Tax Credits for Contributions to Student Scholarship Organizations

All students between the ages of 5 and 18 in Montana are eligible. SSOs are permitted to create their own eligibility guidelines and priorities for awarding limited scholarships. Limitations are widely based on prior public-school attendance, eligibility to enter kindergarten, and household income. _(Last updated July 15, 2024)_

Donations to SSOs provide eligible students with the opportunity to attend participating nonpublic schools with tuition scholarships _(Last updated July 15, 2024)_

Private donors fund this program by donating to SSOs and receiving tax credits for their donation, up to certain limits. Scholarship amounts are determined by SSOs. The maximum scholarship is 100% of the average per-pupil expenditure for the second most recently completed fiscal year. Total credits claimed cannot exceed $5 million, meaning roughly 2,300 students can participate, or about 1% of Montana’s K–12 student population. Each taxpayer individual or business can donate and receive up to $200,000 in tax credits. Married taxpayers filing jointly may take a tax credit of up to $400,000. The credit is available on a first-come, first-served basis. The credit is not refundable but can be carried forward for up to three years. Beginning in 2025, if 80% of the previous year’s aggregate limit of credits is claimed, the credit threshold increases by 20%. If the threshold is not hit, the limit remains the same. In 2024, the program maxed out the $5 million cap. For the 2025 tax year, the program limit will increase by 20% to $6 million. _(Last updated July 15, 2024)_

This program was the subject of three different lawsuits which ultimately upheld the program as written by the Legislature. Most notably, on June 30, 2020, the U.S. Supreme Court in _Espinoza v. Montana Department of Revenue_ ruled in favor of parents seeking the right to choose religious schools for their children participating in Montana’s tax credit scholarship program, overturning a prior decision of the Montana Supreme Court striking down the program. The U.S. Supreme Court held that Montana’s Supreme Court erred in applying their state constitution’s no-aid provision (AKA Blaine Amendment restricting state funding of religious entities) to the tax credit scholarship program. The case began in 2015 when Montana parents sued the Montana Department of Revenue for imposing a regulation on the program that prohibited parents from choosing a religious school for their children using tax credit scholarship funding. The trial court ruled in favor of the parents, finding the Department of Revenue had made a mistake of law and thus the Blaine Amendment could only apply to appropriations, not tax credits. On December 12, 2018, the Montana Supreme Court overruled the lower court. _Espinoza v. Montana Dept of Revenue_ , 2018 MT 306. The Court found that the department of revenue exceeded its authority by adopting a rule to exclude religious schools but reasoned that Montana’s constitutional provision restricting state aid to sectarian schools is permissibly broader than the federal constitution, and therefore, did not give deference to the U.S. Supreme Court decision upholding the constitutionality of tax-credit scholarship programs in _ACSTO v. Winn_ (see ARIZONA). The U.S. Supreme Court agreed to take the case in June 2019. The Question Presented to the Court: “Does it violate the Religion Clauses or Equal Protection Clause of the United States Constitution to invalidate a generally available and religiously neutral student-aid program simply because the program affords students the choice of attending religious schools?” Answer: yes. The Court opined that if a state adopts a school choice program, it cannot block a parent from using funding from the program to access “some private schools solely because they are religious.” The Court stated further, “That ‘supreme law of the land’ condemns discrimination against religious schools and the families whose children attend them.” _Espinoza v. Mont. Dep’t of Revenue_ , 140 S.Ct. 2246, 207 L.ED.2d 679 (2020). While _Espinoza v. Montana Dept of Revenue_ (above) was being actively litigated, on December 7, 2018, the U.S. Court of Appeals for the Ninth Circuit in _Armstrong v. Kadas_ dismissed a case brought by the Association of Christian Schools International (which included ten religiously affiliated member schools in Montana), who were challenging Montana’s regulation prohibiting religious school participation in its tax-credit scholarship program. The Court concluded that the comity doctrine applied; a case alleging that a state benefits program is unconstitutional should first proceed in state court. The Court therefore found no need to rule on whether the Tax Injunction Act also barred the Association’s claims from federal court. _Armstrong v. Kadas_ , No. 16-35422 (9th Cir. 2019). Also, while _Espinoza v. Montana Dept of Revenue_ (above) was being actively litigated, on June 26, 2017, the Montana Quality Education Coalition (MQEC) (composed of public school superintendents, MT Federation of Public Employees, and several school administrative associations) filed _MQEC v. State of Montana_ , alleging that Montana’s tax-credit scholarship program violates the state constitution. After one of MQEC’s primary claims against the program was denied by the U.S. Supreme Court in _Espinoza_ , on September 2, 2020, MQEC filed an amended complaint withdrawing that claim; the state filed a response on September 21, 2020. The case did not move until May 31, 2022, when MQEC filed a motion for summary judgment and the state filed a cross-motion for summary judgment on June 24, 2022. The questions remaining in this case after Espinoza were, a) whether MQEC has standing to sue, and b) whether tax credits are appropriations. On December 8, 2022, the Montana First Judicial District Court, Lewis and Clark County, held in _MQEC v. State of Montana_ that Montana’s tax-credit scholarship program does not violate the state constitution’s prohibition against appropriations for educational purposes to any entity not under control of the state. The Court held that tax credits decrease funds entering the general fund; these funds never reach the state treasury, so there can be no appropriation. Therefore, this provision of the state constitution does not apply. Tax credits are not appropriations. _MQEC v. State of Montana_ , MT First Judicial District Court, Cause No. ADV-2017-487. _(Last updated July 15, 2024)_