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High Court to Weigh Arizona Tuition Tax Credits

The U.S. Supreme Court today agreed to weigh the constitutionality of a 13-year-old Arizona program offering tax credits for donations made to organizations that provide scholarships for children to attend private schools.

A federal appeals court ruled last year that Arizona's tax credit program impermissibly advances religion in violation of the First Amendment's prohibition against any government establishment of religion. It found that the majority of those scholarships go to students attending religious schools, and that some of the "school tuition organizations," or STOs, restrict their scholarships to that purpose.

"We conclude that the plaintiffs' complaint ... sufficiently alleges that Arizona's tax-credit funded scholarship program lacks religious neutrality and true private choice in making scholarships available to parents," a three-judge panel of the U.S, Court of Appeals for the 9th Circuit, in San Francisco, said in its April 2009 opinion.

The court said the program could be distinguished from the Ohio private school voucher program, which was upheld by the U.S. Supreme Court in 2002 in Zelman v. Simmons-Harris.

The full 9th Circuit court declined to rehear the Arizona case, although eight members of the court dissented last October. U.S. Circuit Judge Diarmuid F. O'Scannlain said in dissent, "The panel's holding casts a pall over comparable educational tax-credit-schemes in states across the nation."

The state of Arizona and two groups that provide scholarships under the program appealed to the U.S. Supreme Court, which granted two of the three petitions for review—Arizona Christian School Tuition Organization v. Winn (Case No. 09-987) and Garriott v. Winn (No. 09-991). (The court left the third appeal aside for now.)

The appeal from the state points out that the program was enacted in 1997 and has been upheld under the federal constitution by the Arizona Supreme Court. Taxpayers can receive a dollar-for-dollar credit of up to $500 (or $1,000 for married couples) for donations to school tuition organizations. The school tuition organizations 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 groups do.

The appeal by the Arizona Christian School Tuition Organization argues that under the tax-credit program, "the private choices of taxpayers, the STOs, and parents direct tuition funds to students. The taxpayer chooses to donate or not, and if he donates, to which STO. The privately formed, non-profit STOs raise money to award scholarships to schools of their choice."

Eight states filed a friend-of-court brief on the side of Arizona urging the justices to take the case, arguing that the 9th Circuit panel's ruling raises doubts about tuition tax credits elsewhere.

A brief filed on behalf of the taxpayers who challenged the tax credits argues that the Arizona program uniquely relies on religious organizations to award most of the scholarships, and it permits those organizations to require parents to enroll their children in religious schools.

"The Arizona program is neither based on financial or academic need nor neutral with respect to religion," said the taxpayers' brief. "Instead, it awards most of its scholarships to the children of middle-class and wealthy parents on the basis of religion."

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