NO. 65.  AN ACT RELATING TO VERMONT HIGHER EDUCATION INVESTMENT PLAN INCOME TAX CREDIT.

(H.141)

It is hereby enacted by the General Assembly of the State of Vermont:

Sec. 1.  16 V.S.A. § 2879c is amended to read:

§ 2879c.  TAX EXEMPTION

(a)  The assets of the Vermont higher education investment plan held by the corporation and the assets of any similar plan qualified under Section 529 of the Internal Revenue Code and any income therefrom shall be exempt from all taxation by the state or any of its political subdivisions.  Income earned or received from the fund by any participant or beneficiary shall not be subject to state income tax and shall be eligible for any benefits provided in accordance with the investment plan provisions of the Internal Revenue Code.  The exemption from taxation under this section shall apply only to assets and income maintained, accrued, or expended pursuant to the requirements of the Vermont higher education investment plan, the provisions of this subchapter, and the applicable provisions of the Internal Revenue Code.  No exemption shall apply to assets and income expended for any other purposes.

(b)  Contributions to an account held under the Vermont higher education investment plan shall be eligible for a credit against Vermont income tax as provided under section 5825a of Title 32.

Sec. 2.  32 V.S.A. § 5825a is added to read:

§ 5825a.  CREDIT FOR VERMONT HIGHER EDUCATION INVESTMENT

                 PLAN CONTRIBUTIONS

(a)  A taxpayer of this state, including each spouse filing a joint return, shall be eligible for a nonrefundable credit against the tax imposed under section 5822 of this title of five percent of the first $2,000.00 per beneficiary, contributed by the taxpayer during the taxable year to a Vermont higher education investment plan account under subchapter 7 of chapter 87 of Title 16.

(b)  A taxpayer who has received a credit under subsection (a) of this section shall repay to the commissioner five percent of any distribution from a higher education investment plan account, which distribution is not excluded from gross income in the taxable year under Section 529 of the Internal Revenue Code, as amended, up to a maximum of the total credits received by the taxpayer under subsection (a) of this section minus any amount of repayment of such credits in prior tax years.  Repayments under this subsection shall be subject to assessment, notice, penalty and interest, collection, and other administration in the same manner as an income tax under this chapter.

Sec. 3.  EFFECTIVE DATE

This act shall apply to contributions in taxable years beginning on and after January 1, 2004.

Approved:  June 16, 2003