New Hampshire Legislators Wrestle with Constitutionality of Tax-Credit Scholarships

Published March 30, 2012

The New Hampshire Senate on March 21 passed a bill that would create a statewide education tax-credit scholarship program.

Senate Bill 372 would allow nonprofit organizations to collect corporate donations for scholarships worth up to $2,500 so students from low- and middle-income families could attend the public or private school of their choice. Home-schooled students would be eligible for scholarships worth $625 for educational expenses.

Businesses would receive 85 percent of their donation amount as a credit against their tax liability. New Hampshire has no personal income or sales tax.

“Education tax credits enable more choices for parents, putting accountability for education directly in their hands,” said bill sponsor Sen. Jim Forsythe (R-Strafford).

Want Religious Schools Excluded
Critics contend the program would be unconstitutional for allowing tax deductible contributions to fund private schools.

“The New Hampshire constitution on taxes is unique,” said University of New Hampshire law professor Marcus Hurn. Since it bans public support for religious schools, he said, the state cannot allow tax credits that might help fund them, even indirectly.

Research by the Concord-based Josiah Bartlett Center, however, found similar tax-credit scholarship programs in other states have withstood legal challenges. The proposed program “is constitutionally tested, fiscally prudent, and a remarkably powerful tool to improve public education in New Hampshire,” said Barlett Center President Charlie Arlinghaus.

States, Courts Settle Doubts
Arizona became the first state to enact a tax-credit scholarship program in 1997. Since then, nine additional programs have been enacted across the country, benefitting approximately 82,000 students nationwide.

As in New Hampshire, the constitutions of 15 states with private-school choice programs contain prohibitions against public support for religious schools. Courts have upheld these programs because the monies supplied come from individuals or businesses, not state governments.

“If we start to question whether or not a tax credit is government money,” said Forsythe, “all of a sudden we’re looking at donations to charities, donations to church would be subject to that kind of scrutiny.”

A U.S. Supreme Court decision last April agreed with Forsythe’s reasoning. In that case, opponents of Arizona’s tax-credit scholarships insisted private donations are actually government funds because donors were paying state taxes to nonprofit organizations instead of government.

The court ruled in Arizona Christian School Tuition Organization v. Winn that this position “assumes that all income is government property, even if it has not come into the tax collector’s hands.  That premise finds no basis in standing jurisprudence.”

Year’s ‘Most Important Bill’
The Senate passed the bill 15-9. It is currently awaiting review from the Senate Finance Committee.

“This is the most important bill the legislature will pass this year,” said Arlinghaus. “[It] encourages businesses to use private dollars to support families searching for the right school for their children.”


Image by J. Stephen Conn.