HD23 - Recommendations Concerning Voluntary Individual Income Tax Check-Off Programs

  • Published: 1994
  • Author: Department of Taxation
  • Enabling Authority: Appropriation Act - Item 299 (Regular Session, 1993)

Executive Summary:
The 1993 General Assembly directed the Department of Taxation (TAX) to study and develop recommendations concerning voluntary income tax check-offs. See Item 279 F.2.b of § 1-78 of Chapter 994 of the 1993 Virginia Acts of Assembly, which is reproduced in part in Appendix A.

TAX formed a working committee representing all areas of the department which are affected by check-off programs. The committee reviewed current department policy for check-offs, surveyed the tax departments of all 39 states which support check-offs, and contacted national organizations such as the Federation of Tax Administrators as part of their study. The information and recommendations contained herein are based on TAX's experience, national trends and the experience of other states.

Income tax check-offs provide individuals with the ability to direct a portion of their income tax refund to a charitable purpose, or to a political party. Virginia's first check-off was enacted in 1981 for nongame wildlife. Since 1981, six additional programs have been added. Virginia now offers taxpayers a choice of six separate check-off alternatives for charitable purposes, and two check-offs for political parties. Only Alabama, Arkansas, and California exceed Virginia in total check-off programs supported.

The manner in which check-offs are presented on the income tax return and the number of programs has a direct affect on the amount of contributions which are made under a check-off program. Virginia has always presented the check-offs on page 1 of the return. High visibility and simplicity are maximized by this manner of presentation.

Virginia's check-off programs are the result of legislation enacted by the General Assembly. This is consistent with almost every other state which sponsors check-off programs.

Two states, Oregon and Utah, have a formal committee to review and monitor check-off program beneficiaries. All of Virginia's programs, other than the U.S. Olympic Committee and political parties, are administered by state agencies.

Several states have enacted legislation aimed at controlling check-off programs. Typically, these controls will require a minimum amount, or rate, of contributions in order for the program to remain on the tax return.

Virginia, like 12 other states, has enacted sunset provisions for at least some of its programs.

The trend in total contributions received through Virginia's check-off programs since 1982 indicates that there is a finite pool of money available from taxpayers. As additional check-offs have been added to the Virginia return, the existing programs have experienced a decrease in contributions. This is consistent with the experience of other states.

Options

TAX reviewed numerous alternatives which would allow a greater number of programs than the current tax form can accommodate. Although the options studied would permit the administration of more programs, the historical experience of program contributions in Virginia and other states indicates that the addition of more programs will not result in an increase in program contributions. In fact, the addition of new programs may cause the overall level of contributions to decrease, and existing programs may experience a decrease in their share of contributions. Accordingly, these options have not been recommended.

Recommendations

After consideration of the options available, the experience of Virginia and other states' programs, and other factors, TAX makes the following recommendations:

• Freeze the number of programs sponsored. TAX recommends that the maximum number of check-off programs remain fixed at (or near) the current level. Additional programs will likely reduce the amount of contributions received by existing programs. The historical experience realized by Virginia and other states supports this conclusion.

• Maintain existing form design and "page 1" presentation. TAX recommends that check-offs remain on page 1 of the return. A separate form will significantly increase the cost of administering the programs, and likely reduce the amount of contributions received.

Two states that recently adopted a separate form for check-offs (Arkansas and New Mexico) experienced a significant decrease in program contributions, which they attribute to the separate form.

Space considerations on Page 1 of Form 760 will preclude the addition of new programs without adding a separate schedule.

• Continue the enactment of "Sunset" provisions. TAX believes that sunset provisions provide a valuable periodic review of the programs and recommends that such provisions be continued.

• Allow TAX to recover administrative costs. TAX encounters significant administrative systems and processing costs associated with the check-off programs. In light of budget considerations, TAX suggests that it be entitled to recover initial as well as on-going costs from the contributions received.