Education Funding

Court Takes Ariz. Tax-Credit Case

By Caroline Hendrie — October 08, 2003 2 min read

In a move of potential significance in the national debate over public funding for religious education, the U.S. Supreme Court agreed last week to accept an appeal arising from a constitutional challenge to an Arizona law that offers tax credits for donations to scholarship funds for private schools.

Four Arizona taxpayers sued the state over the 1997 law, which lets individuals claim state income-tax credits of up to $500 a year by contributing to organizations that provide tuition scholarships for religious and other private K-12 schools. The suit contends that the law violates the First Amendment’s prohibition against a government establishment of religion.

A U.S. District Court judge in Phoenix threw out the case on jurisdictional grounds, determining that state court systems are the proper place for such fights over state taxes. That ruling was overturned on appeal, however, and now the question before the nation’s highest court in Hibbs v. Winn (Case No. 02-1809) is not whether the tax-credit law is itself constitutional, but whether the opponents can properly challenge it in federal court.

Joining Arizona in arguing that the plaintiffs should be shown the door are 25 other states, which filed a friend-of-the-court brief urging the high court to overturn an October 2002 ruling of the U.S. Court of Appeals for the 9th Circuit, in San Francisco.

“We think that the case is very important to all the states because it is a states-rights issue involving challenges to state taxes,” said Joseph Kanefield, a special assistant attorney general who is handling the case for Arizona. “We think it’s good policy for those challenges to be heard in state courts, not in the federal courts.”

But a lawyer representing the law’s challengers said the state is trying to protect itself by twisting the meaning of a Depression-era federal law known as the Tax Injunction Act. At the heart of the appeal before the high court is how to interpret that 1937 law, which says federal courts cannot “enjoin, suspend, or restrain the assessment, levy, or collection of any tax under state law,” as long as “a plain, speedy, and efficient remedy may be had” in that state’s courts.

“Congress did not intend the Tax Injunction Act to apply to a situation like this, where the issue is the establishment clause [of the First Amendment] and giving tax credits that benefit religious institutions,” said Marvin S. Cohen, the plaintiffs’ lawyer, who is based in Scottsdale, Ariz.

In an earlier challenge to the program, the Arizona Supreme Court ruled in 1999 that it did not violate state or federal constitutional provisions against government aid to religion.

Advocates of the tax credits are hopeful that the Supreme Court will put an end to the protracted litigation, and thus encourage lawmakers elsewhere to replicate the program. The justices agreed on Sept. 30 to accept the case, and arguments are expected early next year.

Arizona is among three states that offer some form of tax breaks for donations to groups that provide tuition scholarships for K-12 students. State records show that 50,191 Arizona taxpayers claimed credits totaling more than $25 million last year, with donations going to dozens of scholarship organizations.

The leading recipient was the Catholic Tuition Organization of the Roman Catholic Diocese of Phoenix, which was the beneficiary of tax credits worth more than $7.2 million, records show.

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