Check-off programs, in which a taxpayer "checks off" a contribution to state programs on a state personal income tax form, have ballooned in scope and popularity over the last decade. In the last two years, state revenue agencies have seen strong growth in both the number of programs and the amount collected. On 2002 state income tax returns to be processed in 2003, the survey identified 220 check-off programs available to taxpayers in 41 states and the District of Columbia. Every state with a broad-based income tax has at least one check-off program. This represents a jump from 179 programs on the tax year 2000 returns and an increase from 103 in 1989, the first year FTA began tracking such programs.
A good economy helped to increase the revenues reaped from check-off programs, as taxpayers contributed $32.8 million to the 210 programs on state tax returns processed in 2002. This is a $5.5 million jump from the 2000 survey, the largest two-year increase reported by FTA.
The use of check-off boxes on income tax returns to fund charitable organizations began in 1972, when the federal government allowed taxpayers to designate $1 of their liability to a special presidential campaign fund. States soon followed with their own check-off programs, beginning with Colorado's implementation of its wildlife check-off program in 1977.
However, these state check-off programs differ from the federal program in two ways. First, states generally allow more options, permitting donations to several charitable and social programs. In some states, taxpayers have an extensive list of possible programs to which they can contribute. Virginia provides a list of 18 different programs for taxpayers to choose among, while Oregon provides a choice of 17 programs. Only three states (and the District) have a single check-off.
Second, most state check-offs reduce the taxpayer's refund rather than redirecting a part of the liability. With the exception of political campaign funds, all state check-offs are donations from a taxpayer's refund. Many states limit the donation to the size of the refund, while a few states permit taxpayers to increase their payment to cover check-off donations. On the other hand, the federal check-off and most state political check-offs make the
contributions from the taxpayer's liability. These programs direct the government how to spend a portion of the tax dollars and do not affect the refund or the amount due on the return.
The accompanying tables illustrate the wide variety of programs funded through state personal income tax check-offs. The most common check-off programs provide funding to preserve nongame wildlife, with 35 states including this program on their 2002 individual income tax forms. Only seven jurisdictions with check-off programs - Arkansas, Hawaii, Maryland, Michigan, Missouri, West Virginia and the District of Columbia - do not have nongame wildlife check-offs.
Twenty-one states have check-off programs to contribute to political campaigns that are similar to the federal check-off. North Carolina has two political check-off programs, while Arizona has three. One program type is identical to the federal one in which taxpayers direct $1 ($2 for joint returns) of their tax payments to a political campaign fund. The other programs allow taxpayers to donate a portion of the refund, and a third Arizona program allows taxpayers to donate to a particular political party.
Another common type of check-off program is for child abuse and neglect prevention, available in 20 states. In addition, checkoff programs for breast/cervical cancer research and prevention have grown in popularity, with eleven states offering this checkoff. There are a number of other programs that benefit from state income tax check-offs. Some examples include:
In 2000, total taxpayer donations to check-off programs reached $32.8 million.
California collected the most revenue, with donations of $3.9 million to 10 programs. This was followed by Arizona, contributing $3.8 million to nine programs, and $2.6 million contributed to two programs in Minnesota. On the other end of the spectrum, Louisiana taxpayers donated only $29,757 to four programs. North Dakota reported donations of $35,719 to two programs, while Mississippi generated $44,438.
Among the individual state programs, Arizona generated $3.1 million for its political check-off, followed by the Michigan political check-off at $1.6 million. The largest nonpolitical checkoff was Maryland's Chesapeake Bay Fund, which generated $1.2 million in contributions. At the shallow end, Rhode Island rang up only $2,210 for its Olympic fund.
The table presents the average contributions and percentage participation for the three major types of check-off programs. Political campaign contributions have the highest participation rate with a nationwide average of 7.7 percent; they also have the lowest overall average contribution rate of $2.13. This reflects two points differentiating political check-offs from other charitable check-offs. First, since most political contributions are taken from a taxpayer's liability (not affecting the refund amount), more taxpayers would be expected to participate. Second, the amount of campaign check-offs is often limited to $1 or $2 per return in most states, while other charitable check-offs are limited only by the size of the refund, if at all.
With contributions averaging $11.07 per taxpayer, nongame wildlife check-offs were the most productive programs in 2002. Wildlife check-offs collected $7.4 million from 667,875 returns. Twenty-three states reported averaging more than $10 per contributor and two states had participation rates above 2 percent of the taxpayers. The child abuse check-off was almost as productive, with donations averaging $10.62 per contributor. The participation rate for child abuse funds averaged 0.5 percent.
The Arizona Aid to Education Fund check-off reported the highest average contribution rate of $78 per contributor. The large contribution rate reflects the requirement that taxpayers donate their entire refund. It is followed by the Virginia Nongame Wildlife Fund at $24.19 per contributor, with the Virginia Chesapeake Bay Fund next with $23.58 per contributor. The highest participation rate for a nonpolitical check-off was Hawaii's School Minor Repair and Maintenance program with 7.4 percent of taxpayers making a contribution.
The continued growth of state income tax check-off programs leads to questions about how the check-offs can be removed. Good policy would dictate that these programs should be reviewed periodically to determine whether they have met the established goals. However, the survey indicates that only 11 states have a procedure to remove old check-off programs. Check-offs in most states are created by the legislature and require new legislation to remove them.
The states requiring minimum amounts that must be generated for some check-off programs to remain on the tax return are California, Colorado (10 percent of total contributions), Idaho, Illinois, Louisiana, Maryland, Montana, Oklahoma, Oregon and Utah.
California, Idaho, Oregon and Pennsylvania include sunset provisions in the legislation authorizing some of their check-off programs. Also, Iowa law limits the maximum number of check-offs on its return to three. After three years, the program with the least amount contributed can be dropped.
State income tax check-offs have proven to be popular ways of funding causes. However, they create some administrative problems for state tax agencies. In fact, the growth in checkoffs has led to crowding problems on some state forms. Oklahoma and New Mexico have separate forms for designating donations to check-off programs, while three other states - New Jersey, Oregon and Virginia - require taxpayers to enter special codes for each check-off program. This adds to their costs of processing tax returns and can lead to a greater number of errors.