The Montana Revenue Department's Misguided Notion about Tax Credits and Religious Schools

The Montana Legislature recently enacted a state tax credit for donations to charitable organizations that provide scholarships for students attending private schools (including, on equal terms, religious schools). When taxpayers have objected that such a programs "aids religion," a number of state courts have rejected that assertion on the merits, most notably the Arizona Supreme Court in Kotterman v. Killian, 972 P.2d 606 (Ariz. 1999). And the U.S. Supreme Court held that taxpayers lacked standing in federal court to challenge Arizona's program under the Establishment Clause (Arizona Christian Sch. Tuition Org. v. Winn, 131 S. Ct. 1436 (2011)).

Unfortunately, as Religion Clause recently reported, the Montana Department of Revenue (charged with enforcing the statute) has promulgated a rule excluding the use of tax credits to support donations for students who use them at "sectarian" schools. The Department has the misguided notion that this program is prohibited by the Montana Constitution's ban on "any direct or indirect appropriation or payment from any public fund or monies ... to aid any [school] controlled in whole or part by any, church, sect, or denomination." Mont. Const. Art. X, sec. 6. This is a particularly egregious example of the use of a state "Blaine Amendment" to discriminate against families who choose religious schooling for their children, and against donors who want to support that choice. (As we've noted here recently, the Supreme Court is considering important certiorari petitions challenging the application of Colorado Blaine's Amendment to discriminate against religious choices in education.)

Several parents, represented by the Institute for Justice, have filed suit against the new rule. During the agency process preceding the final promulgation of the rule, the Religious Liberty Appellate Clinic at St. Thomas, which I direct, drafted comments (here) filed by the Christian Legal Society and the Lutheran Church--Missouri Synod. We pointed out a bunch of things, with lots of supporting authority: that a tax credit is not an appropriation or payment, that the credits aid families rather than religious schools as such, and that such discrimination against religious choices is contrary to basic First Amendment principles. One sample bit (emphasis added):

Indeed, excluding religious organizations from this credit would a fortiori require excluding them from tax exemptions and from deductions for charitable contributions, since those exemptions are not separated by the additional steps present here: donation to an SSO that funds a scholarship that assists a parent who chooses a school that may or may not be religious. To find an unconstitutional connection in the House-that-Jack-built sequence of actions here would have intolerable consequences, “endanger[ing] the legislative scheme of taxation.” Toney, 744 N.E.2d at 357. The Montana Constitution, and thus the tax-credit statute, provides no authority for the Department to take this step.    

Thanks to UST Law student Jennifer Tripp for her drafting work on the comments.