Supreme Court Weighs Arizona Tuition Tax Credits

By Mark Walsh — November 03, 2010 4 min read
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An Arizona program of tax credits for contributions to organizations that provide private school tuition scholarships, including to students attending religious schools, was defended in the U.S. Supreme Court today as a neutral program that does not offend the U.S. Constitution.

“Not a cent of [challengers’] tax money goes to fund religion” under the Arizona program, said acting U.S. Solicitor General Neal K. Katyal.

The state of Arizona made similar arguments that the 13-year-old program does not violate the First Amendment’s prohibition against government establishment of religion.

“Arizona’s tuition tax credit does not violate the establishment clause because it is a neutral law that results in scholarship programs of private choice,” said Paula S. Bickett of the state attorney general’s office.

But Paul Bender, a Phoenix lawyer representing Arizona taxpayers who have challenged the program on establishment-clause grounds, said, “Our claim is that state money is being given to the beneficiaries of a state spending program on the basis of religion.”

The argument in Arizona Christian School Tuition Organization v. Winn (Case no. 09-987) was a lively hour in which the justices debated taxpayer standing, the state’s mechanism for aiding its private schools, and whether the money withheld from a state under a tax credit or a deduction was the state’s money or not.

Under Arizona’s plan, 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.” The STOs must spend at least 90 percent of their annual revenues on scholarships or tuition grants. The organizations may not limit their grants to a single school, but they may limit them to religious schools, as several of the STOs do.

Last year, a three-judge panel of the U.S. Court of Appeals for the 9th Circuit, in San Francisco, held that a majority of the Arizona scholarships go to students attending religious schools, and that some of the STOs restrict their scholarships to that purpose. The appeals court allowed the challenge to the tax-credit program to go forward.

In the Supreme Court on Wednesday, several justices saw no problem with the fact that some STO’s limit their scholarship aid to religious schools. Justice Antonin Scalia said the decision to contribute to such a religiously affiliated STO was a private decision by the taxpayer, not raising the specter of religious discrimination by the government.

“It’s not even discrimination between religion and nonreligion,” Scalia told Bender. “It doesn’t favor religion at all.”

Justice Samuel A. Alito Jr. observed that “this is a very modest tax credit.”

The Supreme Court in the 1983 case of Mueller v. Allen upheld a Minnesota tax deduction for money spent by parents on their own children, even when 97 percent of the tuition funds were going to 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.

Justice Elena Kagan, weighing her first education case as a member of the high court, told Bickett she found it “puzzling” that Arizona adopted such a complex tax-credit program instead of the straightforward tuition voucher of the type the court upheld in Zelman.

“This is so much more complicated and unusual,” Kagan said of the tax-credit program.

Bickett replied that the program encourages contributions for tuition not just from parents, who cannot directly aid their own children under the program, but also from other taxpapers. Left unsaid was that Arizona adopted its program in 1997, when the federal constitutionality of religious school vouchers was still an unsettled question.

Justice Sonia Sotomayor told Katyal that it appeared that if the challengers can sustain their claim, “it would be taxpayer dollars paying for religion.”

Justice Anthony M. Kennedy, possibly the court’s critical center vote, appeared troubled that the STO’s were so entwined with the government that their decisions on where to spend scholarship dollars amounted to “state action.”

“The state has all sorts of rules about what an STO has to be,” Kennedy told Pickett. “The state provides the mechanism through the credit for the funding.”

Bender sought to stress that his view that the Arizona program was not one of private charity, but in essence a government spending program that aids the coffers of religious schools.

“The money in this case is not a charitable contribution,” he said.

In an unusual move, Katyal, the chief courtroom lawyer of President Obama’s administration, took the lead at oral argument in defending the state program. And a chief argument of Katyal’s is that the challengers lack standing as taxpayers to challenge the program under the establishment clause.

“There is no taxpayer standing in this case,” Katyal said.

In a 1968 decision, Flast v. Cohen, the Supreme Court created an exception to the general rule that barred challenges to government programs based on taxpayer standing alone. The court allowed taxpayers to challenge a program of direct grants to religious organizations. In subsequent decisions, most recently in the 2007 case of Hein v. Freedom From Religion Foundation, the court has made it more difficult for taxpayers to bring such challenges.

Bender argues that the challenge by his Arizona taxpayers fits well within Flast because the program amounts to direct aid to religion.

While Katyal was pressed by some of the court’s more liberal members (who tend to favor a broad view of standing) on his argument against standing, the court’s conservatives did not question Bender about standing, instead focusing on the constitutionality of Arizona’s program

The justices should decide the case by the end of their term in June.

The briefs in the case are here.

A version of this news article first appeared in The School Law Blog.