High Court Weighs Tax Credit for Religious School Scholarships

Supreme Court justices squabbled Wednesday over whether or not an Arizona tax credit for donations to non-profit scholarship providers oversteps the dividing line between church and state.

The U.S. Supreme Court held a hearing yesterday to discuss the constitutionality of an Arizona state law that allows state residents to receive dollar-for-dollar income tax breaks for donations ranging from $500 to $1,000 to non-profit school tuition organizations (STOs). These organizations use the donations to give students scholarships to attend a private school.

Some taxpayers claim most of the money is being directed to organizations that restrict scholarships to religious education. Opponents of the program argue it is unconstitutional because it amounts to state endorsement of religion

According to court reports, Solicitor General Neal K. Katyal questioned the legal standing of the lawsuit challenging the state law.

Katyal asserted that no taxpayer has the right to challenge in court a state's spending decision. Justice Ruth Bader Ginsburg then inquired about Flast v. Cohen, a 1968 case that allowed taxpayers to legally challenge government's spending decisions when it clashes with the constitution's Establishment Clause. Katyal maintained that Flast v. Cohen did not apply to the case.

The Arizona Private School Tax Credit Law, established in 1997, states, "The credit allowed by this section is in lieu of any deduction pursuant to section 170 of the internal revenue code and taken for state tax purpose."

Individuals filing as an independent can donate funds at a $500 maximum credit. Married couples filing a joint return can donate funds at a $1,000 maximum credit. Corporations can also claim a similar credit.

During the hearing, Justice Elane Kagan questioned whether the state was financing private religious schools.

Paul Bender, lead counsel, who argued the case for the American Civil Liberties Union of Arizona, contends that the tax credit-funded school tuition program is not one of private taxpayer charity, but rather "a government spending program that supports religious discrimination."

"By appointing religious organizations to disburse scholarships that are funded completely with tax revenues, and allowing those organizations to grant scholarships based on the religion of applicants, the state is unconstitutionally engaging in religious discrimination," he said.

But Arizona State Legislative Research Analyst Stacey Morley denied the claims. She pointed out that the donations are made directly to the STOs. "We cannot accept [the donations]. Then that would pretty much make them [state funds]," she said.

While the bill does not stipulate the donations be made only to Christian STOs, Morley acknowledged, "Its effect is that the donations goes to a majority of religious schools."

The ACLU, which filed the lawsuit, asserts that taxpayers gave $50 million last year to STOs that require scholarship winners to attend religious schools.

"Arizona has created a complex statutory scheme, but constitutional principles are simple. Taxpayer funds cannot be awarded on the basis of religious criteria," said Steven Shapiro, ACLU legal director.

Meanwhile, Morley contends that there are several STOs, including secular organizations, that "absolutely" award scholarships to non-religious schools.

Alliance Defense Fund Senior Council David Cortman believes the tax credit law is like any other law allowing residents to receive tax credits for donating to charity. He says a ruling labeling the law unconstitutional would hurt parents' right to choose a quality education for their children.

"Parents should be able to choose what school their children attend and where their money goes. Just because religious schools can join the program on the same basis as non-religious ones doesn't make it unconstitutional," said Cortman.

He further maintains that bills like Arizona's also minimize overcrowding in public schools and save states money.

The court dismissed this case in 2005. In April 2009, the ACLU challenged the credit in the U.S. Circuit Court of Appeals. A three-judge panel ruled the credit was constitutional, but warned that a trial court might find the opposite true if scholarships were given for religious schools only. The case was later reinstated and appealed to the Supreme Court.

The ADF has filed an open brief requesting the high court throw out the case. The court has also received 18 other briefs supporting the ADF's request.