Ruling supports corporate tuition tax credit - East Valley Tribune: News

Ruling supports corporate tuition tax credit

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Posted: Tuesday, October 27, 2009 4:20 pm | Updated: 3:09 am, Sat Oct 8, 2011.

The Arizona Supreme Court on Tuesday denied a request to hear an appeal regarding Arizona’s corporate tuition tax credit program that provides scholarships for private school students. 

Rigged Privilege: A Tribune investigation

The Arizona Supreme Court on Tuesday denied a request to hear an appeal regarding Arizona’s corporate tuition tax credit program that provides scholarships for private school students.

Rigged Privilege: A Tribune investigation

Private school tax credits dealt setback

“Practically speaking, this decision means that tuition tax credits remain a constitutional method for providing school choice to Arizona’s school children,” said Tim Keller, an attorney with the Institute for Justice, a Libertarian, public interest law firm.

Green v. Garriott was filed by the Arizona School Boards Association and the American Civil Liberties Union in September 2006 after lawmakers expanded the individual tax credit program for private schools to corporations.

The Institute for Justice represents the Arizona School Choice Trust, a charity that gives scholarships to private school students, and parents who support the tax credit program.

In March, the Arizona Court of Appeals ruled the corporate tax credit constitutional. ASBA and the ACLU requested that the Supreme Court hear an appeal.

Tuesday's ruling is the second time Arizona’s highest court has ruled that the system of credits does not run afoul of state constitutional provisions that bar state funds from being used in aid of private schools. The justices previously upheld a similar tax credit for individuals.

A separate 10-year-old lawsuit regarding the individual tax credit program may be headed to the U.S. Supreme Court after the Ninth Circuit Court of Appeals ruled last week that the program as run now may violate the Constitution because some charities only give scholarships to religious schools.

That court ruled that groups challenging the credits on federal constitutional grounds have the right to make their case in court. Unless overturned by the U.S. Supreme Court, that decision paves the way for a trial in federal court on the issue.

The original law, which dates back more than a decade, gives individuals a dollar-for-dollar credit against their state income taxes for donations to organizations that provide scholarships for students to attend private and parochial schools. That credit is capped at $500 for people filing as single or married but filing a separate return, and $1,000 for couples.

Hoping to generate more funds, legislators in 2006 agreed to allow corporations the same kind of dollar-for-dollar tax credits for money given to the scholarship organizations.

But as part of the deal, lawmakers required that the funds from corporate donations be used to give scholarships to students whose parents' income meets certain restrictions.

In the most recent fiscal year, corporations donated nearly $10.5 million to the organizations that administer the scholarships, money they otherwise would have paid to the state in taxes. That compares with about $55 million in individual income tax credits.

In the majority appellate court ruling earlier this year, Judge John Gemmill said the 2006 law contained language saying its express intent was to encourage businesses to direct some of their taxes to the scholarship organizations "in order to improve education by raising tuition scholarships for students in this state.''

And Gemmill said the income restriction on families who would benefit from the corporate dollars "evidences a clear desire on the part of our Legislature to provide an educational choice to parents who probably could not otherwise afford to send their children to a private school.''

Gemmill rejected arguments that the state is fostering religion or religious instruction. He said parents are the ones who choose where to send their children to school and, only then, apply for scholarship aid.

But Judge Donn Kessler, in his dissent, said his colleagues were glossing over important evidence, including that the organizations that get the diverted tax dollars are allowed to deny scholarships to children if the parents do not subscribe to certain religious beliefs. He said the majority seeks to get around that constitutional problem ‑ he believes incorrectly ‑ by noting that the tuition scholarship organizations are the ones that discriminate, not the state.

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