SENATE, No. 778
STATE OF NEW JERSEY
INTRODUCED FEBRUARY 15, 1996
By Senators KYRILLOS and INVERSO
An Act concerning affordable higher education access for dependents (AHEAD) bonds, supplementing Titles 18A and 54A of the New Jersey Statutes and amending P.L.1991, c.272 and N.J.S.54A:5-8.
Be It Enacted by the Senate and General Assembly of the State of New Jersey:
1. (New section) The Legislature finds and declares that:
a. The availability of a higher education is essential to the welfare, economic development and prosperity of the people of New Jersey.
b. The State can make higher education more available by providing future students and their families with investment vehicles that make savings practical and tax incentives that help make savings affordable, while also allowing savers to invest in New Jersey.
2 (New section) a. As used in this section:
"AHEAD bonds" means affordable higher education access for dependents bonds issued pursuant to the provisions of this act.
"Issuing officials" means the Governor, the State Treasurer, the Director of the Division of Budget and Accounting in the Department of the Treasury in the case of bonds of the State of New Jersey or the issuing authority or agency in the case of bonds of an authority or agency of this State.
b. The State shall set aside, from the bonds of the State of New Jersey authorized to be issued or from the bonds of any authority or agency authorized to be issued, an amount to be determined by the State Treasurer of the total aggregate original principal amount of such bonds. These bonds shall be issued as determined by the issuing officials and shall be known as "AHEAD Bonds," in addition to any other name by which they may be known.
c. AHEAD Bonds may be issued in low denominations and in the form or forms, whether coupon, fully-registered or book entry, and with or without provisions for interchangeability thereof, as may be determined by the issuing officials, and in such amounts as will allow a large number of New Jersey families to participate in the program, and with the maturity dates that will make funds available to purchasers at the time when such funds are needed for educational and home purchase purposes. The State Treasurer shall evaluate the feasibility of staggered or periodic forms of payments for AHEAD Bonds, and advise the issuing officials regarding such evaluation.
d. When AHEAD Bonds are issued from time to time, the bonds of each issue shall constitute a separate series to be designated by the issuing officials. Each series of bonds so designated shall bear the rate or rates of interest as may be determined by the issuing officials, which interest shall be payable as may be determined by the issuing officials.
3. (New section) A taxpayer who is an individual shall be allowed a deduction from gross income in an amount equal to the taxpayer's purchase cost of an AHEAD bond issued pursuant to section 2 of P.L. , c. (now pending before the Legislature as this bill), purchased from the issuer or the issuer's agent in the taxable year.
4. (New section) a. In the taxable year in which a taxpayer redeems or sells an AHEAD bond issued pursuant to section 2 of P.L. , c. (now pending before the Legislature as this bill), the taxpayer's gross income shall include in gross income pursuant to subsection a. of N.J.S.54A:5-1 an amount equal to the amounts, if any, taken by the taxpayer as a deduction pursuant to section 3 of P.L. , c. (now pending before the Legislature as this bill), in the taxable year of the bond's purchase, except as provided in subsection b. of this section.
b. Gross income shall not include amounts otherwise includable in gross income pursuant to subsection a. of this section in a year in which the taxpayer has redeemed an AHEAD bond and has qualified higher education expenses or qualified home purchase expenses, provided that the amount excluded for a taxable year pursuant to this subsection shall not exceed the taxpayer's qualified higher education expenses and qualified home purchase expenses for the taxable year, and provided further that the amount excluded from gross income shall be subject to the limits of subsection c. of this section.
c. If the gross income of the taxpayer for the taxable year, measured after the application of N.J.S.54A:3-2 and the exclusions provided by chapter 6 of Title 54A of the New Jersey Statutes but before the allowance of any other deductions or application of this section exceeds:
(1) $65,000 in the case of a single individual determining tax pursuant to subsection b. of N.J.S.54A:2-1, the amount otherwise excludable from gross income pursuant to subsection b. shall be reduced, but not below zero, by the amount which bears the same ratio to the amount which would otherwise be excludable pursuant to this section as that gross income in excess of $65,000 bears to $35,000; or
(2) $100,000 in the case of a taxpayer determining tax pursuant to subsection a. of N.J.S.54A:2-1, the amount otherwise excludable from gross income pursuant to subsection b. shall be reduced, but not below zero, by the amount which bears the same ratio to the amount which would otherwise be excludable pursuant to this section as that gross income in excess of $100,000 bears to $50,000.
d. For purposes of this section:
"Eligible educational institution" means an institution described in section 1201(a) (20 U.S.C. §1141) or subparagraph (C) or (D) of section 481(a)(1) (20 U.S.C. §1088) of the federal Higher Education Act of 1965 as in effect on October 21, 1988 and an "area vocational education school" as defined in subparagraph (C) or (D) if section 521(3) (20 U.S.C. §2471) of the federal Carl D. Perkins Vocational Education Act which is in any "state," as defined in clause 27 of 20 U.S.C. §2471, as in effect on October 21, 1988.
"Principal residence" means a unit of residential property, including the land on which the unit of residential property is situated, a condominium unit, a unit in a horizontal property regime pursuant to P.L.1963, c.168 (C.46:8A-1 et seq.), or a unit in a cooperative or mutual housing corporation that constitutes or will constitute the place of the taxpayer's domicile and is or will be actually and continually occupied by the taxpayer as the taxpayer's permanent residence. Principal residence does not include a vacation home, property owned and rented or offered for rent by the taxpayer, or other secondary real property holdings.
