Sunday, June 4, 2023 | Back issues
Courthouse News Service Courthouse News Service

Justices Mull Tax Credit|Use at Religious Schools

WASHINGTON (CN) - The Supreme Court appeared divided Wednesday on the constitutionality of Arizona tax credits for donations to student tuition organizations that award scholarships to certain religious schools.

Representing taxpayers, attorney Paul Bender said the tax credit, in place for 14 years, effectively used the state's money to discriminate on the basis of religion.

Acting Solicitor General Neal Katyal, arguing for Arizona, said the tax credit represented a private choice by a private individual akin to a charitable contribution.

Justice Elena Kagan questioned why Arizona chose such a complicated tax credit scheme as opposed to a voucher scheme, pointing out that the state would not be able to distribute vouchers on the basis of religion. She asked why, if the state could not discriminate under a voucher system, it could set up a scheme using student tuition organizations, or STOs, as intermediaries to discriminate on the basis of religion.

"They are entities that are set up solely for the purpose of administering this program, and yet the state is saying it can make distinctions that the state itself cannot," Kagan said.

Paula Bickett, Arizona's chief counsel for civil appeals, argued that the state was not making the distinction because anyone could set up an STO.

Justice Anthony Kennedy asked if an STO that discriminated on the basis of race would violate the Constitution.

Bickett said no, because STOs are private institutions, and it would only be unconstitutional if the discrimination were attributed to the state.

"Don't you think a strong argument can be made that it can be attributed to the state?" Kennedy asked, adding that the state set up the guidelines for STOs and the mechanism for the funding through the tax credit.

The justices debated whether the tax credit money belonged to the government or to the taxpayer.

"This money has never been in the government's coffers," Justice Antonin Scalia said. "It doesn't favor religion at all."

Bender argued that it was the state's money because it had to be paid by taxpayers, either to the government as income taxes or to an STO, not like a charitable contribution, which could stay in a taxpayer's pocket.

"I have some difficulty that any money the government doesn't take from me is still the government's money," Kennedy said, adding that he thought it would be offensive if a cashier honoring a senior citizen's discount card at a restaurant said, "and be careful how you spend my money."

Scalia pointed out that tax deductible donations to churches that discriminate on the basis of religion pose no constitutional problem.

"How is it discriminating on the basis of religion if the STOs, the government money, it doesn't care whether it goes to a religious school or not?" Chief Justice John Roberts asked.

Bender argued that an STO, as the state's grantee, was not allowed to distribute money on a discriminatory basis under the Constitution.

Scalia said it was the private taxpayer who decided which STO to give money to, and "there is no religious discrimination in that choice."

"What is unconstitutional here about the private decision to give a benefit to an organization that only supports particular schools, and indeed, only supports people of a particular religion to go to that school? I don't see any difference," Scalia said.

Bender said that tax credits, unlike charitable donations, came from income taxes owed to the government anyway.

"You can't keep it. It's not your money," Bender said.

He said the Arizona income tax form presents a person's income, tax rate and taxes due, and then allows for tax credit adjustments.

"That's the problem; they have to revise their form," Scalia said.

"This is a major lawsuit?" Justice Samuel Alito asked.

Justice Stephen Breyer asked about a hypothetical government program in which the government allowed tax credits to go to hospital organizations that distributed to Catholic, Jewish or secular hospitals.

Bender argued that, in the hypothetical, the patients would be the beneficiaries, and it would be unconstitutional for one of the hospitals to say it only treats Catholic cancer patients.

Under Arizona's scheme, Bender said, the beneficiaries are the parents, and STOs are a "conduit of government funds" to the parents. The Constitution requires that scholarships are made available to parents on a religiously neutral basis.

The justices chose to hear the case when Arizona appealed the 9th Circuit's April 2009 decision to reinstate the taxpayer challenge.

Read the Top 8

Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.