Appellate Court Upholds Minnesota's Tax Break For Private

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The federal appeals court in St. Louis--directly contradicting a two-year-old decision by its counterpart in Boston--has upheld a Minnesota law allowing parents of private-school students to take state income-tax deductions for tuition and other expenses.

In the Minnesota case, Mueller v. Allen, the U.S. Court of Appeals for the Eighth Circuit found on April 30 that the law did not violate the Establishment Clause of the U.S. Constitution, in part because it also allows parents of public-school students to deduct such expenses as books, summer-school tuition, and tuition for their children to attend public schools outside their home districts.

Acknowledging that the Minnesota law is virtually identical to a Rhode Island statute that was held invalid in 1980 by the U.S. Court of Appeals for the First Circuit, the Eighth Circuit invited the Supreme Court to settle the issue. (The Court declined to review the appellate court's decision in the Rhode Island suit, Rhode Island Federation of Teachers v. Norberg, but could elect to consider it in the future.)

Itemized Deductions Allowed

The Minnesota law, passed in 1955 and amended several times since then, now allows parents to take itemized income-tax deductions of up to $500 for the educational expenses of children in kindergarten through grade 6 and up to $700 for children in grades 7 through 12.

Eligible expenses include tuition, transportation, private tutoring, equipment for such courses as home economics and physical education, and nonreligious textbooks. The law covers expenses incurred at nonprofit schools that comply with state educational standards and federal civil-rights laws, as well as expenses that are incurred in attending public schools but are not paid for by the local school district.

In 1980, according to state figures, about 86,000 families claimed educational tax deductions averaging $371. Estimates of the cost to the state treasury vary. According to the state department of revenue, the loss in tax revenue was approximately $3.8 million in 1980, but the state's commissioner of education, John Feda, put the figure at about $2.4 million.

Tax Benefit Not an Inducement

Mr. Feda said he did not believe that the tax benefit had induced families to leave public schools. In 1980-81, he pointed out, 91,077 Minnesota students, or 10.2 percent of all students in the state, attended private schools. Ten years earlier, he said, 10.8 percent of the state's students were in nonpublic schools.

The plaintiffs in the Minnesota case had argued that, because some 71 percent of all private-school students are in sectarian schools, the law had the effect of advancing reli-gion. Both a federal district court and the appellate court rejected that argument.

"The gist of plaintiffs' argument is that the pre-eminent purpose of the statute must necessarily aid religion because statistics show that the overwhelming effect of the statute is to aid taxpayers with dependents in sectarian schools," said the opinion written for the Eighth Circuit by Chief Judge Donald P. Lay.

But because the plaintiffs failed to take into account the benefits that are available to parents of children in public schools and nonsectarian private schools, the appellate court found, they did not prove that the law promotes religion.

"The [federal] district court found that plaintiffs' statistical argument contained 'omissions of serious significance' and held that the benefited class under [the statute] was sufficiently broad that the primary effect did not serve to promote or in-hibit religion," the opinion continued.

" ... The district court found no indicia of an invalid secular purpose of [the statute]. We concur. The manifest purpose of the challenged statute is to provide all taxpayers a benefit which will operate to enhance the quality of education in both public and private schools."

The court distinguished between the Minnesota plan and the New York tax-deduction scheme that the Supreme Court struck down in 1973 in the well-known case Committee for Public Education and Religious Liberty v. Nyquist.

Tuition Deduction

New York's tuition deduction, the court noted, was extended only to families with children enrolled in private schools. Furthermore, it amounted to a tax credit because it was a fixed amount not directly tied to tuition costs, thus was construed by the Court as an indirect subsidy to private schools.

The Supreme Court, in deciding the Nyquist case, specifically reserved judgment on the constitutionality of a genuine income-tax deduction based on actual educational expenses.

"In Nyquist ... the [Supreme] Court emphasized that 'it should be apparent that in terms of the potential divisiveness of any legislative measure the narrowness of the benefited class would be an important factor,"' Judge Lay wrote. "Here, ... all citizens are made eligible for the tax benefits."

Van D. Mueller, a professor of education at the University of Minnesota and the lead plaintiff in the suit, said he did not know whether the Eighth Circuit's decision would be appealed to the Supreme Court.

But Edward Bolstad, executive director of the Minnesota Federation of Teachers, which has supported the suit, said he expected an appeal.

"[The decision] was unexpected," Mr. Bolstad said. "We're disappointed." He added, however, that he believed the suit had produced one desired effect: It discouraged the state legislature from raising the ceiling on the deduction.

Mr. Feda, the state commissioner of education, said that in the short term, the decision might have some "marginal" effect on private-school enrollment, particularly in Minneapolis, where many residents are disturbed by recent school closings and changes in attendance boundaries. "But we won't see any drain on public schools," he added. "They are still going to [public] schools with quality programs."

Important Principle

The tuition deduction has been helpful to many middle-class families, said Brother William Rhody, director of education for the Minnesota Catholic Conference. "I'm doing cartwheels over the whole thing," he exulted. "The principle involved here is very important to us."

Mr. Mueller, the lead plaintiff, contended that the timing of the Eighth Circuit's decision "is very bad, because Reagan has announced plans, and efforts do exist, to provide [tuition tax] credits on the federal level."

Judge Lay's opinion for the Eighth Circuit also noted that the decision may be of national import, but at least one constitutional scholar who has followed the issue is less certain.

One reason is that, while several states and school districts provide transportation and textbooks to private-school students, Minnesota is the only state that extends tax benefits for the purpose of private-school tuition.

Furthermore, said Edward M. Gaffney, a professor of constitutional law at the University of Notre Dame, even a Supreme Court decision resolving the conflict between the First and Eighth Circuits would not necessarily indicate the Court's position on the federal tuition tax credit recently proposed by President Reagan.

"Everybody quotes Nyquist as though the case were closed, and it's not," contended Mr. Gaffney, who believes that tax credits are constitutional. "Certainly in Nyquist the Court left the door open."

The Supreme Court might also react quite differently to a federal statute than to similar state laws, he said.

'Different Weight'

"I think a federal tax credit would come before the Court in a different posture again because an act of Congress coming before the Court has a different weight from an act of a state legislature," he said, adding that the Court "rarely second-guesses Congress" on matters involving taxation.

"I could never predict what this Court's going to do," Mr. Gaffney said. "If there's a clear conflict in the circuits, then it's probable that the Supreme Court would resolve the conflict. On the other hand, they might say, 'It's a hot potato right now; the President has just spoken about it. Let's wait a year or two and see what Congress says.' They may leave it alone without reviewing it."

Austin Wehrwein, a correspondent in Minneapolis, also contributed to this report.

Vol. 01, Issue 33

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