Published Online: April 4, 2011
Includes correction(s): March 24, 2012

Tax Credits for Religious Schools Survive Challenge

A divided U.S. Supreme Court ruled Monday that taxpayers opposing an Arizona tax credit that benefits religious schools lacked legal standing to challenge it because any financial benefit to religion under the program is not the result of government spending choices.

“When the government collects and spends taxpayer money, governmental choices are responsible for the transfer of wealth,” Justice Anthony M. Kennedy wrote for the 5-4 majority in Arizona Christian School Tuition Organization v. WinnRequires Adobe Acrobat Reader (Case No. 09-987). “Here, by contrast, contributions result from the decisions of private taxpayers regarding their own funds.”

The court ruled in a challenge to Arizona’s 14-year-old tuition-aid plan, under which taxpayers can receive a dollar-for-dollar credit of up to $500 (or $1,000 for married couples) on their state income-tax returns for donations to “school tuition organizations,” or STOs.

Such tuition groups may limit their grants to students who will use them at religious schools. In 2008, scholarship awards under the plan totaled some $54 million, according to the state. The Arizona Republic newspaper reported that 93 percent of the aid that year went to students in religious schools. At least four other states—Georgia, Iowa, Pennsylvania, and Rhode Island—have similar tax credit plans.

While the Supreme Court majority did not decide the constitutional merits of the tax credits, the ruling sets aside a decision by the U.S. Court of Appeals for the 9th Circuit that raised serious doubts about the plan’s constitutionality. And the high court ruling makes it much more difficult to challenge such tax credits.

Arizona Christian School Tuition Organization vs. Winn

From the majority opinion by Justice Anthony M. Kennedy: "Private citizens create private [school tuition organizations]; STOs choose beneficiary schools; and taxpayers then contribute to STOs. While the state, at the outset, affords the opportunity to create and contribute to an STO, the tax-credit system is implemented by private action and with no state intervention. Objecting taxpayers know that their fellow citizens, not the state, decide to contribute and in fact make the contribution. These considerations prevent any injury the objectors may suffer from being fairly traceable to the government.

From the dissenting opinion by Justice Elena Kagan: "[T]oday's decision damages one of this nations' defining constitutional commitments. 'Congress shall make no law respecting an establishment of religion'—ten simple words that have stood for over 200 years as a foundation stone of American religious liberty. Ten words that this court has long understood, as James Madison did, to limit (though by no means eliminate) the government's power to finance religious activity."

That point was hammered home by Justice Elena Kagan, in her first written dissent since joining the high court last fall. She said the majority opinion “devastates taxpayer standing in establishment clause cases” and offers a “road map ... to any government that wishes to insulate its financing of religious activity from legal challenge.”

Taxpayers’ Challenge

The Arizona program was challenged by a group of taxpayers as a violation of the First Amendment’s prohibition against a government establishment of religion. In a 2009 decision, a panel of the 9th Circuit court, in San Francisco, allowed the suit to go forward.

But at the Supreme Court, the case ran into concerns about whether the tax credits could be challenged purely based on the opponents’ status as taxpayers. Taxpayers generally may not challenge government spending decisions based on taxpayer status alone, though a 1968 high court ruling, Flast v. Cohen, created an exception that allows taxpayers to challenge a program of direct grants to religious organizations.

In the case decided April 4, Justice Kennedy said the challengers did not meet the requirements for taxpayer standing under Flast.

“The STO tax credit is not tantamount to a religious tax or to a tithe and does not visit the injury identified in Flast,” Justice Kennedy said.

Justice Kennedy’s opinion was joined by Chief Justice John G. Roberts Jr. and Justices Antonin Scalia, Clarence Thomas, and Samuel A. Alito Jr.

In her dissent, Justice Kagan said that “by ravaging Flast in this way, today’s decision damages one of this nation’s defining constitutional commitments,” referring to the interpretations of the establishment clause as limiting “the government’s power to subsidize religious activity.”

Justices Ruth Bader Ginsburg, Stephen G. Breyer, and Sonia Sotomayor joined the dissent.

Divided Responses

Legal experts who opposed the Arizona tax credits said they agreed with Justice Kagan’s dire tone.

“I think the decision bars the courthouse door to challenges to any tax credits, deductions, or exemptions” that benefit religion, said Ayesha N. Khan, the legal director for Americans United for Separation of Church and State, based in Washington. “What does remain of Flast is the ability to challenge direct grants to religion, but I agree with Justice Kagan that the majority decision gives state legislatures a road map around Flast.”

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Paul Bender, an Arizona State University law professor who argued the case on behalf of the taxpayers challenging the credits, called the majority opinion “unprincipled.”

“Justice Kennedy rests his decision on the fact that when taxpayers make a contribution [to an STO] and get a credit, they are spending their own money,” Mr. Bender said. “It’s just not true. It’s money they owe to the state in taxes. They can either give it to the state, or to an STO, but they can’t keep it. My definition of my own money is money I can keep.”

But advocates who supported Arizona’s tax credits applauded Justice Kennedy’s reasoning.

David Cortman, a lawyer with the Alliance Defense Fund, a legal group that helped defend the tax-credit plan, said the decision leaves not only Arizona’s program intact, but also similar tax plans in other states that benefit religious schools.

“One person does not have a legal injury based on another person’s private donation,” he said.

Richard W. Garnett, a law professor at the University of Notre Dame who filed a friend-of-the-court brief in support of the Arizona credits, said the decision would remove some of the legal uncertainty around various state approaches to tax credits and deductions for religious-school tuition contributions.

“The key focus of the majority is that even if Flast is good law with respect to challenging government expenditures, these tax credits are not expenditures,” he said.

The Arizona decision leaves unclear where the justices believe the tax credits for tuition donations fit constitutionally with respect to private school vouchers that aid religious schools. In Zelman v. Simmons-Harris, in 2002, the justices upheld an Ohio program providing vouchers for poor children in Cleveland to attend private schools, including religious schools.

The Arizona challengers have argued that the tax credits violate the Supreme Court’s Zelman decision because more than half the tuition scholarships are awarded on the basis of the recipient family’s religion. That violates language in Zelman that state-funded tuition be available to participating families on a neutral basis, with no reference to religion, the challengers argue.

Neither the majority nor dissenting opinions in the Arizona case mention Zelman.

Vol. 30, Issue 28

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Correction: 
An earlier version of this story misspelled the name of Ayesha N. Khan, the legal director of Americans United for Separation of Church and State.

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