House Bill 1988: Children’s Promise Act

April 5, 2024April 22, 2024 Bill Tracker

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On April 19, the House invited conference on HB 1988.

Explanation of the Bill

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In its current form, HB 1988 simply brings forward provisions of the Children’s Promise Act for possible amendment. The Children’s Promise Act provides tax credits to corporations, limited liability companies, partnerships, and sole proprietorships that donate to Eligible Charitable Organizations (ECOs).

As passed by the House, House Bill 1988 would significantly expand the Children’s Promise Act. In effect, this would increase the amount of money donated to charitable organizations through the Children’s Promise Act, which also decreases state tax revenue.

ECOs include organizations that are exempt from federal income taxation and fall into one of the following categories:

• Licensed by, or under contract with, the Mississippi Department of Child Protective Services and serves the purpose of preventing children from being taken into custody by CPS, providing services for children in the custody of CPS, or helping children find permanent homes through adoption.
• Certified as an Educational Services Charitable Organization (ESCO) and provides services to children in foster care or at risk of entering foster care, children with disabilities, or children who receive free or reduced price meals. 

A large number of private schools throughout the state qualify as an ESCO, and thus are eligible to receive donations that could qualify for a tax credit under this act. 

Increase in Maximum Aggregate Amount

HB 1988 would increase the maximum aggregate amount of tax credits that may be allocated under the Children’s Promise Act. The amount would increase from $18 million (in calendar year 2024) to $48 million (in calendar year 2025 and beyond). 

The bill includes a provision that would allow an additional $6 million in tax credits to be allocated in calendar year 2024, above the $18 million that is currently described in the law. Taxpayers who applied for but did not receive a tax credit in January 2024 due to the cap on the aggregate amount would be prioritized for this additional tax credit allocation. 

The bill also includes a provision specifying that taxpayers who are allocated a tax credit against state income taxes or insurance premium taxes during a calendar year may use that credit for the previous taxable year, as long as they have not already filed their taxes for that year.

Ad Valorem Tax Credits

The Children’s Promise Act includes tax credits for state income taxes, insurance premium taxes, and ad valorem taxes. The current law states that “from and after January 1, 2022,” a tax credit is allowed against ad valorem taxes (local taxes levied on property) only for organizations not operating as corporations. Such organizations are allowed to utilize tax credits up to 50% of their tax liability for state income taxes and insurance premium taxes, and up to 50% of their tax liability for ad valorem taxes. 

HB 1988 updates this language so that the exclusion of corporations would end after 2023. In 2024 and beyond, corporations would be able to receive a credit against ad valorem taxes. In effect, this would increase the amount of tax credits that a corporation could receive, as they would now be able to receive credits up to 50% of their ad valorem tax liability in addition to 50% of their other tax liabilities. As corporations tend to be larger and have more capital than the other types of organizations included in this law, this change would likely make the process of receiving a tax credit more competitive for other organizations. 

Donations to Single Organization

The Children’s Promise Act requires half of its tax credits to be allocated for donations to organizations licensed by, or under contract with, CPS, and half of its tax credits to be allocated for donations to Educational Services Charitable Organizations (ESCOs). Of this 50% that are allocated for donations to ESCOs, only 4.5% may be given for contributions to a single organization. HB 1988 would reduce this percentage from 4.5% to 3%. However, since the total amount of the tax credit would significantly increase under this bill, the amount that individual organizations could receive would still increase compared to the amounts they were able to receive in previous years. Currently, a single ESCO may receive $405,000. Under HB 1988, they could receive up to $720,000.

Other Tax Credits

HB 1988 brings forward various other provisions of the law that authorize tax credits for possible amendment. 
In sum, HB 1988 would significantly expand the Children’s Promise Act. It would increase donations to qualifying organizations–including many private schools–while also reducing the amount of taxes received by the state.