Tax-Credit-Funded Programs

Institute for Justice Spearheads Legal Defense of Tax Credit Scholarships

In tax credit scholarship programs, the state provides tax credits to businesses and individuals who donate to scholarship-granting organizations. These organizations, which are usually nonprofits, then award scholarships to parents. In other words, by letting businesses and individuals reduce their annual tax liability through donations to a scholarship organization, the state encourages citizens to support school choice.

  • The Institute for Justice has intervened in nine lawsuits to protect tax-credit scholarships in court, including a case that prevailed at the U.S. Supreme Court.
  • In 2015, we won an 8-1 decision at the Alabama Supreme Court, giving students the chance to enroll in better performing public or private schools. On behalf of three Montana moms, IJ sued the state for adopting a rule that denies educational choice to the overwhelming majority of eligible families under Montana’s new scholarship program.
  • Across the nation, nearly 220,000 students in 16 states benefit from a tax credit scholarship.

In addition to traditional tax-credit scholarships, some states are considering refundable tax credits, which combine elements of publicly-funded scholarships and tax credits. Under this program, a tax credit can be given directly to parents to assist with tuition costs, and parents will receive money directly from the state if these costs are greater than their tax liability. Through the end of 2014, only Alabama has enacted this form of school choice. The Institute for Justice is defending the program in court.

The U.S. Supreme Court has limited opponents’ ability to challenge tax-credit scholarships as constitutional. In Arizona Christian School Tuition Organization v. Winn, the Court ruled that the plaintiffs did not have standing and dismissed a lawsuit attacking Arizona’s successful and popular private school scholarship tax-credit program. That 2011 decision protects these programs from many federal court challenges. School choice opponents, though, are now relying on provisions in state constitutions in their attempts to thwart parents’ rights to choose. With our wide-ranging litigation and legislative consulting efforts, IJ is dedicated to upholding school choice across the country.

Recent Cases

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