Supreme Court decision is an important victory for school choice

April 06, 2011 | By PACIFIC LEGAL FOUNDATION

Author: Joshua Thompson

As initially blogged about on Monday, the Supreme Court issued its decision in Arizona Christian School Tuition Organization v. Winn this week. And, upon closer inspection, my initial hesitation to claim a full victory for school choice proponents was not warranted.  By narrowing the availability of taxpayer standing claims, the Supreme Court has de facto shielded tax credit programs, like the one in Arizona, from constitutional challenge. I'll explain how this all works after the jump.

To understand the Supreme Court's ruling, it is important to understand how the Arizona Statute works. Arizona allows School Tuition Organizations (STOs) to incorporate. In order to qualify as a STO, it must give 90% of its revenue to students in the form of tuition payments to attend "any qualified school of their parents choice." There are both secular and sectarian STOs. Anyone can donate to a STO. Moreover, and here is where the alleged Establishment Clause violation occurs, individual taxpayers can donate up to $500 (or $1000 for a married couple) to a STO and reduce the amount owed on their state income taxes by the amount of their donation.

An example should help illustrate how the statute works. Imagine you are an Arizona taxpayer and you get your tax bill saying you owe the State of Arizona $1500 in income taxes. You can either pay your full $1500 tax liability to the state of Arizona or choose to only pay the State $1000 and donate the other $500 to a STO of your choice, secular or sectarian. These Organizations can in turn restrict their scholarships to students to use at religious schools. Plaintiffs alleged that by allowing money to go to religious schools, money that would otherwise go to the state in the form of an income tax payment, the state was respecting an establishment of religion in violation of the Establishment Clause.

Plaintiffs alleged that they were harmed, as taxpayers, because tax dollars were going, in part, to fund sectarian activity. The alleged injury stems from an exception to the general prohibition against taxpayer standing first enunciated by the Warren Court in a 1968 decision called Flast v. Cohen. In Flast, taxpayers have standing when two conditions are met. First, there must be a logical link between the plaintiffs’s taxpayer status and the type of legislative enactment attacked. Second, there must be a nexus between the plaintiff’s taxpayer status and the precise nature of the constitutional infringement alleged.

In a 5-4 decision (split along traditional lines) the Court held that the Flast exception did not apply to tax credit schemes like the one in Arizona.   In an opinion authored by Justice Kennedy, the Court held that a "tax credit" is substantively different from a "governmental expenditure." The Court explained that an objecting taxpayer who has paid money into the state, knows that her specific dollars have been "extracted and spent" in furtherance of an establishment of religion. Conversely, with respect to a tax credit, that same taxpayer cannot claim that any of her tax dollars have been used for that purpose. In sum, there is no connection between the dissenting taxpayer and the establishment of religion.

The Court noted that when Arizona taxpayers contribute to STOs, whether secular or sectarian, they are contributing their own money, not money of the state. The plaintiffs, instead of suing, could simply choose not to fund religious STOs. Accordingly, pursuant to Flast, there is no governmental money that can be followed to sectarian causes. The Court noted that the "contrary position assumes that income should be treated as government property even if it has not come into the tax collector’s hands."

Justice Kagan wrote a stirring dissent, primarily chiding the majority for its understanding of how "tax credits" work.  Under Justice Kagan's view, a tax credit is properly characterized as a "tax expenditure," which are indistinguishable from other governmental expenditures i.e. the government is choosing to spend its money by giving it back in the form of a tax break.   Check back here for an additional follow-up on Justice Kagan's dissent. 

The Arizona Christian School case is rightly seen as a win for proponents of school choice. Tax credits schemes, like the one in Arizona, can no longer be challenged by taxpayers. Accordingly, so long as states do not favor a particular religion, or religion over non-religion, when creating individual tax credits, as the one in Arizona showed, school choice programs should be free from Establishment Clause suits.

More broadly, the language that is sure to be plucked from the majority opinion, and litigated by taxpayer plaintiffs going forward, is whether a governmental scheme has "extracted and spent" taxpayer dollars. If the money never reaches government coffers, the government has not extracted and spent tax dollars, and a plaintiff may not claim taxpayer standing to allege an Establishment Clause violation. Conversely, if the government spends tax dollars in the first instance, and then provides, for example, a tax rebate, it is likely that the Court would hold that a taxpayer would have standing to challenge the extraction and expenditure of tax dollars in violation of the Establishment Clause.

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