Tax Credit Triumph in Arizona

Published March 1, 1999

The school choice movement won another major victory when the Arizona Supreme Court upheld a 1997 state law that allows taxpayers to claim a state income tax credit of up to $500 a year for contributions to organizations offering scholarships at K-12 private schools.

Coming just seven months after the Wisconsin Supreme Court ruling upholding the Milwaukee Parental Choice Program, the Arizona decision further bolsters efforts to expand parental school choice to include private and religiously affiliated schools.

Opponents in Kotterman v. Killian, decided January 26, had argued that the tax credit law violated the state constitution and also the First Amendment’s guarantee of separation of church and state. The court rejected both arguments on a 3-2 vote. While the Arizona Constitution prohibits public funds in aid of religious schools, the court found that the tax credits are not public funds at all (see sidebar).

On the First Amendment challenge, the court ruled that the “primary beneficiaries of this credit are taxpayers who contribute to the [school tuition organizations], parents who might otherwise be deprived of an opportunity to make meaningful decisions about their children’s educations, and the children themselves.” Private schools are “at best only incidental beneficiaries.”

Writing for the majority, Chief Justice Thomas A. Zlaket ruled that the program’s “primary effect” is not to aid religion but to “encourage the development of educational settings that would invigorate learning, improve academic achievement, and provide additional choices to parents and children.” The credit, he wrote, is a “neutral adjustment mechanism for equalizing tax burdens and encouraging educational expenditures.”

Further, wrote Zlaket, there is no indication that the authors of the Arizona Constitution “intended to divorce completely any hint of religion from all conceivably state-related functions, nor would such a goal be realistically attainable in today’s world.”

“This decision is a triumph not only for Arizona schoolchildren, but for the school choice movement nationwide,” declared Clint Bolick, litigation director for the Washington, DC-based Institute for Justice. The institute argued the case in the Arizona Supreme Court on behalf of Superintendent of Public Instruction Lisa Graham Keegan, Jeff Flake of the Goldwater Institute, tax credit bill author Trent Franks, and several families who hope to receive scholarships for their children.

“The tax credit victory boosts growing efforts, such as those by CEO America, that provide scholarships to low-income children across America to attend private schools,” said the Institute for Justice’s president, Chip Mellor. In addition, he noted, much of the majority’s language would support a full-fledged school choice voucher program, such as that recently proposed by Keegan and Arizona Governor Jane Hull.

Hull praised the ruling, saying “we must allow parents to select the education environment they know will meet their children’s needs.” Keegan agreed, noting that Arizona–already with the nation’s largest charter school program–is becoming “more accepting” of allowing religious schools into the educational mix.

“Clearly this decision provides momentum for Arizona to continue down the path of expanding parental choice,” said Keegan, noting that education is improved for everyone when the funding follows the child.

As well as allowing taxpayers to reduce their tax liability by up to $500 for contributions to private scholarship programs, the law also permits a credit of up to $200 for contributions to public schools for extracurricular activities. That provision of the tax credit plan–which has generated hundreds of thousands of dollars for public schools–was not challenged by choice opponents, who included the Arizona Education Association, the American Civil Liberties Union, People for the American Way, and Americans United for Separation of Church and State.

In a ruling that could be enormously helpful in other states, the court determined that the state’s constitutional language prohibiting public funds “in aid” of religious schools is not a “Blaine amendment.” That amendment, found in many state constitutions, was “a clear manifestation of religious bigotry” with “insidious discriminatory intent,” said the court (see sidebar).

“The decision will resonate widely as a major First Amendment precedent,” declared Bolick, noting that the case is a prime candidate for review by the U.S. Supreme Court. The 40-page majority decision cites the Wisconsin Supreme Court’s ruling on the Milwaukee school choice program (Jackson v. Benson), as well as the U.S. Supreme Court’s decision in Mueller v. Allen upholding tax deductions for school expenses.

In a harshly worded 44-page dissent, Justice Stanley Feldman warned that, if the decision stands, “this state and every other will be able to use the taxing power to direct unrestricted aid to support religious instruction and observance, thus destroying any pretense of separation of church and state.”

But Zlaket got the last word. In a footnote in the majority opinion, he deftly skewered that argument, chiding Feldman’s dissent for presenting “so many” statements that “wrongly [give] the impression that private schools, rather than scholarship recipients, are the primary beneficiaries of contributions.”

No decision has yet been made regarding appeal of the decision to the U.S. Supreme Court, but Bolick expressed confidence that the Court would uphold parental autonomy and expanded educational opportunities. Other cases raising similar issues are pending before state supreme courts in Ohio, Vermont, and Maine (see related article).

George A. Clowes is managing editor of School Reform News.

For more information …

The full text of the decision in Kotterman v. Killian is available in Adobe Acrobat’s Portable Document File (pdf) format on the Arizona Supreme Court’s Web site at It also is available through PolicyBot. Point your Web browser to, click on the PolicyBot icon, and search for old documents #2187801 (majority opinion part 1, 20 pp.), #2187802 (majority opinion part 2, 20 pp.), #2187803 (dissent part 1, 22 pp.), and #2187804 (dissent part 2, 22 pp.).