Montana Supreme Court Strikes Down Scholarship Tax Credit Program

Andrew Wimer
Andrew Wimer · December 12, 2018

Helena, Mont.—Today, by a 5 to 2 vote, the Montana State Supreme Court reversed a lower court to declare that the state’s scholarship tax credit program is unconstitutional. This marks the first time that a state supreme court has struck down such a program.

The program provides scholarships to needy families to attend the private school of their choice. The Montana Supreme Court reasoned that because families may choose religious schools, the program violates the state Constitution. The Institute for Justice (IJ) and three Montana families are fighting to protect the program and will appeal the decision to the U.S. Supreme Court.

One of the Montana families in the lawsuit is the Espinozas. Kendra Espinoza is a single mom who struggles to pay tuition for her two daughters to attend a Christian school. Now because of the Supreme Court ruling, Kendra’s daughters will be unable to receive scholarships.

“This is not the result we expected from the state Supreme Court. The Court’s ruling discriminates against religious families and every Montana child who is counting on these scholarships,” said Kendra. “For the benefit of families across the state, and the nation, we will appeal to the U.S. Supreme Court to right this wrong.”

The educational choice program was enacted in May 2015 after the Montana Legislature decided that all parents should have the opportunity to choose their children’s schools, regardless of the size of their bank account. The program provides a modest tax credit (up to $150 annually) to individuals and businesses that donate to private scholarship organizations. Those scholarship organizations can then use the donations to give scholarships to families who want to send their children to private schools—regardless of whether they are religious or nonreligious.

Shortly after the program was enacted, however, the Department of Revenue enacted a rule preventing families attending religious schools from receiving scholarships. The Department claimed it had the authority to enact its rule under the Montana Constitution Article X, Section 6(1), which prevents the state from appropriating public funds to aid religious schools. But, as the families argued, the scholarships aid children, not schools. In addition, courts across the country have been clear that tax-credit-eligible donations are not public funds. Instead, tax credits merely allow taxpayers to keep more of their own money.

The Montana Supreme Court disagreed. It decided that the tax-credited donations were public funds, and that these funds could not be used to help children attend religious schools. The Court also found that since the Legislature had intended both religious and nonreligious students to benefit from the program, the entire program was invalid. As a result, no Montana child will be able to receive scholarships under the ruling.

“This decision takes scholarships away from needy families across the state,” said Erica Smith, an IJ attorney. “Not only is the Court misinterpreting the Montana Constitution, but it is ignoring important provisions in the federal Constitution. The U.S. Supreme Court has been clear that the First Amendment of the U.S. Constitution prevents the government from discriminating against religious individuals in awarding public benefits. We plan to immediately appeal.”

The U.S. Supreme Court has jurisdiction to hear appeals from state supreme courts when the case involves a question of federal constitutional law.

Currently, 28 states and the District of Columbia have school choice programs. All of these programs allow parents to freely choose the school of their choice, regardless of whether it is religious or secular. IJ has successfully defended numerous school choice programs, including twice at the U.S. Supreme Court. It currently has school choice cases pending in Washington, Maine and Florida.