"Qualified higher education expenses" means tuition and fees required for the enrollment or attendance of the taxpayer, the taxpayer's spouse, or a dependent of the taxpayer at an eligible educational institution, not including expenses with respect to any course or other education involving sports, games, or hobbies other than as part of a degree program, reduced by amounts received with respect to that individual for the taxable year as a scholarship, an educational assistance allowance, or a payment for educational expenses, or attributable to attendance at an eligible educational institution, which is exempt from income taxation by any law of the United States.
"Qualified home purchase expense" means the broker's fees, mortgage fees, inspection fees, closing costs and down payment, but excluding mortgage payments, paid for the taxpayer's first purchase of a principal residence in New Jersey.
e. No amount shall be excluded from gross income pursuant to subsection b. of this section for married individuals filing separate returns. If the taxpayer is a married individual, this section shall apply only if the taxpayer and the taxpayer's spouse file a joint return for the taxable year.
5. N.J.S.54A:5-8 is amended to read as follows:
54A:5-8. Income from sources within this State for a nonresident individual, estate or trust means the same as compensation, net profits, gains, dividends, interest or income enumerated and classified under chapter 5 of this act to the extent that it is earned, received or acquired from sources within this State:
(1) By reason of ownership or disposition of any interest in real or tangible personal property in this State; or
(2) In connection with a trade, profession, occupation carried on in this State or for the rendition of personal services performed in this State; or
(3) As a distributive share of the income of an unincorporated business, profession, enterprise, undertaking or other activity as the result of work done, services rendered or other business activities conducted in this State except as allocated to another state pursuant to regulations promulgated by the director under this act; or
(4) From intangible personal property employed in a trade, profession, occupation or business carried on in this State; or
(5) As a result of any lottery or wagering transaction in this State other than that excluded from taxation pursuant to N.J.S.54A:6-11; or
(6) As S corporation income allocated to this State of a New Jersey S corporation.
(7) From the redemption or sale of an AHEAD bond, resulting in income includable in gross income pursuant to section 4 of P.L. , c. (C. )(now pending before the legislature as this bill).
Income from sources within this State for a nonresident individual shall not include income from pensions and annuities as set forth in subsection j. of N.J.S.54A:5-1.
(cf: P.L.1993, c.173, s.10)
6. Section 4 of P.L.1991, c.272 (C.18A:71-90) is amended to read as follows:
4. a. In furtherance of the public policy of this act, the State shall set aside, from the bonds of the State of New Jersey authorized to be issued and issued before the effective date of P.L. , c. (C. )(now pending before the Legislature as this bill), or from the bonds of any authority or agency authorized to be issued and issued before the effective date of P.L. , c. (C. )(now pending before the Legislature as this bill), an amount to be determined by the Treasurer of the total aggregate original principal amount of such bonds. These bonds shall be issued as determined by the issuing officials and shall be known as "Garden State Savings Bonds," in addition to any other name they may be known as.
b. Garden State Savings Bonds may be issued in low denominations and in the form or forms, whether coupon, fully-registered or book entry, and with or without provisions for interchangeability thereof, as may be determined by the issuing officials, and in such amounts as will allow a large number of New Jersey families to participate in the program, and with the maturity dates which will make funds available to purchasers at the time when such funds are needed for educational purposes.
c. When Garden State Savings Bonds are issued from time to time, the bonds of each issue shall constitute a separate series to be designated by the issuing officials. Each series of bonds so designated shall bear the rate or rates of interest as may be determined by the issuing officials, which interest shall be payable as may be determined by the issuing officials.
(cf: P.L.1991, c.272,s.4)
7. This act shall take effect immediately, and sections 3 and 4 shall apply to taxable years beginning on and after the January 1 next following enactment.
STATEMENT
This bill implements a program of affordable higher education access for dependents (AHEAD). The program provides special tax incentives, similar those provided under federal law to encourage retirement savings, to people who invest in AHEAD bonds and then use the bond redemption proceeds for higher education expenses or the purchase of a first home in New Jersey. The funds that savers put into AHEAD bonds will be applied to a variety of State public purposes, allowing investors in AHEAD bonds to invest in New Jersey while saving for their own futures.
Under the AHEAD program, bonds already approved for issuance under New Jersey and New Jersey public authority programs will be designated AHEAD bonds. AHEAD bonds will be issued in dollar value denominations that will permit a large number of New Jersey families to invest in the bonds, with maturity dates that will make funds available to bond purchasers at the time when such funds are needed for educational and home purchase purposes. Taxpayers will be allowed a deduction from New Jersey taxable income for the amount of their AHEAD bond purchases. The interest on New Jersey and New Jersey public authority bonds is exempt from federal and State income taxes.
If taxpayers who meet income qualifications use their AHEAD bond proceeds for the qualified higher education expenses of themselves or their dependents or for the purchase of a first home in New Jersey, the bond proceeds will be excluded from New Jersey taxable income. This exclusion for bond proceeds (but none of the other tax advantages) is subject to a phase-out for higher income taxpayers. The phase-out begins when the gross income of married individuals filing a joint return, or individuals filing as head of household or surviving spouse for federal purposes, exceeds $100,000 in the year a bond is redeemed ($65,000 for other single individuals). The phase-out is complete when gross income exceeds $150,000 ($100,000 for single individuals).
Concerns affordable higher education access for dependents (AHEAD) bonds, provides gross income tax deduction for AHEAD bond purchases and exclusion for certain redemption uses.