution on account of an overpayment of educational expenses must be refunded to the program for credit to the designated

beneficiary's account.

(3) A qualified withdrawal that is used to pay for qualified education expenses must be paid jointly to the designated beneficiary and the higher education institution or directly to the higher education institution. A payment of qualified education expenses may not be made directly to the beneficiary.

(4) Total contributions to all accounts established on behalf of a particular beneficiary in excess of those reasonably necessary to meet the designated beneficiary's qualified higher education expenses are prohibited.

SECTION 9. Designated beneficiary. (1) An account owner shall have the right at any time to change the designated beneficiary of an account to another individual who is a member of the family of the former designated beneficiary.

(2) An account owner shall have the right at any time to direct that all or a portion of an account be transferred to the account of another beneficiary if the designated beneficiaries are members of the same family.

(3) The right to change the designated beneficiary or to transfer between accounts contained in subsections (1) and (2) of this section may be denied if, under rules adopted by the Oregon Qualified Tuition Savings Board, the exercise of the right would result in either excess contributions to an account or the exercise of impermissible investment direction by the account owner.

SECTION 10. Account withdrawals; penalties. (1) Withdrawal from an account may be made on 30 days' written notice to the Oregon Qualified Tuition Savings Board, or on such shorter notice as the board may by rule provide. A withdrawal shall be designated as a qualified withdrawal or a nonqualified withdrawal, and the application shall provide such information and be made on such forms as the board shall find are necessary to enable the board to determine the nature of the withdrawal.

(2) An account withdrawal paid to or for the benefit of any person during any calendar year shall be reported to the person and the federal Internal Revenue Service. The report shall be made at the time and contain such information as required by law.

(3) The board shall establish a penalty, at the minimum amount necessary to satisfy the requirements of section 529 of the Internal Revenue Code, for a nonqualified withdrawal on the portion of the withdrawal that constitutes income under section 529 of the Internal Revenue Code.

(4) Penalties collected under this section may be used to defray the costs of the program.

SECTION 11. Report. The Oregon Qualified Tuition Savings Board shall publish a biennial report to the Governor and the Legislative Assembly detailing the board's activities. The report shall be prepared on or before February 1 of each odd-numbered year.

SECTION 12. 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) 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) The amount contributed to a qualified tuition savings program account established under sections 1 to 11 of this 1999 Act, except that a subtraction under this paragraph may not exceed:

(A) $2,000 for the tax year; or

(B) In the case of a married individual filing separately, $1,000 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.

(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 or after January 1, 1985, the dollar amount deducted under section 151 of the Internal Revenue Code for personal exemptions for the taxable year.

(g) 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.

(h) 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.

(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 13. The amendments to ORS 316.680 by section 12 of this 1999 Act apply to tax years beginning on or after January 1, 2001.

SECTION 14. Captions. The section captions used in this 1999 Act are provided only for the convenience of the reader and do not become part of the statute law of this state or express any legislative intent in the enactment of this 1999 Act.

Approved by the Governor July 16, 1999

Filed in the office of Secretary of State July 16, 1999

Effective date October 23, 1999

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