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PARRIS N. GLENDENING, Governor
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S.B. 383
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May 15, 2002
The Honorable Thomas V. Mike Miller, Jr.
President of the Senate
State House
Annapolis MD 21401
Dear Mr. President:
In accordance with Article II, Section 17 of the Maryland Constitution, I have today
vetoed Senate Bill 383 - Qualified Tuition Programs - Income Tax Treatment.
Senate Bill 383 makes two significant changes to the Maryland Prepaid College Trust
and the Maryland College Investment Plan. The legislation provides for an income
tax subtraction modification of up to $2,500 per contributor per beneficiary for
contributions to a qualified prepaid tuition program or higher education investment
program. Secondly, the bill expands the types of programs that qualify for the
subtraction modification to include college savings programs sponsored by other
states. Under current law, this subtraction modification is limited to contributions
made to Maryland programs only.
The Maryland Prepaid College Trust was created in 1997 to assist Maryland families
saving for college. Taxpayers who make a contribution to the program were allowed to
take a subtraction modification for a certain amount for each child's account. The
College Investment Plan was created in 2001, and similar subtraction modification
provisions were made applicable to contributions to these accounts. Unfortunately,
the Maryland Higher Education Investment Board interpreted this provision as
allowing a $2,500 subtraction for each investment option offered by the Plan, rather
than each account holder. In other words, an individual could invest $2,500 in each of
the 10 investment options offered by the Board for one child, and take a $25,000
deduction. This was clearly not my intent nor the intent of the General Assembly.
During the 2002 Session, Senate Bill 383 was introduced to clarify the limit of the
State income tax deduction. I agreed with the General Assembly's intentions and
supported this measure. However, the bill was amended in committee to expand the
subtraction modification to any state sponsored Section 529 college savings plan. This
substantial change in the tax treatment of college savings contributions may have an
unintended but profoundly adverse impact on Maryland's college savings plans to the
ultimate detriment of our citizens. For this reason, I cannot sign Senate Bill 383 into
law.
Due to favorable changes in federal and state tax laws, Maryland like most states has
experienced a rapid increase in the use of Section 529 college savings plans as a
vehicle for parents to save for their children's college education. In its first month of
operation, December 2001, the Maryland College Investment Plan opened 27,499
accounts. Nationally, an estimated $7.2 billion was invested in Section 529 plans, a
figure that will increase to $51 billion in the next five years. The structure of state
sponsored plans and the tax treatment of contributions are rapidly changing and
evolving. Maryland is now one of 22 states that provide an income tax incentive to
encourage citizens to save in its own state sponsored Section 529 plans. No state in
the nation, however, provides an incentive for citizens to invest in another state's
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- 4549 -
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